Jagannath Prasad vs The State of Uttar Pradesh

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Criminal Appeal No. 152/59

Decision Date: 3 May 1962

Coram: J.L. Kapur, K.C. Das Gupta, Raghubar Dayal

In this case, the Supreme Court of India rendered its judgment on 3 May 1962 concerning the appeal of Jagannath Prasad against the State of Uttar Pradesh. The judgment was authored by Justice J.L. Kapur, who sat on a bench together with Justices K.C. Das Gupta and Raghubar Dayal. The petitioner was identified as Jagannath Prasad, while the respondent was the State of Uttar Pradesh. The decision is reported in the 1963 AIR 416 and in the 1963 S.C.R. (2) 850, with subsequent citations including R 1964 SC 1154 (paragraphs 9, 26, 29), R 1969 SC 724 (paragraph 19), R 1975 SC 1039 (paragraph 4) and R 1988 SC 2267 (paragraph 34). The matters before the Court arose under the Uttar Pradesh Sales Tax Act, 1948 (U.P. 15 of 1948), specifically sections 3, 3A and 14(d), and also under section 195 of the Code of Criminal Procedure 1898 (Act V of 1898). The factual background disclosed that the appellants were engaged in the business of vegetable ghee and had purchased vegetable ghee from outside Uttar Pradesh in the names of four fictitious firms. In the sales‑tax returns they omitted the proceeds of those transactions, contending that the purchases from the four firms were covered by a notification made under section 3A of the Uttar Pradesh Sales Tax Act, which purported to make tax payable only at a single point – the sale by the outside suppliers to the four firms. To support this claim, appellant No. 1 made a false statement before the Sales Tax Officer and also filed a forged bill of exchange before that officer. The Sales Tax Officer accepted the return, resulting in the sales covered by those transactions not being taxed. Consequently, the appellants were tried and convicted of an offence under section 471 of the Indian Penal Code for using forged documents, and of an offence under section 14(d) of the Sales Tax Act for fraudulently evading tax. The appellants argued that the prosecution for the offence under section 471 was illegal because no complaint had been lodged by the Sales Tax Officer, as required by section 14(d), and they further maintained that the notification under section 3A was invalid and therefore no tax was payable. The Court held that the Sales Tax Officer did not constitute a “Court” within the meaning of section 195 of the Code of Criminal Procedure, and consequently it was not necessary for him to lodge a complaint for the prosecution under section 471 to proceed. The Court explained that a Sales Tax Officer is merely an instrumentality of the State for the purposes of assessing and collecting tax; even though he may perform certain quasi‑judicial functions, he does not form part of the judiciary. The nature of the officer’s functions and the procedure prescribed for their performance demonstrated that the officer could not be equated with a Court, nor could he be described as a Revenue Court. The Court further affirmed that the appellants were properly convicted under section 14(d) of the Act, noting that tax was payable under section 3 of the Act in respect of all sales, but that under section 3A tax was leviable only at a single point when a valid government notification declared the point of tax liability.

In this case, the Court observed that the amendment of 1923, which replaced the word “means” with the word “include” in the definition of “court,” merely enlarged the wording and did not alter the definition of “Revenue Court.” The Court applied the authorities set out in Smt. Ujjam Bai v. The State of U.P. (1963) 1 S.C.R. 778, Shell Co. of Australia Ltd. v. Federal Commissioner of Taxation [1931] A.C. 275 and Brajnandan Sinha v. Jyoti Narain [1955] 2 S.C.R. 955. It approved the decision in Krishna v. Gocerdhanaiah, A.I.R. 1954 Mad. 822. The Court noted that the cases In re Punamchand Maneklal (1914) 1 L.R. 38 Bom. 642 and State v. Nemchand Pashvir Patel (1956) 7 S.T.C. 404 were not approved, while the decisions In re R. Nataraja Iyer (1914) 1 L.R. 36 Mad. 72 and Shri Virender Kumar Satyawadi v. The State of Punjab [1955] 2 S.C.R. 1013 were merely referred to. The Court further held that the appellants were correctly convicted under section 14(d) of the Uttar Pradesh Sales Tax Act. It explained that sales tax was payable under section 3 of the Act in respect of every sale, whereas section 3A made the tax leviable only at a single point if the Government issued a notification designating that point and if the rules prescribed such a point. Under the notification issued by the Government, the tax was chargeable only on the dealer who imported the goods and subsequently sold them. Because the appellants had imported the ghee, they were liable to pay tax on the sale of that ghee, a liability they deliberately avoided. Although the notification was ineffective because no rules had been made under the Act to prescribe the single point, this deficiency did not benefit the appellants; the only consequence was that section 3A did not become operative. By attempting to claim the benefit of the ineffective notification under section 3A, the appellants evaded the tax payable under section 3, to which they were legally bound to contribute. The judgment then recorded the jurisdiction of the criminal appellate court, noting that this was Criminal Appeal No. 152/59 filed by special leave from the judgment and order dated 12 May 1959 of the Allahabad High Court in Criminal Revision No. 1182 of 1957. Counsel for the appellants included Nur‑ud‑din Ahmed, J., B. Dadachanji, O.C. Mathur and Ravindar Narain, while G.C. Mathur and C.A. Lal appeared for the respondent. The judgment was delivered on 3 May 1962 by Justice Kapur. The Court described the appellants as a father and son engaged in the vegetable‑ghee business at Aligarh. Along with Romesh, the second son of the appellant Jagannath Prasad, they were prosecuted under section 14(d) of the Uttar Pradesh Sales Tax Act, 1948 (U.P. 15 of 1948) and under sections 471, 468 and 417 of the Indian Penal Code. All of them were acquitted of the charge under section 468. Jagannath Prasad was convicted under sections 471 and 417 of the Indian Penal Code and under section 14(d) of the Act. He received a sentence of two years’ rigorous imprisonment under section 471, one year’s rigorous imprisonment and a fine of Rs. 1,000 under section 417, and an additional fine of Rs. 1,000 under section 14(d) of the Act.

In the first instance Bhagwan Das was found guilty under section 14(d) of the Uttar Pradesh Sales Tax Act and was ordered to pay a fine of one thousand rupees. Romesh, the second son of the appellant Jagannath Prasad, was acquitted of all charges. The sentences imposed on Jagannath Prasad for the remaining convictions were ordered to run concurrently. The appellants appealed the conviction to the Sessions Judge, but that appeal was dismissed. The matter was then taken in revision to the Allahabad High Court, where the High Court set aside the conviction of Jagannath Prasad under section 471 of the Indian Penal Code, while leaving his other convictions and the associated sentences untouched. Dissatisfied with the High Court’s order, the appellants obtained special leave to approach this Court.

The factual background that gave rise to the present appeal is as follows. In the financial year 1950‑51 the firm of the appellants bought vegetable ghee valued at approximately three lakh rupees from sources outside the State of Uttar Pradesh. The purchase was recorded as if it had been made from four fictitious firms that were purported to be carrying on business in Hathras, Aligarh and other places within Uttar Pradesh. When the firm filed its sales‑tax return for that year with the Sales Tax Officer at Aligarh, it deliberately omitted the proceeds of these purchases, claiming that the transactions were intra‑state because the alleged sellers were situated in Uttar Pradesh. By omitting the proceeds, the firm avoided the liability to pay sales tax on those transactions for that assessment year. The Sales Tax Officer accepted the return, and consequently the sale of the ghee was not taxed. A complaint was later lodged against the Sales Tax Officer regarding the handling of these transactions, an enquiry was conducted, and as a result the appellants together with Romesh were prosecuted and convicted as previously described.

The High Court did not dispute the essential facts established by the lower courts. It affirmed that the appellants’ firm had in reality purchased the vegetable ghee from outside Uttar Pradesh and had concealed the sale proceeds on the ground that the purchases were alleged to be from firms situated inside the State, a claim that was false. The Court also held that the statements made by Jagannath Prasad before the Sales Tax Officer were untrue and that the bills he produced before the Officer were forged. The convictions were challenged solely on questions of law, and before this Court five specific points were raised. First, it was contended that no sales tax was payable on the transactions under section 3A of the Act in 1950‑51, and that liability only arose after the 1952 amendment, which was said to have retroactive effect, thereby precluding prosecution on an ex post facto basis. Second, it was argued that the trial was illegal because the Sales Tax Officer had not lodged a complaint as required by section 195 of the Criminal Procedure Code. Third, it was submitted that there was no offence under section 14(d) of the Act. Fourth, it was asserted that the forged invoices produced by Jagannath Prasad were the result of a demand by the Sales Tax Officer, and thus the appellant could not be held liable for their use. The fifth point, which is not fully recorded in the material before us, concerned the acceptance of the invoices by the Sales Tax Officer and the consequent prohibition on prosecution.

The Court observed that the Sales Tax Officer had accepted the invoices as genuine, and therefore it could not be said that the invoices were not used by the appellant. Consequently, the Court held that no prosecution could be entertained on the basis of those invoices. The appellants could not be prosecuted on the ground of any amendment made after the date of the alleged offence. Both parties agreed to this point, and the Court therefore examined the law as it stood on the date when the offence was alleged to have been committed. According to the charge, the alleged offence took place on or about 16 July 1951, when the appellants produced forged invoices before the Sales Tax Officer. The Court therefore needed to consider the legal position as it existed on that particular day. Section 3 of the Uttar Pradesh Sales Tax Act deals with liability to tax, while Section 3A provides for single‑point taxation. Under Section 3, every dealer was required to pay, on his turnover for each assessment year, a tax at the rate of three pies per rupee. Thus, the tax was payable on all sales. However, Section 3A(1) made the tax leviable only at a single point in the series of sales. Section 3A(1) states that, notwithstanding anything in Section 3, the State Government may, by notification in the official Gazette, declare that the turnover in respect of any goods or class of goods shall not be liable to tax except at such single point in the series of sales by successive dealers as may be prescribed. For such a declaration to be effective, two conditions had to be satisfied: first, a notification had to be published in the Official Gazette specifying the point at which tax would become payable; second, the point had to be prescribed by rules. Section 3A was amended in 1952 with retrospective effect, but the Court held that the retroactive provision could not be applied to the present proceedings because the alleged offence occurred before that amendment.

Under Section 3A, Notification No. 1(3) dated 8 June 1948 declared that the proceeds of sales of vegetable ghee imported from outside the State would not be included in the turnover of any dealer other than the importer himself. The effect of this notification was that an importer of vegetable ghee from outside Uttar Pradesh, who subsequently sold the ghee, had to include the sale proceeds in his turnover, whereas dealers who bought the imported ghee within Uttar Pradesh and then resold it were exempt from that inclusion. The appellants had indeed imported the vegetable ghee from outside Uttar Pradesh and, accordingly, were required by the notification to include the proceeds in their turnover. To avoid this liability, they falsely produced forged invoices asserting that they had purchased the vegetable ghee from fictitious dealers located within the State. If the notification were considered effective, the appellants would have successfully evaded the payment of sales tax that the law required them to make. The Court therefore examined whether the notification was effective, noting that its phrase “as may be prescribed” required rules that had not been made, rendering the notification ineffective. Nonetheless, the Court clarified that, assuming the notification were effective, the appellants’ forged invoices would have enabled them to escape tax liability.

The Court noted that the notification could not impose a liability for sales‑tax payment because it contained the words “as may be prescribed,” which indicated that the liability could be created only by rules made under section 3A. Since no rules had been issued under that provision, the notification failed to make every dealer who imported vegetable ghee from outside Uttar Pradesh liable to sales‑tax. Consequently, the appellants’ contention that the notification was ineffective was well founded. Accordingly, it was held that a mere notification under section 3A could not create a single‑point taxation scheme as the notification attempted to do, although this deficiency did not greatly assist the appellants. Section 3 imposed a duty on every dealer to pay sales tax on each transaction, whereas section 3A only provided relief from multiple‑point taxation by preventing tax at every point of sale. Because the notification under section 3A was ineffective, the appellants remained liable to pay tax on all of their sales. To avoid the multiple‑point taxation prescribed by section 3, they exploited the ineffective notification and falsely claimed that the goods had been imported by fictitious persons and subsequently purchased from those fictitious dealers. In this manner the appellants sought to evade the payment of sales tax required under section 3. In other words, they attempted to obtain a benefit under the ineffective notification by producing forged documents, thereby evading the tax liability that every dealer owed on his turnover. The Court therefore concluded that the appellants could not claim that no offence had been committed under section 14(d) of the Act, which provides: “Section 14.,Offences and penalties.-Any person who- (a)................ (b)............... (c)............... (d) fraudulently evades the payment of any tax due under this Act, shall, without prejudice to this liability under any other law for the time being in force, on conviction by a Magistrate of the first class, be liable to a fine which may extend to one thousand rupees, and where the breach is a continuing breach, to a further fine which may extend to fifty rupees for every day after the first during which the breach continues”. The Court rejected the defence that the appellants had merely been instructed by the Sales Tax Officer to produce invoices. The appellants had attempted to exclude from their turnover the sale of goods valued at about three lakh rupees and had made statements to the Sales Tax Officer on July 9 1951 to that effect. To substantiate their claim that the goods should not be included in the turnover, appellant Jagannath Prasad produced the invoices, which the Court later found to be forged.

In the present case the Court observed that the rule requiring proof by the best evidence cannot be used as a defence to a charge of forgery when the documents produced as best evidence, here the invoices, are themselves forged; consequently a person who furnishes such documents cannot claim that his obligation to prove his case by the best evidence excuses the fact that the documents he presented were falsified. The learned counsel further submitted that a Sales Tax Officer should be regarded as a court within the meaning of section 195 of the Criminal Procedure Code and that, absent a written complaint from such an officer, no cognizance could be taken of an offence punishable under section 471 of the Indian Penal Code. The Court found this submission to be equally erroneous. It explained that Sales Tax Officers are instruments of the State employed for the collection of certain taxes. Under the relevant Act and the Rules made thereunder, officers are designated as Sales Tax Officers and are entrusted with duties for the imposition and collection of taxes; these duties include many functions of a quasi‑judicial nature as well as purely administrative functions. The Court emphasized that the performance of quasi‑judicial functions by state instrumentalities does not transform them into courts. In the recent judgment of this Court in Shrimati Ujjam Bai v. State of U.P., the opinions were unanimous that taxing authorities are not courts, even though they perform quasi‑judicial functions. The Court quoted with approval Lord Sankey’s observation in Shell Co. of Australia Ltd. v. Federal Commissioner of Taxation, noting that tribunals may possess many trappings of a court yet are not courts in the strict sense of exercising judicial power. Lord Sankey listed several negative propositions indicating when a tribunal is not a court, namely that a tribunal is not a court merely because it gives a final decision, hears witnesses on oath, has two or more contending parties, issues decisions affecting rights, provides an appeal to a court, or is a body to which a matter is referred by another body, citing Rex v. Electricity Commissioners. Finally, Justice Hidayatullah, speaking in Shrimati Ujjam Bai, described Sales Tax authorities as instrumentalities of the State, not part of the legislature nor the judiciary, and outlined their functions accordingly.

In the assessment and collection of taxes, the authorities follow a pattern of action that is regarded as judicial, but this does not convert them into courts of civil judicature. They remain, as noted in the authorities cited as [1931] A.C. 775, 283 and (2) (1963) 1 S.C.R. 778, instrumentalities of the State and fall within the definition of “State” in Article 12 of the Constitution. Though sales‑tax officers possess certain powers that resemble those exercised by courts, they are not courts within the meaning of Section 195 of the Criminal Procedure Code. Section 195(2) expressly states that the term “Court” includes a civil revenue or criminal court but excludes a registrar or sub‑registrar under the Indian Registration Act, 1877, thereby precluding a sales‑tax officer from being classified as a revenue court.

Section 2(a) of the Sales Tax Act defines an “assessing authority” as any person authorized by the State Government to make an assessment under the Act. Rule 2(h) further defines a “Sales Tax Officer” as a sales‑tax officer of a circle appointed by the State Government to perform the duties and exercise the powers of an assessing authority in that circle. Consequently, under the Act a sales‑tax officer is only an assessing authority. Section 7 provides that, after making such enquiries as he deems necessary, a sales‑tax officer may, if satisfied that a return is correct and complete, assess the tax on the basis of that return. If no return is filed, he may make enquiries as he considers necessary and then determine the turnover of the dealer; his determination therefore depends wholly on the enquiries he chooses to make.

Sections 9, 10 and 11 of the Act deal respectively with appeals, revisions and the statement of the case to the High Court. Clause 13 empowers a sales‑tax officer to require the production of all accounts, documents and other information relating to the business, and to inspect registers at reasonable times. He also has the authority to enter any office, shop, godown, vehicle or other place where business is carried on. This power, however, undermines the notion that the sales‑tax officer functions as a court where justice is administered between parties, whether private persons or the State. Section 23 attaches a degree of secrecy to documents filed before the sales‑tax officer and to information received by him. Similarly, Rule 43 authorizes the sales‑tax officer to calculate turnover when goods are sold for consideration other than money, after making such enquiries as he deems necessary. All these provisions demonstrate that the sales‑tax officer, despite his extensive powers, does not constitute a court.

The Court held that a Sales Tax Officer could not be equated with a Court, and therefore it concluded that the Sales Tax Officer is not a Court. In the earlier decision of Krishna v. Goverdhansiah (1), the Court had determined that an Income Tax Officer did not constitute a court within the meaning of section 195 of the Criminal Procedure Code, and that reasoning was subsequently affirmed by this Court in the case of Shrimati Ujjam Bai’s (2). A further authority, Brajnandan Sinha v. Jyoti Narain (3), found that a Commissioner appointed under the Public Enquiries Act 1950 was not a court. The judgment also referred to Shell Co. of Australia v. Federal Commissioner of Taxation (4). At page 967, the Court approved a passage from Halsbury’s Laws of England, Hailsham Edition, Vol. 8, page 526, which stated: “Many bodies are not courts, although they have to decide questions, and in so doing have to act judicially, in the sense that the proceedings must be conducted with fairness and impartiality, such as assessment committees, guardian committees, the Court of referee constituted under the Unemployment Insurance Acts to decide claims made on the Insurance funds, the benchers of the Inns of Court when considering the conduct of one of their members, the General Medical Council when considering questions affecting the position of a medical man.” That passage now appears in Vol. 9 of the third edition at page 343.

Subsequently, it was submitted that a Sales Tax Officer, while performing the functions of an assessing authority, should be regarded as a court within the meaning of section 195(2) of the Procedure Code because the 1923 amendment to the definition of “court” replaced the word “means” with “includes,” thereby expanding the definition. The Court acknowledged that this legislative change was intended to broaden the meaning of “court,” but it emphasized that the amendment did not extend the definition of “Revenue Court.” The line of authority relied upon by the parties primarily derived from a full‑bench judgment of the Bombay High Court in In re Punemchand Maneklal (1), where an Income‑Tax Collector was held to be a Revenue Court as contemplated by section 195. The learned Chief Justice, delivering that judgment, reasoned that inquiries conducted according to the forms of judicial procedure set out in Chapter IV of the Income‑Tax Act constituted proceedings in a Revenue Court, on the basis that, at that time, revenue matters were generally removed from the jurisdiction of civil courts and were entrusted to officers charged with adjudicating disputed revenue questions between an individual and the Government. This reasoning was later adopted by the Bombay High Court in State v. Nemchand Pashvir Patel after reference to the various powers conferred upon the Sales Tax Officers.

The Court observed that the Sales Tax Officers appointed under the Bombay Sales Tax Act were held to be Revenue Courts because they possessed jurisdiction to determine questions of revenue, were exclusively empowered with powers that are normally attributes of a court or a tribunal, and were authorised to adjudicate disputed questions of law or fact relating to the rights of citizens. The Madras High Court, in the decision In re B. Nataraja Iyer, ruled that a Divisional Officer who heard appeals under the Income‑Tax Act qualified as a court within the meaning of section 476 of the Criminal Procedure Code, whereas a Tehsildar who acted as the original assessing authority did not, on the ground that no lis existed before him. A passage from the judgment of Justice Sundara Ayyar is noted as significant. He stated that “I may observe that I am prepared to agree with Dr Swaminathan that more authority to receive evidence would not make the officer recording it a court.” At page 84 of the same report it was held that the initial determination of an assessment may not be regarded as a court proceeding even though the assessing officer may have the power to record statements. However, an appeal against that assessment is dealt with by the Collector in a manner comparable to the way a civil court disposes of an appeal. The Court further referred to the legal principles expressed by Justice Venkatarama Ayyar in Shri Virinder Kumar Satyawadi v. State of Punjab, where the distinction between a quasi‑judicial tribunal and a court was articulated. It was explained that a court is broadly characterised by a duty to decide disputes in a judicial manner and to declare the rights of the parties in a definitive judgment. Deciding in a judicial manner requires that the parties, as a matter of right, be heard in support of their claim and be allowed to adduce evidence. It also imposes on the adjudicatory authority an obligation to decide the matter on the basis of the evidence presented and in accordance with law. Consequently, when the question arises whether an authority created by a statute is a court rather than a quasi‑judicial tribunal, the inquiry must focus on whether, having regard to the statutory provisions, the authority possesses all the attributes of a court. Addressing the nature of quasi‑judicial tribunals, the Court cited the decision in Gullapelli Negeswara Rao v. State of Andhra Pradesh, observing that the concept of a quasi‑judicial act implies that the act is not wholly judicial; it describes a duty imposed on an executive body or authority to conform to the norms of judicial procedure while exercising its executive power.

The Court observed that it was unnecessary to refer to other reported decisions because those decisions were decided on facts that differed from the present matter and involved tribunals other than the one before which this appeal was filed. In the Court’s analysis, a Sales Tax Officer does not fall within the definition of a “Court” as provided by section 195 of the Criminal Procedure Code. Accordingly, the requirement that a Sales Tax Officer must first make a formal complaint before initiating proceedings does not arise in this context. The Court further explained that the proceedings which were instituted without a prior complaint by the Sales Tax Officer are therefore not considered to be beyond the jurisdiction of the authority concerned. Relying on the citation (1959) Supp. 1 S.C.R. 319, 353‑4, the Court affirmed that the lack of a complaint does not render the proceedings invalid. After examining the evidence and the material on record, the Court concluded that the convictions of the appellants were justified. On that basis, the Court dismissed the appeal. The Court also directed the appellant, Jagannath Prasad, to surrender to the bail bonds that had been issued against him. In summary, the appeal was dismissed and the order of conviction was affirmed.