Case: State of Madhya Pradesh and Others Vs. Shyama Charan Shukla

that the expression right to recover arrears of any tax or duty" covered not only tax which had already been assessed but also all those taxes which became due but remained to be assessed. This argument was not accepted by the High Court and was disposed of in the following manner"Before the assessment proceedings are completed and the final amount due is determined it cannot be said that any particular amount of tax is due against the assessee. So long as there is no such determination and no demand for payment of the tax is raised, it cannot be said that the assessee is in arrears of any taxes. This is so even where the assessee is required to pay the tax amount as per his own determination along with the returns submitted by him".In the opinion of the High Court under s. 78 the place of assessment of the tax must be the place which was included in the territories of the successor State. So long as the assessee was not registered as a dealer with reference to any particular place of business it could not be said that Katangjhiri in Balaghat district was the place of business with respect to the ore extracted from the mines in Nagpur and Bhandara districts. Registration certificate granted to the assessee in 1958 after the re-organisation of the States in which the place of business was shown at Katanjhiri could not be made use of as that certificate could have no relation to Nagpur and Bhandara districts which were no longer within the State of Madhya Pradesh on that date. Therefore the Sales tax Officer, Balaghat, had no jurisdiction to assess the: tax with respect to sales effected from the mines in Nagpur and Bhandara districts. As the assessment order was a composite order it was liable to be quashed as a whole."4. Part VII of the States Reorganisation Act 1956 relates to apportionment of assets and liabilities of certain Part A and-Part B States. Section 76 deals with land and goods, s. 77 with treasury and bank balances and s. 78 with arrears of taxes. It is unnecessary to refer to other sections in the Chapter except ss. 83 and 91. Section 83 provides, inter alia, that the liability of an existing State to refund any tax or duty other than that on property........ collected in excess shall be the liability of the successor State in whose territories the place of assessment of that tax or duty is included. Section 91 is the residuary provision. According to it the burden or benefit of assets and liabilities of an existing State not dealt within the foregoing provisions of Part VII has to pass in the manner indicated in clauses (a) and (b). Thus so far as taxes are concerned ss. 78 and 83 indicate that when the question is of any tax or duty other than that on property the right has been conferred and the liability imposed, in case of refund, on the successor State in whose territories the place of assessment of that tax or duty is included. Part VII in the States Re-organisation Act was intended to effectuate apportionment of assets and liabilities between the existing State and the successor State. .Existing State" was defined by s. 2 (g) to mean a State specified in the first schedule to the Constitution at the commencement of the Act of 1956. A "successor State" was defined by s. 2(o) to mean in relation to an existing State that State to which the whole or any part of the territories of that existing State was transferred by the provisions of Part II. It is difficult to give a narrow meaning to the word "arrears" in s. 78 in the manner done by the High Court. If the view of the High Court is to be accepted arrears of tax can refer to only that amount of tax which has been quantified after a proper assessment. This would lead to the result that where there has been no quantification or assessment order the position would be wholly uncertain and it would not be possible to say which State would be entitled to realise those taxes or duties. In other words, in the present case since the tax liability had not been determined or quantified there would be no arrears of tax and s. 78 will be inapplicable. In our judgment arrears should be given their proper meaning as understood in the ordinary sense of that word. According to the Websters New International Dictionary "arrears" means among other things "that which is behind in payment or which remains unpaid though due". The example given is of arrears of rent, wages or taxes. In Strouds Judicial Dictionary, third edition, it has been stated that the word "arrears" presupposes a time fixed for payment of a sum of money and the lapse of time thereafter without payment". It is a part of the general scheme of all sales tax laws that taxes become due the moment a dealer makes either purchases or sales which are subject to taxation and the obligation to pay the tax arises. Although the tax liability which comes into existence cannot be enforced till the quantification is effected by assessment proceedings the liability for payment of tax is independent of the assessment: (See Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income tax, Central Calcutta)([1972] 1 S.C.R. 277.). We have no doubt that the word "arrears" in respect of tax has been used in the sense of dues or what has become due by way of tax and that does not depend on assessment proceedings or quantification of the amount. We do not consider that the amounts due by way of tax are covered by the residuary provisions i.e. S. 91 of the Act of 1956.The High Court has disposed of the mater mainly on the interpretation of s. 78 of the Act of 1956 with which we are unable to agree.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]In the opinion of the High Court under s. 78 the place of assessment of the tax must be the place which was included in the territories of the successor State. So long as the assessee was not registered as a dealer with reference to any particular place of business it could not be said that Katangjhiri in Balaghat district was the place of business with respect to the ore extracted from the mines in Nagpur and Bhandara districts. Registration certificate granted to the assessee in 1958 after the re-organisation of the States in which the place of business was shown at Katanjhiri could not be made use of as that certificate could have no relation to Nagpur and Bhandara districts which were no longer within the State of Madhya Pradesh on that date. Therefore the Sales tax Officer, Balaghat, had no jurisdiction to assess the: tax with respect to sales effected from the mines in Nagpur and Bhandara districts. As the assessment order was a composite order it was liable to be quashed as aVII of the States Reorganisation Act 1956 relates to apportionment of assets and liabilities of certain Part A and-Part B States. Section 76 deals with land and goods, s. 77 with treasury and bank balances and s. 78 with arrears of taxes. It is unnecessary to refer to other sections in the Chapter except ss. 83 and 91. Section 83 provides, inter alia, that the liability of an existing State to refund any tax or duty other than that on property........ collected in excess shall be the liability of the successor State in whose territories the place of assessment of that tax or duty is included. Section 91 is the residuary provision. According to it the burden or benefit of assets and liabilities of an existing State not dealt within the foregoing provisions of Part VII has to pass in the manner indicated in clauses (a) and (b). Thus so far as taxes are concerned ss. 78 and 83 indicate that when the question is of any tax or duty other than that on property the right has been conferred and the liability imposed, in case of refund, on the successor State in whose territories the place of assessment of that tax or duty is included. Part VII in the States Re-organisation Act was intended to effectuate apportionment of assets and liabilities between the existing State and the successor State. .Existing State" was defined by s. 2 (g) to mean a State specified in the first schedule to the Constitution at the commencement of the Act of 1956. A "successor State" was defined by s. 2(o) to mean in relation to an existing State that State to which the whole or any part of the territories of that existing State was transferred by the provisions of Part II. It is difficult to give a narrow meaning to the word "arrears" in s. 78 in the manner done by the High Court. If the view of the High Court is to be accepted arrears of tax can refer to only that amount of tax which has been quantified after a proper assessment. This would lead to the result that where there has been no quantification or assessment order the position would be wholly uncertain and it would not be possible to say which State would be entitled to realise those taxes or duties. In other words, in the present case since the tax liability had not been determined or quantified there would be no arrears of tax and s. 78 will be inapplicable. In our judgment arrears should be given their proper meaning as understood in the ordinary sense of that word. According to the Websters New International Dictionary "arrears" means among other things "that which is behind in payment or which remains unpaid though due". The example given is of arrears of rent, wages or taxes. In Strouds Judicial Dictionary, third edition, it has been stated that the word "arrears" presupposes a time fixed for payment of a sum of money and the lapse of time thereafter without payment". It is a part of the general scheme of all sales tax laws that taxes become due the moment a dealer makes either purchases or sales which are subject to taxation and the obligation to pay the tax arises. Although the tax liability which comes into existence cannot be enforced till the quantification is effected by assessment proceedings the liability for payment of tax is independent of the assessment: (See Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income tax, Central Calcutta)([1972] 1 S.C.R. 277.). We have no doubt that the word "arrears" in respect of tax has been used in the sense of dues or what has become  due by way of tax and that does not depend on assessment proceedings or quantification of the amount. We do not consider that the amounts due by way of tax are covered by the residuary provisions i.e. S. 91 of the Act of 1956.The High Court has disposed of the mater mainly on the interpretation of s. 78 of the Act of 1956 with which we are unable to agree.