[2008] 14 S.CJi. 1237

M/S. KANPUR EDIBLES PVT. LTD.

II.

COMMISSIONER, TRADE TAX, U.P.

(Civil Appeal No. 6276 of 2008)

OCTOBER 24, 2008

[DR. ARIJIT PASAYAT AND DR. MUKUNDAKAM

SHARMA, JJ.] U. P Sales Tax Act, 1948 - ss. 10-8 and '21 - Notices for re-assessment of assessment order u/s.21(1) - Cancellation bf - Notices uls. 10-8 for revision of cancellation order - Orc der of ass_essment by Commissioner holding notices to be within /imitation - Set aside by tribunal, however, reversed by High Court - Justification of~- Held: Not justified - Revisional authority substituted original orders of assessment in garb of testing legality or propriety of order cancelling notices u/s. D 21 (1) - Such course has no legal basis - Revisional authority was not empowered to make order of assessment - Expression 'with respect thereof' makes it clear that for testing legality or propriety of the order, an order was to be passed with respect thereof - More so, original orders could not be E varied after limitation period,- Thus, order of High Court set aside.

. For assessment years 1997-98 and 1998-99, orders. of assessrl)_ent were passed on 27 .02.1999 and 17.06.2000 . respectively. On 21.08.2001 notice was issued for re-as- F sessment in terms of s.21 of the U.P. Sales Tax Act, 1948.

By order dated 29.05.2003 the notice was cancelled. On 31.01.2006 and 08.02.2006 notices were issued u/s.10-B for revision of order dated 29.05.2003. The appellant raised objections egarding the period of limitation which were G ,,,- rejected. In appeal, the tribunal set aside the order of the Commissioner and held that the notice u/s.10 was issued beyond the period of limitation. Respondent-Department filed Revision. High Court set aside the order of the tribu-

1237 H

A nal. It held that the order of the Commissioner u/s.10-B was within the period of limitation and thus, the order passed by the tribunal for assessment years was contrary to law. Hence the present appeal.

Allowing the appeals, the Court

HELD: 1.1 Explanation Ill to sub-Section (1) of s. 21 of the U.P. Sales Tax Act; 1948 makes the position clear

~. that an order of assessment or re-assessment which was in existence at the point of time the notice was issued, c continues to be effective unless it is varied by an. orcJ_er of assessment or re-assessment made u/s. 21 in pursuance of that notice. If it is not varied it goes without saying that it continues to be operative and effective. The period for making assessment or re-assessment is provided in subsection (2) of Section 21. The maximum period available D for making assessment or re-assessment is 4 years from the end of the asessment year in question. That is no exception to this positionbecause sub-section (2) of section 21 itself provides that such assessment or re-assesment may be made under any provision of the Act which

E includes Section 10-B. [Para 8] (1247-A, B,· E, F).

1.2 The power of revision by the Commissioner or such officer not below the rank of Deputy Commissioner as may be authorized in this behalf by the State Governr ment by the notification, can be exercised by calling for

' F and examining the records relating to any order other than an order mentioned in Section 1 OA passed by any officer subordinate to him for the purpos~ of satisfying himself as to the legality or propriety of su'ch order. The Commissioner or the authorized officer is empowered to pass

G such order with respect thereof as he thinks fit. The crucial expressions in Section 108(1) are "for the purpose +- ' of satisfying himself as to the legality or propriety of such order" and "with respect thereof". [Para 8] (1247-F, G, H;

1248-A)

H 1.3 In the instant case, what the revisional authority

M/S. KANPUR EDIBLES PVT. LTD. v. COMMI- 1239

SSIONER, TRADE TAX, U.P.

was empowered to test was the legality or propriety of A the order cancelling the notices issued u/s. 21 (1) by order dated 29.5.2003. Such an exercise cannot encompass an order of assessment. It is of significance to note that the original orders have not been varied and could not have been varied after the period of limitation. What could B not have been directly achieved has been attempted to be done in an indirect manner. If the revisional authority was of the view that the order dated 29.5.2003 was not legal, then that order would have been varied if it was found that order lacked legality or propriety. The expres- C sion ."with respect thereof" makes the position clear that for testing the legality or propriety of the order dated 29.5.2003 if any order was to be passed that had to be passed with respect thereof. What the revisional authority has do_ne is to substitute the original orders of assess- 0 ment in the garb of testing the legality and/or propriety of the order cancelling the notices. Such a course is not countenanced and has 110 legal basis. Therefore, the High Court was not justified in interfering with the order of the Tribunal. The impugned orders of the High Court are set aside. [Para 8] (1248-A to E) E

Mis Kundan /al Srikishan, Matf!ura (U.P) v Commissioner of Sales Tax, U.P and Anr (1987) 1 SCC 684; The Deputy Commissioner of Commercial Taxes v. Mis H. R. Sri Ramulu 1977 (1) SCC 703 - referred to.

CASE LAW REFERENCE'

(1987) 1 SCC 684 Referred to.

(1977) 1 SCC 703 . Referred to.

Para 5

Para 5

CIVILAPPELLATE JURISDICTION: Civil Appeal No. 6276 G of 2008

From the final Order dated 14/5/2007 of the High Court of Judicature at Allahabad in Trade Tax Revision No. 214/2007

SUPREME COURT REPORT~

[2008] 14 S.C.R.

WITH

C.A. Nos. 6277, 6278 and 6279 of 2008

Shail Kr. Dwivedi, A.A.G., Shanti Bhushan, Sunil Gupta, K.G. Bhagat, Vineet Bhagat, Ehraz Zafar, Narendra Sharma, B Satya Priya Kamra, Debasis Misra, Krishnan Venugopal, Arvind Verma, Ravindra Kumar, Manoj Kr. Dwivedi and Gunnam , Venkateswara Rao for the Appearing Parties.

The Judgment of the Court was delivered by

C DR. ARIJIT PASAYAT, J. 1. Leave granted.

2. These four appeals involve common issues and, therefore, are disposed of by this common judgment.

3. Challenge in each case is to the judgment of learned

0 Single Judge of Allahabad High Court holding that the order passed by the Commissioner of Trade Tax, U.P. under Section 10-B of the U.P. Sales Tax Act, 1948 (in short the 'Act') (also described as U.P. Trade Tax Act, 1948) was within the period of limitation and therefore the order passed by the Trade Tax E Tribunal, Kanpur Bench-1 (in short the 'Tribunal') passed in four connected Second Appeal Nos.1 to. 4 of 2007 for the assessment years 1997-98 and 1998-99 in both the State Act and the Central Sales Tax Act, 1956 (in short the 'Central Act') was contrary to law.

4. The controversy lies within a very narrow compass relating to scope and ambit of Section 10-B of the Act in the back- .~ ground of Section 21 of the Act.

5. A brief reference to the factual aspects would suffice.

G Orders of assessment were passed for the two assessment years 1997-98 and 1998-99 on 27 .2.1999 and 17 .6.2000 respectively. On 21.8.2001 notice for re-assessment in terriis of Section 21 of the Act with authorization of the Additional Commissioner, Kanpur under Section 21 (2) was issued. It is to be H notd that for the period during which such notice can be ist '

MIS. KANPUR EDIBLES PVT. LTD. v. COMMI- 1241

SSIONER, TRADE TAX, U.P. [DR ARIJIT PASAYAT, J]

sued is normally two years, but with the approval of the Com-

~ missioner it can be extended to 4 years from the end of the concerned assessment year. The order was passed on 29.5.2003 holding that the notice issued under Section 21 was cancelled. In other words, holding that there was no need for any variation in the assessment orders. On 31.1.2006 and 8.2.2006 notices under Section 10-8 of the Act for revision of the order dated 29.5.2003 in respect of two assessment years were issued. Preliminary objections raised by the appellant relating to limitation were rejected by order dated 23.12.2006.

Appeal was preferred before the Tribunal which by order dated

13.3.2007 reversed the Joint Commissioner's order and held that the notice under Section 10 was issued beyond the period of limitation. Department filed Tax Revision cases before the High Court. As noted above, the High Court has set aside the orders of the Tribunal.

Learned counsel for the appellant submitted that the crucial expression in Section 10-8 (3)(c) is "the order in question".

In the instant case the initiation of proceedings for revision in terms of Section 10-8 related to the order dated 29.5.2003.

While purporting to revise that order, in reality orders of assessment have been passed which in substance substitutes the earlier orders of assessment. The notices dated 31.1.2006 and 8.2.2006 cannot be related to the orders of assessment dated 27.2.1999 and 17.6.2000. It is submitted that even if under Section 10-8 (1) an order is sought to be revised, the same should

•, be relatable to the order which is sought to be revised and cannot be extended to an order which has become final and in respect of which no proceeding under Section 108(1) has been initiated.

With reference to the conclusions of the Joint Commissioner it is submitted that by merely stating that the order dated

~ 29.5:2003 was revised, the exemption granted previously has been withdrawn and it has been held that the tax is recoverable.

A It is pointed out that the effect of an order dropping the . 1 proceedings initiated for re-assessment was considered by this Court in Mis Kundan Lal Srikishan, Mathura (UP)· v. Commissioner of Sales Tax, UP and Anr. (1987 (1) SCC 684).

With the object of getting over the view expressed, an amends ment was made by U.P. Sales Tax (Amendment and Validation) Act,.1991 (in short the 'Validation Act') by adding Explanation Ill to Section 21 (1) w.e.f. 1.3.1973. It is pointed out that in Kundan Lat's case (supra) this Court with reference to the decision in The Deputy Commissioner of Commercial Taxes v.

C Mis H.R. Sri Ramulu (1977 (1) SCC 703) held that once a notice is issued for the purpose of making re-assessment, the assessment proceedings become re-opened and the initial order of assessment ceases to be operative.

6. In response, learned counsel for the respondent slib- D mitted that the High Court has correctly held that in a case where there was large scale of manipulation of accounts, a purposive construction hasto be made and the revisional order does not suffer from any infirmity. Levy of tax has been made after holding that the order dropping the proceedings was bad and, there- E fore, consequentially the assessment of the escaped turnover has been directed to be done.

7. A few provisions which have relevance need to be noted.

They are Sections 7, 10-B, 21 and 22 which read as follows:

Section 7. Determination of turnover and assessment of tax.

(1) Every deader who is liable to pay tax under this Act shall submit such return or returns of his turnover at such intervals within such period, in such from and verified in such manner, as may be prescribed; but assessing authority may in its discretion, for reasons to be recorded, extend the date for the submission of the return by any person or class of persons.

xxx xxx xxx xxx

I ' ,.___

/- 1

M/S. KANPUR EDIBLES PVT LTD. v. COMi\tll- 1243

SSIONER, TRADE TAX, U.P. [DR. ARIJIT PASAYAT, J]

(2) If the assessing authority, after such enquiry as he A considers necessary is satisfied that any returns submitted under sub section (1) are correct, complete, he shall assess the tax on the basis thereof.

(3) If no return is submitted by the dealer under sub B section (1 ), within the periods prescribed in that behalf or if the return submitted by him appears to • the assessing authority to be incorrect or incomplete, the assessing authority shall, after making such enquiry as he considers necessary, determine the turnover of the dealer to the best of his judgment and c assess the tax on the basis thereof:

Provided ttiat before taking action under this Section the dealer shall be given a reasonable opportunity of proving the correctness and completeness of any return submitted D by him. ,.

Explanation - In this section and in sections 7-A, 7-B, 7- C, 7-D, 7-E, 8-A, 14, 15-A, 18, 21 and 24-D the expression, 'turnover' means the turnover of sales or of ( purchases or both, as the case may be.

E - ~

xxx xxx xxx xxx xxx

"'"" Section 10-8: Revision by Commissioner

(1) The Commissioner or such other officer not below the rank of Deputy Commissioner as may be F authorized in this behalf by the State Government by notification may call for and examine the record relating to any order (other than an order mentioned in section 10 -A) passed by any officer subordinate to him, for the purpose of satisfying himself as to the G

legality or propriety of such order and may pass such

~ order with respect thereof as he thinks fit. • (2) No order under sub-section (1) affecting the interest of a party adversely shall be passed unless he has H ~

A been given a reasonable opportunity of being heard.

-~ (3) No order under sub-section (1) shall be passed-

(a) to revise an order, which is or has been the subject matter of an appeal under Section 9, or

B an. order passed by the Appellate Authority under that section:

Explanation - Where the appeal against any

4 order is withdrawn or is dismissed for nonpayment of fee payable under Section 32 or for c non-compliance of sub section (1) of Section 9, the order shall not be deemed to have been the subject-matter of an appeal under section 9;

D (b) before the expiration of sixty days from the date of the order in question;

(c) after the expiration of four years from the date of the order in question or after the expiration of two years from the date of commencement of E section 19 of the U.P. Sales Tax (Amendment & Validation) Act, 1978, whichever is latter. "

I xxx xxx xxx xxx )

Section 21. Assessment of tax on the turnover not

F assessed during the year:

(1) If the assessing authority has reason to believe that

the whole or any part of the turnover of the dealer, for any assessment year or part thereof, has escaped assessment to tax or has been under assessed or G has been assessed to tax at a rate lower than that at which it is assessable under this Act, or any deductions or exemptions have been wrongly allowed ,..

t .,.. in respect thereof, the assessing authority may, after issuing notice to the dealer and making such inquiry H as it may consider necessary, assess or reassess

r J

M/S. KANPUR EQffiLES PVT. LTD. v. COMMI- 1245

SSIONER, TRADE T-AX, U.P. [DR. ARIJIT PASAYAT, J]

the dealr or tax according to law: A

Provided that fhe tax shall be charged at the rate at which it would have been charged had the turnover not except assessment, or full assessment as the case may be: B Explanation I:

Nothing in this sub-section shall be deemed to prevent the assessing authority from making an assessment to the best of its judgment. c Explanation 11:

For the purposes of this Section and section~ 22, "assessing authority" means the officer or authority who passed the earlier assessment order, if any, and includes the officer or authority having jurisdiction D for the time being to assess the dealer . ..

Explanation Ill:

Notwithstanding the issuance of notice under this sub-section, where a, n order of assessment or re- E assessment is in existence before the issuance of such notice, it shall continue to be effective as such, until varied by an order of assessment or reassessment made under this section in pursuance of such notice.

(2) Except as otherwise provided in this section, no order of assessment or reassessment under any provision of this Act for any assessment year shall be made after the expiration of two years from the end of such year or March 31 , 194, whichever is later: G

\ Provided that if the Commissioner on his own or on .. the basis of reasons recorded by the assessing --' authority, is satisfied that it is just and expedient so to do authorizes the assessing authority in that behalf, H

A such assessment or reassessment may be made after the expiration of the period aforesaid but not after the expiration of four years, from the end of such year notwithstanding that such assessment or reassessment may involve a change of opinion: B xxx xxx xxx xxx

Section 22: Rectification of mistakes.

(1) Any officer or authority, or the Tribunal or the High Court may, on its own motion or on the application of c dealer or any other interested person rectify any mistake in any order passed by him or it under this Act, apparent on the record within three years from the date of the order sought to be rectified:

D Provided that where an application under this sub-/, section has been made within such period of three years, it may be disposed of even beyond such 'i-. period:

Provided further that no such rectification as has the

E effect of enhancing the assessment, penalty, fees or )

other dues shall be made unless reasonable opportunity of being heard has been given to the dealer or other person likPly to be affected by such enhancement.

F (2) Where such rectification has the effect of enhancing the assessment, the assessing authority concerned shall serve on the dealer a revised notice of demand in the prescribed form and therefrom all the provisions of the Act, and the rules framed thereunder G shall apply as if such notice had been served in the ~

first instance.

8. It is to be noted that in Kundan Lal's case (supra) it was t- ' observed that on initiation of the re-assessment proceedings

H the original order of assessment becomes inoperative. But

M/S. KANPUR EDIBLES PVT. LTD. v. COrvJMI- 1247

SSIONER, TRADE TAX, U.P. [DR. ARIJIT PASAYAT. J]

Explanation Ill to sub-Section (1) of Section 21 makes the posi- A tion clear that where an order of assessment or re-assessment is in existence before the issuance of the notice under sub-section (1) it continues to be effective as such until varied by an order of assessment or re-assessment made under Section 21 in pursuance of that notice. In other words, an order of as- B sessment or re-assessment which was in existence at the point of time the notice was issued, continues to be effective unless it is varied. If it is not varied it goes without saying that it continues to be operative and effective. The period for making as- • sessment or re-assessment is provided in sub-section (2) of c

/ Section 21. The period fixed for making assessment or re-assessment under any provision of the Act for any assessment year is two years from the end of the concerned assessment year. However, this period can be extended in terms of the provisa to sub-section (2) if the Commissioner on his own or on D the basis of reasons recorded by the assessing officer is satisfied that it is just and expedient to do so to make the assessment or the re-assessment after the expiration of the period provided in sub-section (2) but in any event not after the expiration of 4 years from the end of such year notwithstanding that E, such assessment or re-assessment may involve a change of opinion. In other words, the maximum period available for making assessment or re-assessment is 4 years from the end of the assessment year in question. That is no exception to this position because sub-section (2) of section 21 itself provides that such assessment or re-assessment may be made under F any provision of the Act which includes Section 10-8. The power of revision by the Commissioner or such officer not below the rank of Deputy Commissioner as may be authorized in this behalf by the State Government by the notification, can be exercised by calling for and examining the records relating to any G .., order other than an order mentioned in Section 1 OA passed by

~ any officer subordinate to him for the purpose of satisfying himself as to the legality or propriety of such order. The Commissioner or the authorized officer is empowered to pass such order with respect thereof as he thinks fit. The crucial expressions H

A in Section 108(1) are "for the purpose of satisfying himself as tO the legality or propriety of such order" and "with respect thereof'. In the present case what the revisional authority was enipowered to test was the legality or propriety of the order cancelling the notices issued under Section 21 (1) by order dated B 29.5.2003. Such an exercise cannot encompass an order of assessment. It is of significance to note that the original orders have not been varied and could not have been varied after the period of limitation. What could not have been d_i_rectly achieved has been attempted to be done in an indirect' manner. If the C revisional authority was of the view that the order dated 29.5.2003 was not legal, then that order would have been varied if it was found that order lacked legality or propriety. The expression "with respect thereof' makes the position clear that for testing the legality or propriety of the order (in the instant case the order dated 29.5.2003) if any order was to be passed D that had to be passed with respect thereof. Such an order does

 not empower the revisional authority to make an order of assessment. As noted above, what the revisional authority has done is to substitute the original orders of assessment in the garb of testing the legality and/or propriety of the order cancel- E ling the notices. Such a course is not countenanced and has no legal basis. Therefore, the High Court was not justified in interfering with the order of the Tribunal. The impugned orders of the - High Court are set aside and the appeals are allowed but without any order as to costs.

N.J.

Appeals allowed.