* THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE SANJAY KUMAR + WRIT PETITION No.21875 of 2011 % 30.12.2011 Between: M/s.City Tex Private Limited, A2, Bharati Apartments, P&T Colony, Vijayawada, Krishna District, represented by its Managing Director M.Surendra Babu, S/o.Venkaiah … Petitioner and The Commercial Tax Officer, Auto Nagar, Vijayawada, Krishna District and another ... Respondents ! Counsel for the petitioner: Sri G.Narendra Chetty ^ Counsel for the Respondents: The Special Standing Counsel for Commercial Taxes < Gist: > Head Note: ? Citations 1. AIR 1955 SC 661 2. (2005) 1 SCC 754 3. (2005) 2 SCC 638 4. AIR 1966 SC 719 5. (1996) 6 SCC 185 6. (2000) 2 SCC 699 7. (2004) 6 SCC 59 8. AIR 1958 SC 555 9. AIR 1997 SC 1006 : (1997) 1 SCC 373 10. (2011) 53 APSTJ 1 11. AIR 2001 SC 886 12. AIR 1992 SC 1846 13. (1997) 1 SCC 373 14. (2007) 2 SCC 230 15. AIR 1945 PC 48 THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE SANJAY KUMAR WRIT PETITION No.21875 of 2011 December 30, 2011 Between: M/s.City Tex Private Limited, A2, Bharati Apartments, P&T Colony, Vijayawada, Krishna District, represented by its Managing Director M.Surendra Babu, S/o.Venkaiah ... Petitioner And The Commercial Tax Officer, Auto Nagar, Vijayawada, Krishna District and another … Respondents THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE SANJAY KUMAR WRIT PETITION No.21875 of 2011 ORDER: (Per Hon’ble Sri Justice V.V.S. Rao) The petitioner company is engaged in the business of manufacture of cotton terry toweling fabrics. It is registered on the rolls of the first respondent under the Andhra Pradesh Value Added Tax Act, 2005 (the VAT Act). For the year 2006-2007, the petitioner filed returns in VAT Form 200 disclosing purchases, sales and input tax credit availed and output tax payable. The petitioner claims that he is entitled for tax refund of Rs.4,09,427/-. The returns under Central Sales Tax Act, 1956 (CST Act) were also filed in CST VI Forms for 2006-07 disclosing export sales of terry towels, taxable at zero rate. They claimed exemption of interstate sales as falling under Entry 45 of I Schedule to the VAT Act. In pursuance of authorization issued by the second respondent, the Deputy Commercial Tax Officer (DCTO), Benz Circle, Vijayawada, conducted audit of the accounts of the petitioner on 20.01.2009 for the periods from 01.04.2006 to 30.11.2008. By order dated 27.02.2009, the DCTO disallowed the input tax credit on the goods for which exemption was claimed and by applying formula AXB/C as per Rule 20 of the Andhra Pradesh Value Added Tax Rules, 2005 (the VAT Rules) disallowed the input tax credit for an amount of Rs.2,73,966/-. Thereafter, in exercise of powers under Section 32 of the VAT Act, the second respondent issued a show cause notice proposing to revise the order of the DCTO, dated 27.02.2009. He proposed to levy tax on the sales turnover of cotton terry toweling fabrics on the premise that the petitioner claimed exemption on the sales turnover on the terry towels in the guise of terry toweling fabrics. The petitioner submitted objections to the show cause notice on 23.06.2010. While the matter is pending, at that stage, the first respondent issued show cause notice dated 23.11.2009 under CST Act for the year 2006-07; petitioner filed objections on 16.12.2009 and thereafter first respondent passed the assessment order dated 30.03.2011 demanding Rs.1,97,065/- towards CST duly giving credit to the tax paid. Assailing the same, the dealer has filed the instant writ petition. It is contended by the dealer that the impugned order dated 30.03.2011 was served on the petitioner on 29.06.2011 and that the same is antedated. The impugned order is beyond the period of limitation prescribed under Section 21(3) of the VAT Act and it was passed only to deny the refund claim made by the petitioner. It is further contended that the first respondent did not establish the fact that the petitioner sold the cotton terry towels in the guise of cotton terry toweling fabrics and the fabrics sold by the petitioner falls under Entry 45 of I Schedule to the VAT Act and therefore exempted from VAT. The order was passed without verifying the record and without considering the issues raised by the petitioner. The impugned order is contrary to the circular issued by the Commissioner of Commercial Taxes, whereunder the interstate sales of textiles will be treated as exempted under the VAT Act even if the buying dealers are not able to produce “C” Forms. At the state of admission itself, the first respondent has filed counter affidavit opposing the writ petition. It is submitted that the petitioner has effective alternative remedy and the writ petition is filed without availing the remedy which is not maintainable. The first respondent would further submit that the petitioner claimed exemption for the goods “cotton terry toweling fabrics” falling under Entry 45 of the I Schedule to the VAT Act and also on the input tax credit on the purchase of value of the cone cotton yarn (raw material) purchased within the State from the registered dealers. They also claimed refund of tax in VAT 200 return filed for the month of March, 2009. During the audit, it was noticed that the assessment for the year 2006-2007 under the CST Act was not finalized. Therefore, a show cause notice was issued on 23.06.2010 proposing to levy tax @ 10% on the interstate sales turnover of cotton terry towels treating the goods as falling under Entry 52 of the IV Schedule to the VAT Act. The petitioner submitted objections. Duly considering all the objections, the first respondent passed orders raising demand for CST of Rs.1,97,065/-. The petitioner is neither registered with the Central Excise and Customs Department nor has paid additional excise duty to claim exemption under the VAT Act. Entry 52 originally read as “Readymade Garments”. By G.O.Ms.No.1564, dated 17.08.2005, it was amended with effect from 18.08.2005 to read as “Readymade garments, bed sheets, pillow covers, towels, blankets, travelling rugs, curtains, crochet laces, zari, embroidery articles (and all other made ups)”. The bracketed portion was omitted with effect from 01.03.2009 and the items “Bed sheets, pillow covers, towels, blankets, travelling rugs, curtains, crochet, zari and embroidery articles” were omitted with effect from 01.05.2009 and no tax was levied from that day. The first respondent would further submit that after audit, the DCTO finalized the assessment on 20.09.2006; the petitioner paid the tax and penalty determined by the authority and therefore he cannot raise any objection if assessment under CST Act for 2005-2006 is undertaken by the first respondent. The petitioner accepted the assessment under the VAT Act and therefore he cannot question the assessment under the CST Act. As per Rule 14-A(8)(b) of the Central Sales Tax (Andhra Pradesh) Rules, 1957 (the State Rules), the assessment can be made within a period of four years from the expiry of the year to which the turnover relates, if the whole or any part of the turnover has escaped or under-assessed in any year. Therefore the plea that the assessment is not barred by limitation cannot be accepted. The counsel for the petitioner and the Special Counsel for the Commercial Taxes have reiterated the submissions from their pleadings which are surmised supra. The background facts and submissions would give rise to two issues for consideration, namely, whether the impugned assessment is barred by limitation and whether the impugned assessment is in accordance with law. Question of Limitation Section 9(2) of the CST Act is to the effect that subject to provisions of the Act and Rules made thereunder the machinery and method of assessment of CST shall be in accordance with the provisions of general sales tax law of the State. Further, as per Rule 11 of the Central Sales Tax (Registration and Turnover) Rules, 1957 (the Central Rules), the period of turnover in relation to any dealer liable to pay Central Sales Tax shall be the same as the period in respect of which he is liable to submit returns under the State law. Under the Andhra Pradesh General Sales Tax Act, 1957 (the APGST Act) every registered dealer is required to submit returns relating to his turnover to the assessing authority on or before 7th day of March and 20th day of every other month along with a receipt from the Government Treasury or crossed demand draft in favour of the assessing authority for the full amount of taxes payable for the month to which the returns related under various charging Sections. Section 14 empowers the assessing authority to undertake assessment within a period of three years from the expiry of the year to which the assessment relates. Section 2(U) defines a year as to mean the 12 months ending 31st day of March. Thus, under the sales tax regime though a registered dealer is required to file monthly returns, the assessing authority can undertake annual assessment of tax on the basis of the return after giving an opportunity to the dealer. The assessment, however, shall have to be made within a period of three years from the expiry of the year to which the assessment relates. Section 14(4) of APGST Act, however, enables reassessment when it is found the dealer was assessed at a rate lower than the applicable rate or the turnover escaped assessment. The VAT Act came into force from 01.04.2005. Under Section 20 thereof read with Rule 23 of the Andhra Pradesh Value Added Tax Rules, 2005 (the VAT Rules), every registered VAT deader shall have to submit return along with proof of payment of tax within 20 days after the end of the tax period. Tax period is defined in Section 2(36) as to mean the calendar month or any other period prescribed. If a return is filed within the prescribed time, it shall be accepted as his assessment. But under Section 21, if the assessing authority is not satisfied, he shall assess the VAT within four years of due date of return or within four years of the date of filing of the return whichever is later. As Rule 23 read with Section 2(36) requires a VAT dealer to file return within 20 days after the end of the tax period, the assessing authority can undertake assessment within four years from the date of filing of the return or otherwise assessment would be barred subject however to Section 21(7) with which we are not concerned in this case. In exercise of the powers conferred under sub sections (3) (4) and (5) of Section 13 of the CST Act, the Governor of the State promulgated the Central Sales Tax (Andhra Pradesh) Rules, 1957 (the State Rules). Rule 14-A(1)(a), (5A) and (8) thereof are relevant and read as under. Rule (14-A)(1)(a):- Every dealer registered under Section of the Act and every dealer liable to pay tax under the Act shall submit so as to reach the assessing authority on or before the 20th of every month a return in Form CST VI showing the total and net turnover of his transactions including those in the course of inter-State trade or commerce (the total value of the goods transferred outside the State otherwise than as a result of sale and in the course of export of the goods out of the territory of India) during the preceding month and the amount or amounts collected by way of tax. The return shall be accompanied by a receipt from a Government treasury or (a crossed demand draft) in favour of the assessing authority for the full amount of the tax payable for the month to which the return relates. (Provided that where a dealer intends to pay the tax through a crossed cheque, the cheque should be sent so as to reach the assessing authority on or before the 15th day of the month succeeding the month to which the tax relates. (Provided further that a dealer who is not liable to pay tax under the Andhra Pradesh General Sales Tax Act, 1957 shall submit return for each quarter as shown below instead of each month. Quarter ending Due date for submission of the return 30th June On or before the 15th July 30th September On or before the 15th October 31st December On or before the 15th January 31st March On or before the 15th April (b) Along with the return mentioned in clause (a) of sub-rule (1) the dealer shall also, submit to the assessing authority- (i) the originals of the declarations in Form C, received by him from the dealers to whom he sold goods; (ii) the originals of the certificates in Form D, if any received by him in the case of sales to Government of India or to the Government of any State; (iii) the originals of lthe certificates in Form E-I or E- II, if any, received by him from the dealers from whom he purchased the goods, and (iv) the originals of the declarations in Form ‘F’ received by him from the transferee of the goods to whom he transferred goods otherwise than as a result of sale. (v) an extract of columns (5) to (13) of the register in Form CST IV maintained by him. (Sub Rules (2) and (3) omitted here as not relevant) Rule 14A (4) If no return is submitted for any month or quarter, as the case may be, before the due date or if the return submitted appears to be incorrect or incomplete, the assessing authority shall after making such enquiry as he considers necessary after giving the dealer an opportunity of proving the turnover to the best of his judgment, and provisionally assess the tax or taxes payable for the month or quarter, as the case may be and shall serve upon the dealer a notice in Form CST VII and the dealer shall pay the sum demanded at the time and in the manner specified in the notice. Provided that if for any reason the determination of provisional assessment of tax or taxes payable for any month or quarter is not completed on or before the receipt of the return for the succeeding month or quarter, as the case may be, the assessing authority may in his discretion provisionally assess in a single order the tax or taxes payable for all such months or quarters as the case may be and serve upon the dealer a notice in Form CST VII and the dealer shall pay the sum demanded within the time and in the manner specified in the notice. Rule 14A (4A) Omitted Rule 14A (5) If the return or returns are filed within the prescribed time by the dealer and such return or returns are found in order, the return or returns shall be accepted as self assessment, subject to adjustment of any arithmetical error, apparent on the face of the said return or returns. Rule 14(5-A): Every dealer shall be deemed to have been assessed to tax, based on the returns filed by him, if no assessment is made within a period of four years from the date of filing of the return. (Sub-rules (6) and (7) are omitted as not relevant) Rule 14(8): If, for any reasons, the whole or any part of the turnover of business of a dealer has escaped assessment to tax or has been under assessed in any years, the assessing authority may after issuing a notice to the dealer and after making such enquiry as he considered necessary determine to the best of his judgment the correct turnover, and assess the tax payable on such turnover- (a) In cases where an order of assessment or levy had been passed earlier, within a period of four years from the date on which such order was served on the dealer; (b) within a period of four years from the expiry of the year to which the turnover relates in other cases. Rule 14A (9) If, for any reason, any tax has been assessed at too low a rate in any year, the assessing authority may after issuing a notice to the dealer and after making such enquiry as he consider necessary revise the assessment within a period of four years from the date on which the order of assessment to be revised was served upon the dealer. Rule 14A (10) An assessing authority may, at any time within four years from the date of any order passed by him rectify any arithmetical mistake apparent from the record: Provided no such rectification, which has the effect of enhancing the assessment shall be made unless the assessing authority has given a notice to the dealer of the intention to do so and has allowed him a reasonable opportunity of being heard. Rule 14A (11) The powers conferred by sub-rules (8), (9) and (10) on the assessing authority may also be excised by the appellate or revising authority, subject to the same limitations and conditions as are applicable in the case of assessing authority. Unlike Section14(1) of the APGST Act and Section 20 of the VAT Act, the CST Act does not specifically prescribe any period of limitation for undertaking the assessment of CST payable by a registered dealer. As already noticed supra, by virtue of Section 9(2) of the CST Act all the provisions of the State law, relating to the sales tax would also apply to assessment of CST. Further the Central Rules also do not prescribe any period of limitation but Rule 11(1) thereof stipulates that the period of turnover in relation to any dealer liable to pay CST shall be the same as the period in respect of which he is liable to submit returns under the State law. The Central Rules have been made in exercise of the powers under Section 13(1) of the CST Act. Section 13(3) empowers the State Government to make Rules not inconsistent with the provisions of the CST Act and the Central Rules. As the CST Act or the Central Rules are silent with regard to the limitation, one has to look to the State Rules alone and there is no dispute that Rule 14A of the State Rules is comprehensive and deals with the obligation of a dealer to file returns, the assessment of such returns and the period during which the competent officer can undertake assessment. We have quoted Rule 14A of the State Rules extensively supra and we shall analyse the same hereinbelow. Every dealer shall submit the return in Form CST-VI so as to reach the assessing authority on or before 20th of every month along with a receipt from District Treasury or crossed demand draft for full payment of tax payable for the month to which the return declares. It has also to be accompanied by the originals of declarations in Form-C, the certificates in Form-D, Form-E1 or E2 and declarations in Form-F. As per sub-rule (5) read with sub-rule (5A) of Rule 14A of the State Rules, the return so filed within the prescribed period, if it is in order, shall be accepted as self-assessment and shall be deemed to have been assessed to tax. But within a period of four years from the date of filing of the return, the assessing officer can always undertake assessment even if it is deemed self- assessment. This is one situation that is contemplated by sub- rules (1), (4), (5) and (5A) of Rule 14A of the State Rules. The other situation arises when the dealer does not file return or files an incorrect return. Sub-rules (6) and (7) of Rule 14A deal with such a situation and enable the assessing authority to determine the turnover to best of judgment and finally assess in a single order the tax or taxes payable under the CST Act followed by the demand in Form CST-VII. Sub-rules (9), (10), (11) and (15) of Rule 14A deal with re-assessment by the same assessing authority, or ... modification by hierarchical superior authority or the Court subject to period of limitation as contained in sub-rules (9) and (15) of Rule 14A. Sub-rule (8) of Rule 14A of the State Rules specifically deals with the period of limitation for undertaking assessment when the turnover escaped assessment to tax in cases where assessment had already been made and also in cases where no assessment was made. Rule 14A (8)(a) of the State Rules deals with cases where assessment order had already been passed under sub-rule (6) read with sub-rule (7) of Rule 14A. Sub-rule (8) (b) thereof deals with, among others, cases where assessment orders were not passed earlier which only means those cases falling under sub-rules (5) and (5A) which speak of self- assessment and deemed assessment. The Counsel for the petitioner would strongly rely on sub- rule (5A) of Rule 14A in support of the plea that impugned assessment is barred by limitation. We are afraid we cannot accept the submission. In our opinion it only deals with deemed assessment and lays down that if no assessment is made within a period of four years from the date of filing of the return, such deemed assessment would be final. The period of limitation is specifically dealt with by sub-rule (8). If this construction is not adopted it would amount to giving extended meaning to legal fiction in sub-rule (5A) which is not permissible rule of interpretation. A legal fiction is a legislative device created for a specified and definite purpose of clarifying the context or a situation for the purpose of applicability or inapplicability or some times for enlarging the scope of the provision. It is not necessary to refer to the case law which is galore. Suffice to extract hereinbelow the passage from the recent Full Bench Judgment, dated 25.11.2011 of this Court to which both of us are members in State of A.P., v Seven Hills Constructions (TRC No.274 of 2001 and batch). A legal fiction is created only for some definite purpose. The fiction is to be limited to the purpose for which it was created, and should not be extended beyond that legitimate field. A legal fiction presupposes the existence of the state of facts which may not exist, and then works out the consequences which flow from that state of facts. Such consequences have got to be worked out only to their logical extent having due regard to the purpose for which the legal fiction has been created. Stretching the consequences beyond what logically follows amounts to an illegitimate extension of the purpose of the legal fiction. (Bengal Immunity Co. Ltd. v State of Bihar[1]; K.Prabhakaran v P. Jayarajan[2]). A legal fiction should not be extended beyond the language by which it is created. A deeming provision cannot be pushed too far so as to result in an anomalous or absurd position. (Maruti Udyog Ltd. v Ram Lal[3]) . The fiction enacted by the legislature must be restricted by the plain terms of the statute. (CIT v Shakuntala[4]; Mancheri Puthusseri Ahmed v Kuthiravattam Estate Receiver [5] ). The legal fiction is not to be extended beyond the purpose for which it is created, or beyond the language of the Section by which it is created. (State of Maharashtra v Laljit Rajshi Shah[6]; Mancheri Puthusseri Ahmed; State of W.B. v Sadan K. Bormal [7] ). A legal fiction cannot be extended by the court on analogy or by addition or deleting words not contemplated by the legislature. (Mancheri Puthusseri Ahmed). As long as assessment order is not made even in a case falling under Rule 14A (5) read with sub-rule (5A), an assessment can be undertaken by the assessing authority subject to Rule 14A(8) of the State Rules. The various sub-rules in Rule 14A have to be harmoniously read without causing harm to any of the sub- rules. If this is not adopted, it would result in clash between the two sub-rules, which the Court ought to avoid. If both of