Case: Murarilal Mahabir Prasad &amp; Ors Vs. Shri B. R. Vad &amp; Ors

2. The first appellantM/s. Murarilal Mahabirprasadwas a partnership firm constituted under a deed of partnership dated December 3, 1953. It was doing business at 30, Commercial Chambers, Masjid Bunder Road, Bombay, as importers, commission agents, indenting agents, del credere agents and financiers and also as wholesale dealers in colours, chemicals, dyes, etc. The firm consisted of 5 partners : appellants 2 to 5 and one other who died in 1965. The firm was registered as a dealer under the Acts of 1953 and 1959.3. Under diverse orders of assessment passed prior to its dissolution, the firm was assessed to sales tax for the period July, 1953, to March 31, 1958. On November 10, 1960, the Sales Tax Officer (VIII), Enforcement Branch, Bombay, seized certain documents from the firms office. Notices were issued to the firm from time to time for attendance to explain these documents. Over sixty meetings took place between the firms representatives and the authorities, at the end of which, two notices dated November 20, 1963, came to be issued to the firm. By the first of these notices, the firm was asked to explain certain discrepancies in its books of account. The second notice was issued under section 15 of the Act of 1953, by which the firm was asked to show cause why the assessment already made for the period April 1, 1957, to March 31, 1958, should not be reopened on the ground that certain sales were suppressed by the firm as a result of which a part of its turnover had escaped assessment. Respondent 1, the Sales Tax Officer (VIII), Enforcement Branch, Greater Bombay, fixed the hearing of the assessment proceeding on April 1, 1965, but the firm requested by its letter dated April 3, for an adjournment till May on the ground that one of the partners had died suddenly in Delhi and that the other partners would be back in Bombay by May. On May 26, 1965, respondent 1 addressed a notice to the firm stating that the hearing would be taken up from day to day from June 14, 1965, and that the partners should remain present at the hearings.There was considerable difficulty in serving the aforesaid notice, as another firm by the name of M/s. Murarilal Balkrishna had apparently started doing business at the place where thewas carrying on its business. Intimations were sent to the registered address of the firm and an Inspector of the department went personally to effect the service. Eventually, on August 31, 1965, respondent 1 passed ex parte orders of reassessment for the period April 1, 1957, to March 31, 1958, and ex parte orders of assessment for the period April 1, 1958, to March 31, 1961. The assessment of the firm for the period subsequent to March 31, 1958, was pending ever since, as it had to await the result of inspection of the incriminating documents seized from the firms office in November, 1960. On October 22, 1965, demand notices were pasted on the office of the firm at its Masjid Bunder Road address. M/s. Murarilal Balkrishna who were doing business there are said to have informed a partner of the firm that demand notices were so pasted.4. By the revised assessment order, respondent 1 held that for the period April 1, 1957, to January 31, 1958, the turnover of suppressed sales which had escaped assessment was Rs. 41, 47, 090. He assessed on this turnover an additional tax of Rs. 1, 95, 582.47. Respondent 1 found that for subsequent periods also a large part of the turnover was suppressed by the firm. On that footing, he assessed the sales tax for the period April 1, 1958, to March 31, 1961, breaking up the period in four assessments. By the demand notices, the firm was called upon to pay a total tax of Rs. 6, 70, 969.96, inclusive of the sales tax quantified in the revised assessment. The notices apprised the firm of its liability to pay penalty if the tax was not paid within the stated period.The assessment for the period April 1, 1957, to December 31, 1959, was made under the Act of 1953. The tax due for this period comes to Rs. 5, 63, 900 and odd. The assessment for the period January 1, 1960, to March 31, 1961, was made under the Act of 1959. The tax due for this period comes to Rs. 92, 300 and odd. The firm has filed appeals against the aforesaid orders, which are pending before the Assistant Commissioner, Sales Tax, Bombay. In view of those appeals the recovery proceedings were stayed by the appellate authority.5. During the pendency of the assessment proceedings, no formal intimation appears to have been given by or on behalf of the firm to the assessing authority that the firm was dissolved. It was on December 21, 1964, that in a letter written to respondent 1, one of the partners made a casual and fleeting reference to that fact : "you will also appreciate that the firm was dissolved 4 years back". It is however futile to pursue this line of inquiry because, on being called upon to produce the deed of dissolution, the partners did produce a deed showing that the firm was dissolved on May 20, 1962. Respondent 1 appears to have accepted the authenticity of the deed of dissolution and in fact, acting upon it, the sales tax authorities cancelled the registration of the firm under the Sales Tax Acts with effect from June 16, 1962. We cannot now go behind the position that the firm was dissolved on May 20, 1962.6. On November 24, 1965, the appellants filed a writ petition in the High Court of Bombay challenging the orders of reassessment and assessment on various grounds. In view of the fact that the appeals filed by the firm before the Assistant Commissioner of Sales Tax were pending, the High Court did not decide the question whether the procedure prescribed by law was followed in the assessment proceedings and whether the orders were justified on merits. The only question which the High Court considered was whether the impugned orders were without jurisdiction as having been passed against a dissolved firm. By its judgment dated December 8, 1969, the High Court rejected the contention of the firm and held that in view of the provisions contained in the Bombay Sales Tax Acts of 1953 and 1959, it was permissible to assess a dissolved firm. The correctness of that finding is challenged by the appellants in this appeal by special leave.The only question with which we are concerned in this appeal is whether the orders of reassessment and assessment passed by respondent 1 are without jurisdiction by reason of the fact that thewas dissolved prior to the date on which those orders were passed. In fact, the very assessment and reassessment proceedings for the relevant years were commenced after the dissolution of the firm. The notice under which those proceedings were started is dated November 20, 1963, while the firm was dissolved on May 20, 1962. We may mention that in a judgment to which we must immediately turn, this court has taken the view that if under a statute a dissolved firm cannot be assessed to sales tax, it does not make any difference whether the proceeding was initiated before or after theThis appeal by special leave is directed against an order of the Bombay High Court dismissing the writ petition filed by the appellants before us for quashing certain assessment orders and demand notices issued under the Bombay Sales Tax Acts of 1953 and 1959. Of the five appellants, appellants 2 to 5 are the partners of a dissolved firm, and the name of the dissolved firm appears as the first appellant. The firm had another partner who died before the writ petition was filed. The firm, M/s. Murarilal Mahabir Prasad, constituted on December 3, 1953, used to carry on business at Bombay as importers and commission agents and also as wholesale dealers in chemicals, dyes and various other goods. The firm was registered as a dealer both under the Bombay Sales Tax Act, 1953, and the Bombay Sales Tax Act, 1959 (hereinafter referred to as the 1953 Act and the 1959 Act), and had been assessed by the sales tax authorities for the period from July, 1953, to March 31, 1958, on the basis of the returns filed by it. On November 10, 1960, the Sales Tax Officer seized a number of documents from the office of the firm. According to the appellants, the firm discontinued its business from the month of May, 1961. On May 20, 1962, the firm was dissolved. On June 26, 1962, the Sales Tax Officer cancelled the firms registration certificate under the Central Sales Tax Act as well as the registration certificate, authorisation and licence under the Bombay Sales Tax Act which the partners of the firm had surrendered. On November 20, 1963, the Sales Tax Officer issued two notices to the firm, one asking for elucidation of certain items in the books of account seized, and the other under section 15 of the 1953 Act calling upon the firm to show cause why the assessment already made for the period April 1, 1957, to March 31, 1958, should not be reopened. It is not relevant to the question arising for decision in this case and therefore not necessary to recount all that happened before August 31, 1965, on which date the Sales Tax Officer passed five orders, all against the dissolved firm : the first was a reassessment order for the year April 1, 1957, to March 31, 1958, on the ground that certain sales and purchases during that period had been concealed, and the other four were assessment orders for subsequent years covering the period from April 1, 1958, to March 31, 1961. On these five orders a total sum of Rs. 5, 56, 365.47 was found due from the firm. On October 22, 1965, the demand notices issued upon these assessment orders, all in the name of the dissolved firm, were affixed to the premises in which the firm had its office before it was dissolved. The partners of the defunct firm filed a writ petition in the Bombay High Court challenging as invalid the assessment orders and the demand notices issued in the name of the dissolved firm which was dismissed. In this appeal the appellants question the correctness of the order of the High Court dismissing the writ petition.

Reasoning:
11. It is plausible that a distinction ought to be made between the death of an individual and the dissolution of a firm. Human beings, as assessees, are not generally known to court death to evade taxes. Death, normally, is not volitional and it is understandable that on the death of an individual, his liability to be assessed to tax should come to an end unless the statute provides to the contrary. With firms it is different, because a firm which incurs during its existence a liability to pay sales tax may, with a little ingenuity, evade its liability by the voluntary act of dissolution. The dissolution of a firm could therefore be viewed differently from the death of an individual and the partners could be denied the advantage of their own wrong. But we do not want to strike this new path because the Jullundur case [[1966] 17 S.T.C. 326 (S.C.); [1966] 2 S.C.R. 457] and the two cases which follow it have likened the dissolution of a firm to the death of an individual. Let us therefore proceed to examine the other provisions of the 1953 Act.This provision leaves no doubt that the dissolution of a firm cannot operate as a bar to a fresh assessment of the turnover which had escaped assessment, provided that the action contemplated therein is taken within the specified period. In substance, section 15(1) provides that if the Collector is satisfied that any turnover has escaped assessment or has beenor assessed at a lower rate or any deductions have been wrongly made therefrom, he can after serving a notice on the assessee proceed to assess or reassess the amount of the tax due from him. It is a clear and necessary implication of section 15(1) that even a dissolved firm can be assessed or reassessed within the period mentioned therein. The dissolution cannot operate as a bar to the exercise by the Collector of his power to reopen an assessment and indeed it is difficult to conceive that in matters as vital to the administration of sales tax as the assessment of suppressed turnovers, the legislature could have contemplated that the liability to reassessment could be avoided by the erring firm by the simple expedient of winding up its affairs.14. Section 15(1) contains an important clause that action thereunder can be taken by the Collector after giving a notice to the assessee under section 14(3) of the Act within the prescribed period. Once such a notice is given, the Collector gets the jurisdiction to assess or reassess the amount of tax due from the dealer and all the provisions of the Act "shall apply accordingly as if the notice were a notice served under" section 14(3). Section 14(3) speaks of the power of the Collector to assess the amount of tax due from the dealer after giving notice to him, if the Collector is not satisfied that the returns furnished are correct and complete. The jurisdiction to assess or reassess which is conferred by section 15(1) is thus equated with the original jurisdiction to assess the dealer under section 14. By this method, the continuity of the legal personality of the assessee is maintained in order to enable the assessment of turnover which has escaped assessment. It is no answer to a notice under section 15 that the partners having dissolved the firm, the assessment cannot be reopened. It puts a premium on ones credulity to accept that having created a special jurisdiction to assess or reassess an escaped turnover, the legislature permitted that salutary jurisdiction to be defeated by the device of dissolution. The argument of the appellants really comes to this : suppress the turnover, evade the sales tax, dissolve the firm and earn your freedom from taxation.Importantly, the notice dated November 21, 1963, for reopening the assessment for the period April 1, 1957, to March 31, 1958, was served on the firm under section 15. On reassessment, the firm was assessed to a sales tax of Rs. 1, 95, 582.47 on sales suppressed during thatsection contains a compelling implication that evident errors can be corrected no matter whether the firm is in existence or is dissolved. Dissolution is not a panacea for liability to pay sales tax. A difficulty was raised on behalf of the appellants that on the dissolution of the firm the principle of agency would cease to apply as amongst the partners and therefore no partner would have the right to represent either the firm or any of the other partners in the proceeding under section 15, commenced or continued after the dissolution of the firm. This question does not bear on the liability of a dissolved firm to be assessed or the power of the Collector to assess a dissolved firm under section 15. It may perhaps be that in the assessment of a dissolved firm, each of the erstwhile partners may have a right to be heard because each of them would be interested in warding off a liability which may fall on them jointly and severally. But that is more a matter of procedure which the assessing authority must adopt in the assessment proceedings in order to give efficacy to the order which may eventually be passed in the proceedings. Who, in the assessment proceedings against a dissolved firm, has the right to be heard will not determine whether a dissolved firm can be assessed under the Act of(3)(i) and (3)(ii) of section 26 provide that when a firm liable to pay the tax is dissolved, it shall be liable to pay the tax on the goods allotted to any partner "as if" the goods had been sold to such partner, unless he holds a certificate of registration or obtains it within the prescribed period. This provision in terms envisages the assessment of a dissolved firm, though only to the limited extent and for the limited purpose that the goods allotted to a partner at the time of dissolution shall be deemed to have been sold to that partner. By the use of the words "as if", section 26(3)(ii) creates a fiction that the allotment of goods to a partner on dissolution of the firm shall be deemed to be a sale made by the dissolved firm to that partner. The fiction cannot be extended further than thewarrants but there is no fiction in regard to the liability of the dissolved firm to be assessed to sales tax in respect of the goods thus deemed to be sold. The imposition of such a liability is in keeping with the general scheme of the Act, the various provisions of which show that the assessment of a dissolved firm is within the clear intendment of the statute.This provision in terms envisages the assessment of a dissolved firm by providing that erstwhile partners of a dissolved firm shall be liable jointly and severally to pay the tax and penalty due from the firm whether the tax, including any penalty, has been assessed before or after the dissolution. The assessment which thespeaks of is assessment of the firm as such because where the assessment is made on the partners themselves, it was unnecessary to provide that they shall be liable jointly and severally to pay the tax assessed on them. The joint and several liability of the partners in respect of taxes which the firm is liable to pay is provided by section 18. The purpose of section 19(3) is to make the partners jointly and severally liable even if the firm is assessed to sales tax after its dissolution. Section 19(3) would otherwise be otiose. Thus, section 19(3) of the 1959 Act makes explicit what was implicit in the Act of 1953.21. It is relevant, though we did not refer to this aspect while dealing with the provisions of the 1953 Act, that section 19(3) of the 1959 Act contains a clear indication that the legislature intended that a dissolved firm could be assessed under the 1953 Act also. Section 19(3) speaks of the liability of partners for the tax due from a dissolved firm and provides that they shall be jointly and severally liable to pay the tax due from the firm under the Act of 1959 or "under any earlier law", whether such tax has been assessed before or after dissolution. Section 2(12) of the 1959 Act defines "earlier law" to mean, inter alia, the Bombay Sales Tax Act, 1953. Thus, one of the postulates of section 19(3) at any rate is that a dissolved firm could be assessed under the 1953 Act. Such a postulate accords with the principle that if the legislature provided for a charge of sales tax, if could not have intended to render that charge ineffective by permitting the partners to dissolve the firm, an easy enough thing to do. Nothing, in fact, would be easier to evade a tax liability than to declare that the firm, admittedly liable to pay tax, has been dissolved. Section 19(3) of the 1959 Act not only makes clear what was necessarily implied in the 1953 Act, but it throws additional light on the true construction of the earlier law. But we though it advisable to keep section 19(3) of the 1959 Act apart while construing the 1953 Act because it is the courts, not the legislature, who have to construe the laws of the land authoritatively. As said in Craies on Statute Law, "expect as a parliamentary exposition, subsequent Acts are not to be relied on as an aid to the construction of prior unambiguous Acts" (6th Ed., p. 146). The limited use which may be made of the language of section 19(3) of the 1959 Act, though such a course is unnecessary, is for saying that it serves to throw some light on the Act of 1953, in case the argument is that the Act of 1953 is ambiguous.Section 19(3) being quite clear and explicit, it is unnecessary to dwell on the other provisions of the Act of 1959 in order to show that a dissolved firm can be assessed under it. We may only point out that the Act of 1959 contains provisions similar to those in sections 15, 15A and 35 of the Act of 1953 on which we have dwelt at some length. Those provisions can be found in sections 35, 35A and 62 of the Act.22. The view taken by a Full Bench of the Madras High Court in Sales Tax Officer (XIX), Enforcement Branch, Bombay v. K. M. S. Mari Chettiar [[1975] 35 S.T.C. 148] that a dissolved firm can be assessed under the Act of 1959 is, in our opinion, correct though it was wholly unnecessary to say that the words "is assessed after dissolution" occurring in section 19(3) should be read as "is assessed after dissolution as if the firm exists". Such an addition is superfluous and serves to make the meaning of theno clearer than it is.