*1* kps IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SALES TAX REFERENCE NO.7/2003 IN REFERENCE APPLICATION NO.98 OF 2001. M/s Shree Ambika Trading Corporation. ..Applicant -Versus- The State of Maharashtra and others. ..Respondents ........... Mr.C.B.Thakar, for the Applicant. Mr.B.B.Sharma, AGP, for the Respondents. .......... CORAM : V.C.DAGA & K.K.TATED, JJ. Date : 25th February, 2010. JUDGMENT (Per K.K.Tated, J): 1 Heard the learned counsel for rival parties. 2 The Maharashtra Sales Tax Tribunal, Mumbai vide its order dated 21.06.2002 for the assessment year 1992-1993, in exercise of powers under Section 61 of the Bombay Sales Tax Act, 1959 (in short “BST Act, 1959) has referred the following questions of law for the opinion of this Court:- “(a) Whether on the facts and circumstances of the case and on true and correct interpretation of the provisions in section 55 of the Bombay Sales Tax Act, 1959, the Tribunal was justified in holding that the order passed by the appellate Deputy Commissioner levying for the first time the penalty *2* under Section 9(2A) of the Central Sales Tax Act, 1956 read with section 36(3)(d) of the Bombay Sales Tax Act, 1959 was passed in the second appeal in exercise of the powers under section 55 of the Bombay Sales Tax Act, 1959? (b) Whether, on the facts and circumstances of the case and on true and correct interpretation of section 36(3)(c) of the Bombay Sales Tax Act, 1959, the Tribunal was justified in holding that the order passed by the appellate Deputy Commissioner levying for the first time penalty under section 9(2A) of the Central Sales Tax Act, 1956 read with section 36(3)(d) of the Bombay Sales Tax Act, 1959 was not an original order passed in exercise of the powers under section 36 of the Bombay Sales Tax Act, 1959? (c) Whether on the facts and circumstances of the case and on true and correct interpretation of the provisions in the section 55 of the Bombay Sales Tax Act, 1959, the Tribunal was justified in holding the appeal against penalty levied for the first time by the appellate Deputy Commissioner, as a third appeal and in dismissing it on the ground of its being not maintainable?” 3 The statement of case sent by the Tribunal states that, the Applicant, who was appellant in Second Appeal No.159/2000 before the Tribunal is a dealer registered under the provisions of the BST Act, 1959 as well as the Central Sales Tax Act, 1956 (in short the CST Act, 1956). The Applicant was assessed for the financial year 1992-1993 by virtue of the assessment order dated 30.03.1996 passed by the Sales Tax Officer. In the said assessment order, the Assessing Authority had inter-alia levied interest under Section 9(2) of the CST Act, 1956 read with Section 36(3)(b) of *3* the BST Act, 1959 at Rs.4,60,774/-. Disputing inter-alia, levy of interest, the Applicant filed an appeal against the said assessment order before the Assistant Commissioner of Sales Tax (Appeals). On the basis of the C-Forms produced in the first appeal proceedings, the first appellate authority i.e. Assistant Commissioner of Sales Tax reduced the tax liability, as also the quantum of interest. Accordingly, the interest amount was reduced from Rs.4,60,774/- to Rs.87,151/-. Against the said interest amount retained at Rs. 87,151/-, the Applicant filed second appeal before the Deputy Commissioner (Appeals), Mumbai. It was contended before the Deputy Commissioner that the said interest is not legally leviable in view of the Apex Court’s judgment in case of M/s India Carbon Ltd. Vs. State of Assam reported in (1997) 6 SCC 479 /(106 STC 460). This contention was accepted by the Deputy Commissioner. However, while deleting the interest, the Deputy Commissioner replaced it with equivalent amount of penalty under Section 9(2A) of the CST Act, 1956 read with Section 36(3)(d) of the BST Act, 1959. 4 The Applicant, against this order levying penalty by the Deputy Commissioner, filed the appeal before the Maharashtra Sales Tax Tribunal, Mumbai which was registered as Second Appeal No.159/2000. The said appeal was decided by the Tribunal by the *4* judgment dated 31.01.2001. The preliminary objection raised by the Revenue regarding maintainability of the appeal was upheld by the Tribunal holding that the penalty levied by the appellate Deputy Commissioner was not an original order, but was an order passed in the second appeal, in exercise of the powers under Section 55 of the BST Act, 1959 as such third appeal cannot legally lie against such order passed in the second appeal. Thus, by the judgment and order dated 31.01.2001 the said appeal was dismissed by the Tribunal on the ground of tenability. Against this judgment, the Applicant has filed the Reference Application, which was allowed and the above referred questions of law were referred for the opinion of this Court. 5 Mr.Thakar, learned counsel appearing for the Applicant, submitted that an action of the Deputy Commissioner of Sales Tax (Appeals) levying penalty for the first time in appeal is without jurisdiction. According to him, the appellate powers contained in Section 55(6) of the BST Act, 1959 empowers the Appellate Authority either to cancel or enhance or reduce the interest but there is no power to levy any fresh penalty. In his submission, levy of penalty for the first time while deciding the appeal under Section 55(6)(b) is without jurisdiction. He submitted that the Appellate Authority did not have powers to impose such penalty. He placed *5* reliance on Section 55(6)(b) of the BST Act, 1959. 6 Per contra, Mr.Sharma, learned AGP appearing for the Respondents urged that the Sales Tax Officer by Assessment Order dated 30.03.1996 for the financial year 01.04.1992 to 31.03.1993, inter-alia, levied interest on the Applicant-Assessee under Section 9(2) of the CST, 1956 read with Section 36(3)(b) of the BST Act, 1959. He further submitted that the first Appellate Order dated 30.08.1997 passed by the Assistant Commissioner of Sales Tax, granted some reliefs to the Applicant-Assessee and reduced the amount of tax liability and on reduced liability levied interest under Section 9(2) of the CST Act, 1956 r/w Section 36(3)(b) of the BST Act, 1959. 7 The learned AGP submitted that the Applicant-Assessee filed a Second Appeal before the Deputy Commissioner of Sales Tax against the levy of interest on the Central Sales Tax in view of the judgment in the matter of India Carbon (supra). The second Appellate Authority upheld the Assessee’s contention that interest cannot be levied on the Central Sales Tax in view of the judgment in M/s India Carbon Ltd. Vs. State of Assam reported in (1997) 6 SCC 479 = 106 STC 460. 8 The learned AGP further submitted that for want of permission in the Central Act, during the pendency of the *6* Applicant’s second appeal before the Deputy Commissioner of Sales Tax, the BST Act, 1959 was amended by an Ordinance No.11 of 1999 promulgated on 06.02.1999 and Section 36(3)(d) was inserted with effect from 21.04.1987. The said Ordinance was converted into the Maharashtra Tax Laws (Levy Amendment and Validation) Act, 1999 (Act No.XVII of 1999) dated 30.03.1999. By this amendment for the first time substantive penalty is levied with retrospective effect. He submitted that although the word “interest” was not expressly appearing in Section 9(2) or Section 9(2-A) as held in the judgment of India Carbon (supra), the word “penalty” has always been there. He submitted that the amendment in the BST Act, 1959 is regulatory/ procedural in nature enabling the local authority to assess and collect the penalty. He further submitted that the penalty provision was already existing and it is not correct to say that the Applicant was not aware that the penalty can be levied under Section 9. He also submitted that in view of the said amendment in BST Act, 1959 with retrospective effect, there was a failure on the part of the authorities to exercise jurisdiction by not levying the penalty. Therefore, to correct the said illegality and in the interest of Revenue, the second Appellate Authority exercised its jurisdiction and levied the penalty by converting the interest amount into penalty and the same was done by issuing the *7* show-cause notice to the Applicant-Assessee and after hearing him the order in second appeal as required was passed. 9 The learned AGP further submitted that Section 55 of the BST Act, 1959 deals with Appeals. Sub-section (2) of Section 55 provides that in the case of an order passed in appeal by the Assistant Commissioner or by the Deputy Commissioner, a second appeal shall lie at the option of the Appellant therein either to the Commissioner or to the Tribunal. He submitted that in the instant case, the Applicant-Assessee opted to appeal to the Commissioner and the appeal was heard by the Deputy Commissioner of Sales Tax exercising the powers of the Commissioner under Section 20(5) of the BST Act, 1959. He further submitted that sub-section (3) of Section 55 provides that every order passed in appeal under this section shall be final subject to the provisions of Section 57 (Revision), Section 61 (Reference) and Section 62 (Rectification of mistakes). He, therefore, submitted that the order passed by the Deputy Commissioner in second appeal has become final under the BST Act, 1959. The right of appeal is a creation of statute and the said appeal, having been heard and disposed of in accordance with statute, the order passed therein has achieved finality. He further submitted that sub-section (6) of Section 55 provides that the Appellate Authority both in first appeal and the second appeal shall *8* have the powers as set out in sub-clauses (a), (b) and (c). 10 The learned AGP further submitted that the Commissioner’s powers in appeal are plenary in nature and are co- terminus with the Assessing Officer. Once an order is in appeal before the Appellate Authority, it is the entire order that is open to scrutiny in appeal irrespective of the fact that the Appellant therein may have appealed only in respect of a part of the order. He submitted that the Commissioner’s power in appeal are not determined by or restricted to only those aspect of the order against which the Assessee has chosen to file appeal. The Appellate Authority is competent to look into the entire order and if it finds that the order suffers from any illegality/infirmity it can correct the same even if the Assessee may not have appealed against such illegality. He submitted that the nature of tax appeal is different than an appeal in a civil suit. In support of this submission, he placed reliance on the judgment in case of State of Tamil Nadu Vs. Arulmurugan and Company (1982) 51 STC 381 (Mad), wherein the Full Bench of the Madras High Court observed as under:- “Appellate Authority under the taxing enactments sits in appeal only in a manner of speaking. What it does, functionally, is only to adjust the assessment of the appellant in accordance with the facts on the record and in accordance with the law laid down by the legislature. An appeal is a continuation of the process of assessment, and an assessment is but *9* another name for adjustment of the tax liability to accord with the taxable event n the particular tax- payer’s case. There can be no analogy or parallel between a tax appeal and an appeal, say, in civil cases. A civil appeal, like a law suit in the court of first instance out of which it arises, is really and truly an adversary proceeding, that is to say, a controversy or tussle over mutual rights and obligations between contesting litigants ranged against each other as opponents. A tax appeal is quite different. Even as the assessing Authority is not the tax-payer’s “opponent”, in the strictly procedural sense of the term, so too the appellate authority sitting in appeal over the assessing authority’s order of assessment is not strictly an arbitral tribunal deciding a contested issue issue between two litigants ranged on opposite sides. In a tax appeal, the appellate authority is very much committed to the assessment process. The appellate authority can itself enter the arena of assessment, either by pursuing further investigation, or causing further investigation to be done. It can do so on its own initiative, without being prodded by any of the parties. It can enhance the assessment, taking advantage of the opportunity afforded by the tax- payer’s appeal, even though the appeal itself has been mooted only with a view to a reduction in the assessment. These are special and exceptional attributes of the jurisdiction of a tax appellate authority is not different, functionally and substantially, from the assessing authority itself.” 11 The learned AGP further submitted that there is no provision in the BST Act, 1959 for the Sales Tax Department to appeal before the Commissioner. Therefore, if the Commissioner in appeal finds that tax, interest or penalty is not levied, in the interest of revenue, he can correct the same subject to issuing show cause *10* notice to the Assessee and after affording him an opportunity of hearing him as provided in the Act. 12 In support of his contentions about the powers of the Appellate Authority, the learned AGP placed reliance on the judgment of this Court in the case of M/s Indoswe Engineers (P) Ltd. Vs. State of Maharashtra, reported in 101 STC 177. He also pressed into service another judgment in the case of Ranchhoddas Bhaichand Vs. Commissioner of Sales Tax, Maharashtra State, reported in (1996) 101 STC 218 in support of his submission. The learned AGP strongly relied upon the judgment of the Apex Court in case of Balaji Rice Mills Vs. State of Karnataka, reported in 2005 (4) SCC 21. 13 Having heard both parties in the present case, it is an admitted position that Section 36(3)(d) was inserted in BST Act, 1959 by an Ordinance No.II/1999 dated 06.02.1999 w.e.f. 21.04.1987 and the said Ordinance was converted into the Maharashtra Tax Laws (Levy Amendment and Validation) Act, 1999. 14 It is an admitted fact that initially the Applicant/Assessee was assessed under the CST Act, 1956 for the financial year 1992-1993 by the Sales Tax Officer. In the said assessment order, the tax demand was raised because of the non *11* production of certain declaration forms and short fall in excess adjustment from the BST Act, 1959. On the differential tax dues so raised, interest u/s 9(2) of the CST Act, 1956 r/w Section 36(3)(b) of the BST Act, 1959 was levied, however, no penalty under Section 36(3)(d) of the BST Act, 1959 r/w Section 9(2) of the CST Act, 1956 was levied. For the first time, at appellate stage, the Deputy Commissioner of Sales Tax (Appeals) levied the penalty vide order dated 04.12.1999 on the Applicant under Section 9(2) of the CST Act, 1956 r/w Section 36(3)(d) of the BST Act, 1959. 15 In the matter of Deputy Commissioner of Commercial Taxes, Madurai Vs. K.M.Thomas & Company, 31 STC 529 (Madras) and in case of Khemchand Rajkumar Vs. State of Tamil Nadu, 1974 (33) STC 78, it has been held that the assessment proceedings and the penalty proceedings are distinct and different, therefore, if no penalty is levied in the order of assessment, then legally there is no “order” imposing penalty. In the absence of an order imposing penalty, the Revisional Authority cannot in exercise of its power of suo-motu revision impose penalty for the first time. 16 In the present case, admittedly, penalty was not levied initially at the time of passing the assessment order but the same was levied by the Deputy Commissioner of Sales Tax (Appeals) in the second appeal. Plain reading of Section 55(6)(b) of the BST *12* Act, 1959 shows that the Appellate Authority may confirm or cancel the order against which the appeal is preferred or vary it so as to either enhance or to reduce the penalty. Section 55(6)(b) of the BST Act, 1959 reads as under:- “(b) In an appeal against an order imposing a penalty, the appellate authority may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty;” 17 The Apex Court in the matter of Food Corporation of India vs. Commissioner of Sales Tax, M.P. reported in (1998) 109 STC 0131 held that at appellate stage the authority cannot impose penalty for the first time in the course of proceedings unless and until there is specific provision to that effect. Paragraph No.4 of the said judgment reads thus:- “4. It is clear that the power under Section 38(5) is to confirm, reduce, enhance or annual a penalty. It can only if a penalty has already been imposed by the assessing authority. Section 43 gives an additional power to the Commissioner or the appellate authority. It is to impose a penalty for the first time in the course of proceedings under the said Act, if satisfied that a dealer has deliberately concealed his turnover or furnished a false return, and he is obliged to give the dealer a reasonable opportunity of being heard before imposing it.” In the above judgment it has been held by the Apex Court that while exercising the appellate powers, the appellate authority has no jurisdiction to impose penalty for the first time *13* unless there is a specific power conferred on the appellate authority in that behalf. In the case in hand and the enactment with which we are dealing, no such specific power in favour of the appellate authority exists. 18 On the above factual as well as legal scenario, we are of the opinion that the Deputy Commissioner of Sales Tax (Appeals) erred in levying the penalty for the first time in appeal. 19 The order passed by the Deputy Commissioner of Sales Tax (Appeals) dated 04.12.1999 imposing penalty on the Applicant for the first time in exercise of appellate powers is erroneous and without authority of law. For the reasons recorded, first two questions are answered in favour of the Applicant and against the Revenue. So far as third question is concerned, the appeal was very much tenable against the order imposing penalty for the first time. The Reference, accordingly, stands disposed of with no order as to costs. (K.K.TATED, J.) (V.C.DAGA, J.)