IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No 3891 of 1997 with SPECIAL CIVIL APPLICATION Nos. 3892 of 1997, 3893 of 1997 For Approval and Signature: Hon'ble MR.JUSTICE A.R.DAVE and Hon'ble MR.JUSTICE K.M.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals? -------------------------------------------------------------- FAG PRECISION BEARINGS LTD Versus SALES TAX OFFICER (ENFORCEMENT) -------------------------------------------------------------- Appearance: 1. Special Civil Application No. 3891 of 1997 MR KH KAJI for Petitioner No. 1 MR. SUDHIR MEHTA, AGP, for Respondent No. 1-3 -------------------------------------------------------------- CORAM : MR.JUSTICE A.R.DAVE and MR.JUSTICE K.M.MEHTA Date of decision: 27/02/2003 C.A.V. JUDGEMENT (Per : MR.JUSTICE K.M.MEHTA) 1. FAG Precision Bearings Ltd.-petitioner has filed this petition being Special Civil Application 3891 of 1997 under Articles 226 and 227 of the Constitution of India with a prayer that this court may issue appropriate writ, direction or order quashing and setting aside notices dated 17.2.1997 and consequent orders dated 17.3.1997 passed by the Deputy Commissioner of Sales Tax under Section 42(1) of the Gujarat Sales Tax Act, 1969 (hereinafter referred to as "Local Act") read with Rule 37A of the Gujarat Sales Tax Rules, 1970 (hereinafter referred to as "GST Rules"). The petitioner has further prayed that assessment orders for the period 1.9.1976 to 31.8.1980 be quashed and further prayed to restrain permanently respondent No. 1, The Sales Tax Officer (Enforcement), Baroda and respondent No. 3, The Sales Tax Officer, Division 2, Baroda, from passing any assessment orders against the petitioner for the period 1.9.1976 to 31.12.1984 as the same are time barred. The petitioner has further prayed to restrain respondent Nos. 1 and 3 from raising any consequential demand of tax and direct the respondents to refund to the petitioner the sales tax collected by them or if it is paid by the petitioner along with return as per the direction of the Supreme Court of India along with interest at the rate of 24% per annum from the respective dates of payment till the date of refund. 2. The facts giving rise to this petition are as under: 2.1 FAG Precision Bearings Limited, Baroda, petitioner, is a company having its registered office at Bombay and its head office and factory at Baroda. It is registered as a dealer under the Central Sales Tax Act, 1969 (hereinafter referred to as "the Central Act") as well as the Local Act. The petitioner sells its goods within and outside the State of Gujarat. It has branch offices at various places in India. At places where the petitioner has branch offices, the petitioner despatches goods to its branch offices from time to time and the said branch offices subsequently sell the goods in the State in which they are located. The said sales effected by the branch offices are subjected to local sales tax by the States, wherein the branch offices are located. In respect of sales effected directly by the petitioner in other States, the petitioner pays sales tax under the Central Act. It is subjected to tax under the Local Act in respect of the sales effected by it within the State of Gujarat. 2.1A Along with Special Civil Application No. 3891 of 1997, Special Civil Application Nos. 3892 of 1997 and 2893 of 1997 were heard as they raise common question of law in this behalf. However, we narrate the facts of Special Civil Application No. 3891 of 1997 for the sake of convenience. 2.2 Before we appreciate the controversy raised in this petition, the learned counsel for the petitioner has invited our attention to the provisions of the Local Act. Local Act is an Act to consolidate and amend the law relating to the levy of a tax on the sale or purchase of certain goods in the State of Gujarat. Section 2 of the Local Act provides for definition. Section 2(10) defines the term "dealer" so as to mean any person who buys or sells goods in connection with his business and includes other persons stated therein. Section 2(25) of the Local Act provides for "registered dealer" so as to mean a dealer registered under the provisions of the Act. Section 2(28) of the Local Act provides for the term "Sale" which means a sale of goods made within the State for cash or deferred payment or other valuable consideration including certain other aspects in the said definition. Section 3 of the Local Act provides for "incidence of tax" which is a charging section under the provisions of the Act. Chapter V of the Local Act provides for declarations, returns, assessments, payments, penalty, recovery and refund of tax etc. Section 40 provides for declaration and returns to be filed under the provisions of the Act. Section 41 provides for assessment of taxes. The said Section provides for power to the Commissioner and pass assessment order based upon the reasons to be recorded in writing regarding tax due from any dealer during the year in question. Section 41 provides various contingencies where assessment has to be filed. Section 42 provides for time limit for completion of assessment. Section 42 of the Local Act reads as under: "42(1) No order of assessment for a year commencing on the 1st day of April, 1998, or part of such year or any year thereafter or part of such year shall be made under sub-section (3) or (4) of Section 41 at any time after the expiry of three years from the end of the year in which the last monthly, quarterly or, as the case may be, annual return is filed. (2) Where the Commissioner issues a notice under sub-section (6) of Section 41, to any dealer for assessment of tax in respect of any period, no order of assessment shall be made for such part of the period, if any, as is prior to - (a) a period of eight years ending on the last date of the year immediately preceding the year in which such notice is issued, in a case where the Commissioner has reason to believe that such dealer has failed to apply for registration with intention to defraud Government revenue; and (b) a period of four years ending on the last date as aforesaid, in any other case. Provided that for the purpose of this section if it is considered necessary so to do, the State Government may, subject to such conditions as it may deem fit, and the Commissioner may, subject to such conditions as may be prescribed by a general or special order, extend, either generally or specially, the period specified in sub-section (1): Provided further that where a fresh assessment is required to be made in pursuance of any order under Section 65, 67 or 69 or in pursuance of any order of any court or authority, such fresh assessment shall be made at any time within three years from the date of such order: Provided also that in computing the period of limitation for the purpose of this section, any period by which the period of limitation is extended under the first proviso or any period during which assessment proceedings are stayed by an order or injunction of any court or authority shall be excluded." 2.3 Section 44 of the Local Act provides for reassessment of turnover escaping assessment. 2.3A Government of Gujarat also enacted Rules called Gujarat Sales Tax Rules, 1970. Rule 37A of the Gujarat Sales Tax Rules, 1970 reads as under: "37-A Conditions subject to which Commissioner may grant extension - Conditions subject to which the Commissioner may, under the first proviso to sub-section (1) of Section 42 extend the assessment proceedings of a dealer or a class of dealers, shall be as follows, namely: (1) no assessment proceeding shall be extended by the Commissioner for a period more than five years at any time. (2) the Commissioner shall reduce in writing the reasons and circumstances necessitating extension of any proceedings in respect of a dealer or a class of dealers." 2.4 The learned counsel for the petitioner has contended that for assessment period 1.9.1976 to 31.8.1984, the second respondent i.e. the Dy. Commissioner of Sales Tax, Baroda, passed various orders from time to time purporting to extend time for making assessment under the Local Act which Act provided time limit of three years upto 31.3.1979 and later on for two years for completing assessment. The said extension orders were passed by the second respondent under Section 42(1) of the Local Act read with Rule 37A of the GST Rules. The ground given for extension was thus: "Since some more time will be taken and assessment proceedings are not likely to be completed within the prescribed time, and the assessment for the period 1.9.1976 to 31.8.1984 for the assessee cannot be completed within time limit prescribed under Section 42(1) of the Local Act, it was considered proper to stay the assessment in the case of the said assessee upto 31.8.1988 and in this respect show cause notice was given vide letter dated Nil as to the period of assessment should not be extended." 2.5 The assessee made representation against the said show cause notice. After the representation of the assessee, the Deputy Commissioner of Sales Tax was pleased to pass the following order: "I under the authority conferred on me under Section 9(2) of the Central Sales Tax Act, 1956, read with Rule 37A of the Gujarat Sales Tax Rules, 1969, hereby order that the assessment in respect of M/s. Precision Bearings India Limited, Baroda, who is registered vide registration No. 40602801/Guj 9 B 81 under Local-Central Sales Tax Acts and who is under the jurisdiction of Sales Tax Officer (1) Div. (6) Enforcement, Baroda for the period 1.9.1976 to 31.8.1984 be stayed upto 31.8.1988." 2.6 Being aggrieved and dissatisfied with the said action, the petitioner filed Special Civil Application No. 5343 of 1987. 2.7 The said petition was heard by a Division Bench of this court (Coram: G.T. Nanavati, J (as he was then) and Y.B. Bhatt, J) on February 12/13, 1992. The said decision is reported in (1993) 90 STC 294. The Division Bench, after considering various contentions raised by the learned counsel for the petitioner and the learned counsel for the Revenue, dismissed the petition of the petitioner. 2.8 Being aggrieved and dissatisfied with the aforesaid judgement of this court, the petitioner filed appeal before the Hon'ble Supreme Court. It may be noted that during the pendency of the petition before the High Court there was stay of assessment for the period covered by the said order. However, when Special Leave to appeal was granted by the Supreme Court, stay was refused. Consequently, assessment orders were passed against the assessee for some years within the period 1.9.1976 to 31.12.1984 both under the Central Act and Local Act. 2.9 The Hon'ble Supreme Court in the case of FAG PRECISION BEARINGS VS. SALES TAX OFFICER (I) AND ANOTHER reported in (1996) 104 STC 143 reversed the decision of this court and allowed the appeal of the assessee. The Hon'ble Supreme Court however considered Section 42 of the Gujarat Sales Tax Act and Rule 37A of GST Rules and observed on page 147 as follows: "...... We cannot accept this as a good reason. The aforestated power to stay assessment proceedings can be exercised only in extraordinary circumstances and for supervening reasons which cannot be attributed to the default or failure of the assessing authorities. It would be a valid exercise of the power to stay assessment proceedings of a class of assessees, for example, when a point of law involved in such assessments is pending decision in a higher court. It would be a valid exercise of such power in an individual case where, for example, search and seizure of the assessee's premises has unearthed material which requires to be sifted and analysed before a satisfactory assessment order can be passed. It is not enough that the order should state, as has been done in the present case, that the assessment proceedings were pending and would take "some more time". Under the terms of rule 37A, the Commissioner is required to put in writing the "reasons and circumstances" that necessitate the stay of proceedings. The stay of assessment proceedings has consequences of a civil nature upon an assessee, which the High Court has, as aforesaid, noted. The more the time that elapses the more difficult it is for the assessee to prove his accounts and claim set off, exemptions and the like. We take the view that, in the circumstances, the power under rule 37-A may not be exercised by the Commissioner without first giving to the assessee notice to show cause why his assessment proceedings should not be stayed for a stated period. The notice should set out what the reasons and circumstances are which, according to the Commissioner, necessitate such stay so that the assessee has the opportunity of meeting the same. This is a requirement of natural justice that, having regard to the scope of rule 37-A, requires to be read into it. xxxxxxxxxx In the premises, the impugned order must be set aside. Consequently, all proceedings taken and assessment orders passed on the strength thereof must also be set aside. The Commissioner of Sales Tax shall be entitled, if so advised, to issue to the appellant a notice to show cause why assessments for the period 1st September, 1976 to 31st August, 1984, should not be stayed for a stated period for the reasons and in the circumstances to be set out therein, and he may proceed thereafter in the manner laid down above. This notice he must issue, if so minded, within 16 weeks. If this is not done within 16 weeks, all amounts collected as and by way of sales tax for the period 1st September, 1976 to 31st March, 1984, shall forthwith be refunded to the appellant." 2.10 Learned counsel for the petitioner submitted that in view of the judgement of the Hon'ble Supreme Court, even the assessments which were made during the pendency of the appeal before the Hon'ble Supreme Court, are also required to be quashed and set aside. He submitted that the assessment orders passed for assessment years 1.9.1976 to 31.8.1984 were set aside. However, the Hon'ble Supreme Court has permitted the respondent to issue a fresh notice to the appellant, if so advised, to show why assessments for the period 1.9.1976 to 31.8.1984 should not be stayed for a stated period for the reasons and in the circumstances to be set out therein and he may proceed in the manner laid down in the judgement provided that such notice is issued within a period of 16 weeks from the date of the order. The Hon'ble Supreme Court further directed that the amounts collected by way of sales tax for the period 1.9.1976 to 31.3.1984 be refunded to the petitioner. 2.11 Pursuant to the aforesaid judgement of the Hon'ble Supreme Court, the Deputy Commissioner of Sales Tax, second respondent, issued various notice dated 17.2.1997 for the period 1.9.1976 to 31.12.1984 calling upon the petitioner to show cause as to why extension should not be made for passing assessment orders upto various dates mentioned in the said notices. In the show cause notices it was stated that whether the transactions which were entered into by the petitioner are inter State sales or branch transfers and the authority has to consider this aspect, hence the assessment proceedings ought to have been extended upto 31.12.1994. If the assessee has any objection, the assessee can file reply to the said show cause notice. 2.12 The assessee filed reply dated 3.3.1997. In the reply the assessee/petitioner contended that the said show cause notices were invalid and without jurisdiction for the reasons given in the reply to show cause notices that the petitioner had shown in the periodical returns large number of consignment of branch transfer transactions as it was necessary to scrutinise whether the said transactions were inter-State or branch transfers it was necessary to extend time limit for making assessments. 2.13 It is the case of the petitioner that as per the judgement of the Hon'ble Supreme Court the said assessment orders passed for the period 1.9.1976 to 31.8.1980 have been set aside. For the remaining period 1.9.1980 to 31.12.1984 no assessment orders were passed. 2.14 The petitioner stated that the reasons given in the show cause notices were not valid or justifiable reasons as per the ratio of the decision of the Hon'ble Supreme Court in the petitioner's own case which required that (i) there should be extraordinary circumstances; (ii) supervening reasons which could not be attributed to the default or failure of the assessing authorities. The petitioner in the reply submitted that the books of accounts and all other records for the period 1.9.1976to 31.8.1980 were already with the Department for last 13 years as they were seized by the Sales Tax authorities. The petitioner for the reasons set out in the reply contended that the show cause notices were illegal, without jurisdiction and contrary to the ratio of the judgement of the Hon'ble Apex Court. 2.15 The second respondent by his order dated 17.3.1997 rejected all the contentions of the petitioner and passed orders under Section 42(1) of the Local Act extending time for making assessment as per the various show cause notices. In the said order the second respondent i.e. the Deputy Commissioner of Sales Tax, Baroda, gave the following reasons: (i) As per the judgement of the Supreme Court we are giving an opportunity of hearing to the dealer. (ii) as per the judgement of this Court in the case of Prabhat Solvent which is under Section 42 of the Local Act, time limit is not over and there is already matter pending in the court and as per the judgement in the case of Prabhat Solvent, assessment proceedings 1980 to 1993 is to be stayed which is legal and valid. (iii) In the case of the petitioner whether the transactions were inter State sales or branch transfers will have to be considered. 2.16 Being aggrieved and dissatisfied with the said order of the Deputy Commissioner of Sales Tax, the petitioner has filed this petition under Articles 226 of the Constitution of India. 3. Mr. K.H. Kaji, learned counsel for the petitioner has raised the following contentions. (i) The reason for extending the time for scrutinizing whether the consignment transactions were inter State sales or consignment transactions were required to be scrutinised, is not a valid ground for seeking extension of time as the default is solely attributable to the failure of assessing authorities to scrutinise the records which are already with them for some of the years of relevant period for the last several years. It was submitted that similar ground has not been approved by the Supreme Court in the aforesaid judgement. Thus no extraordinary circumstances have been pointed out or made out for extending the time for making the assessment. (ii) The petitioner has never delayed or evaded reply to any letter or supplying any material asked for by the Department at any time. (iii) The notices issued for various periods are contrary to Section 42(1) proviso and Rule 37A as the said Rule does not permit any such extension as sought to be made. (iv) The judgement of the Supreme court did not grant blanket permission to the second respondent to extend time as it has clarified that the Deputy Commissioner shall be entitled to issue a show cause notice, "if so advised" which showed that any fresh show cause notice could only be issued if it could otherwise be issued for the reasons which would be justifiable on the ratio of the Supreme Court judgement. 3.1 The learned senior counsel for the petitioner has submitted that the reasons given by the Deputy Commissioner of Sales Tax for staying the assessments are almost identical in all matters. Identical notices have also been issued to the petitioner and orders have been passed accordingly. The said reasons are contrary to the ratio of the judgement of the Hon'ble Supreme Court in the petitioner's own case and therefore the orders of the Deputy Commissioner of Sales Tax are illegal and bad in law. He has further invited our attention to the relevant provisions of the Act and also judgement of the Hon'ble Supreme Court as well as this court and the relevant paragraphs have been extracted earlier. According to the learned counsel for the petitioner the reasons given by the Deputy Commissioner of Sales Tax are not in consonance with the judgement of the Hon'ble Apex Court. Therefore, the orders are required to be quashed and set aside and the petition is to be allowed. 3.2 The learned counsel for the petitioner has further relied on the decision of a Division Bench of this court in the case of GUJARAT STEEL TUBES LTD. V. SALES TAX OFFICER reported in (1998) 110 STC 401 in which on page 404 at paragraphs 6 and 7 it is observed as follows: "Para 6 - In the instant case, as the record stands, there were only two orders issued purporting to stay the proceedings for the years 1983-84 and years 1982 to 1985................... Both these orders, in our opinion, do not give any reason, much less any cogent reason, for staying the assessment proceedings. They vaguely mention about assumption of consent on the part of the assessee for waiving the show cause notice. Both the orders are printed orders with some blanks, which are filled in and even the mention about assumption of consent of the assessee appears in the printed matter. When the respondent-authority was required to give a show cause notice under rule 37A of the said Rules before making any order staying the proceedings, we fail to understand as to how and in what manner an assumption about the consent of an assessee could be made in absence of any positive consent being given by the assessee. We do not find any contemporaneous record to indicate that any consent was given by the assessee. We are, therefore, not prepared to accept the stand reflected in the orders that the proceedings were stayed on the basis of the consent of the assessee. Mere pendency of the assessment proceedings cannot itself be a ground for staying the proceedings, as held by the Supreme Court in FAG PRECISION BEARINGS V. SALES TAX OFFICER (I) (1997) 104 STC 143. The power to stay the proceedings can be exercised only in extraordinary circumstances and for supervening reasons, which cannot be attributed to the default or failure of the assessment officers and it would not be a good or sufficient reason just to say that since the proceedings are pending, stay is being granted. Para 7 - It is not disputed that no notice under rule 37A of the said Rules was issued in respect of the years in question for which the assessment would have been time barred to show cause as to why the proceedings should not be stayed. We are also satisfied that the two stay orders which are at annexure "A" collectively, do not record any valid reason as contemplated by rule 37A of the Rules. Therefore, these two stay orders cannot be sustained and will not have the effect of extending the period of limitation for making the assessment orders." 3.3 The learned counsel for the petitioner has relied on another judgement of a Division Bench of this court in the case of JAVER JIVAN MEHTA V. ASST. COMMISSIONER OF SALES TAX reported in (1998)