Case: Deputy Commercial Tax Officer &amp; Anr Vs. Sha Sukhraj Peerajee

2. The respondent purchased, by a registered instrument dated October 5, 1966, the business carried on by one Purushottam Raju under the name-All India Trading Company. Purushottam Raju was the sole proprietor of the business and had been assessed to sales tax in respect of his turnover for the years 1948-49 and 1949-50. The assessee paid some amounts towards sales tax thus determined, but there remained some arrears of sales-tax i. e., Rs. 3836-4-0 for 1948-49 and Rs. 1218-1-9 for 1949-50. The Sales-tax authorities attempted to recover the arrears of tax from the respondent as the purchaser of the business. The respondent denied liability to pay sales-tax but his contention was overruled by the Deputy Commercial Tax Officer. The respondent appealed to the Commercial Tax Officer as well as to the Board of Revenue, but the appeals were dismissed. The respondent thereafter moved the Madras High Court under Article 226 of the Constitution for the issue of a writ in the nature of certiorari to quash the orders of the Commercial Tax Officer and the Board of Revenue. Ganapatia Pillai, G. who heard the petition dismissed it. The respondent took the matter in appeal under the Letters Patent. The Division Bench consisting of S. Ramachandra Iyer, C. J. and Ramakrishnan, G. reversed the judgment of the Single Judge, holding that Rule 21-A of the Sales Tax Rules was illegal and ultra vires and the respondent was not liable to pay the sales-tax due from his predecessor-in-title, Purushottam Raju.

Court's reasoning:
But there is no such provision in the Act for the period with which we are concerned in the presentare unable to accept this argument as correct. Section 19 (1) of the Act empowers the State Government to make rules to carry out the purposes of the Act,but the Section cannot be utilised to enlarge the scope of Section 10 regarding recovery and payment of tax from some other person other than a "dealer" under the Act.We also consider that the State Government has no authority under Section 19 (2) (c) of the Act to enact the rule. Section 19 (2) (c) deals with the assessment to tax of business which are discontinued or the ownership of which has changed. It is true that the word "assessment" in the scheme of sales-tax and income tax legislation is a term of varying import. The word is used sometimes to mean the computation of income, sometimes the determination of the amount of tax payable, and sometimes the whole procedure laid down in the Income-tax Act for imposing liability on theour opinion, the principle of these decisions applies to the interpretation of the Act in the presentconsider that, in the context and background of other Sections of the Act, the word assessment used in Section. 19 (2) (c) does not include the power of recovering tax assessed from a person other than the assessee. It follows therefore that Rule 21-A is beyond the rule-making power of the State Government either under Section 19 (1) or Section 19 (2) (c) of the Act.In our opinion there is no justification for thisthe present case, the Act is not expressed to come into operation on any particular date, but as it was published in the Madras Gazette on October 8, 1956, the Act came into operation on that date and not before. In the present case, the registered instrument by which the business was transferred to the respondent is dated October 5, l956 and the amending Act has therefore no application. We accordingly reject the argument of the appellants on this aspect of the case and hold that Rule 21-A is ultra vires of the-rule-making power of the State Government under theeven on the assumption that the respondent undertook to pay the arrears of sales tax due by the transferor, it does not follow that there is a liability created inter se between the State Government on the one hand and the transferee on the other hand. To put it differently, it is not open to the State Government to rely on the instrument inter vivos between the transferor and the transferee and to contend that there is any contractual obligation between the transferee and the State Government who is not a party to the instrument. We accordingly reject the argument of the appellants on this aspect of the case also.