Ghanshyam Das vs Regional Assistant Commissioner of Sales Tax, Nagpur

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

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 101 and 102 of 1961

Decision Date: 16 August 1963

Coram: S.K. Das, Raghubar Dayal, N. Rajagopala Ayyangar, J.R. Mudholkar, K. Subba Rao

In the matter titled Ghanshyam Das versus Regional Assistant Commissioner of Sales Tax, Nagpur, the Supreme Court of India delivered its judgment on 16 August 1963. The judgment was authored by a bench comprising S K Das, Raghubar Dayal, N Rajagopala Ayyangar and J R Mudholkar. The petitioner was identified as Ghanshyam Das and the respondent as the Regional Assistant Commissioner of Sales Tax, Nagpur. The judgment is recorded under the citation 1964 AIR 766 and 1964 SCR (4) 436. The case also appears in several reporter references, including R 1967 SC 1408 (10, 11, 12), R 1968 SC 565 (5, 9, 31, 32, 33), E 1968 SC 894 (6), R 1970 SC 311 (3), R 1970 SC 2057 (9), R 1977 SC 540 (9, 10), and R 1979 SC 1098 (12). The statutory provision under consideration was the Central Provinces and Berar Sales Tax Act, 1947 (XXI of 1947), specifically sections 10(1) and 11‑A, dealing with assessment of turnover that escaped assessment.

The appellant was a registered dealer engaged in the bidi business. For the financial year 1949‑50, covering the period from 22 October 1949 to 9 November 1950, he filed only a single return on 5 October 1950 for one quarter and failed to file returns for the remaining quarters. Consequently, a notice dated 13 August 1954 was served under sections 11(1) and 11(2) of the Central Provinces and Berar Sales Tax Act, 1947, seeking assessment of the turnover for that period. After receiving the notice, the appellant submitted the outstanding returns; however, during the subsequent assessment proceedings before the Sales Tax Commissioner, he argued that the proceedings were barred by limitation. The Commissioner rejected this argument and determined the appellant’s tax liability. The appellant then approached the High Court by filing a writ petition challenging the assessment. In a separate appeal, identified as Appeal No. 102/1961, the appellant had not filed any return for the year 1950‑51, which spanned from 10 November 1950 to 31 October 1951. A notice dated 15 October 1954 was served under section 11(4) of the Act, which fell within three years of 16 October 1951, a date situated in the fourth quarter of the relevant financial year. The appellant filed the overdue returns under protest and contended that the assessment proceedings were barred by the limitation prescribed in section 11‑A. This contention was also rejected and his tax liability was fixed. He subsequently filed another writ petition seeking similar relief. Both writ petitions were heard together, and the learned single judge, relying on the decision in Firm Sheonarayan Matadin v. Sales Tax Officer, Raipur, set aside the assessments. The respondent appealed the single judge’s order by filing Letters Patent Appeals before a Division Bench, which, by a common judgment, restored the orders of the Commissioner. In the Supreme Court, the appellant advanced several points of contention: first, that the term “escaped assessment” in section 11‑A should also cover situations where no assessment had ever been made; second, that even if the first assessment proceedings were pending before the appropriate authority, any subsequent assessment could be made only within three years from the date on which the authority issued a notice under section 10(1), 11(2) or 11(5); third, that in the present case no assessment proceedings were pending; and fourth, that because only a part of the fourth quarter of the second appeal fell within the three‑year period, the assessment of the entire quarter should be barred under section 11‑A, limiting assessment only to the turnover that escaped between 10 November 1950 and 31 October 1951. The respondent countered that, while different rules might apply to an unregistered dealer, for a registered dealer the commencement of assessment proceedings is tied to the date specified in the registration certificate, which imposes a statutory duty on the dealer to file returns. The Court noted, with Justice Raghubar Dayal dissenting, that the expression “escaped assessment” in section 11‑A includes turnover that has not been assessed at all.

In the appeal, the petitioner maintained that the commencement of assessment proceedings could arise only after the appropriate authority issued a notice pursuant to section 10(1) or section 11(2) or section 11(5) of the Sales Tax Act. He further submitted that, at the material time, no assessment proceedings relating to the questioned assessment were pending. Accordingly, he argued that only a portion of the fourth quarter covered by the second appeal fell within the three‑year limitation period, and therefore the entire quarter should be deemed barred under section 11‑A of the Act. In his view, the only turnover that could lawfully be assessed was the amount that escaped assessment during the period from 10 November 1950 to 31 October 1951. The respondent, on the other hand, contended that the position applicable to an unregistered dealer could not be extended to a registered dealer. He argued that, for a registered dealer, the assessment proceedings began on the date specified in the dealer’s registration certificate, a date on which the dealer is statutorily obligated to file his return. The Court recorded a dissenting opinion of Justice Raghubar Dayal, who observed that the phrase “escaped assessment” in section 11‑A also embraces turnover that has never been assessed because, for one reason or another, assessment proceedings were never initiated. Justice Dayal relied upon the authorities Commissioner of Income‑Tax, Bombay v. Pirojbai N. Contractor (1937) 5 I.T.R. 338; Maharaj Kumar Kamal Singh v. Commissioner of Income‑Tax, Bihar and Orissa ([1959] Supp. S.C.R. 10); Maharajadhiraj Sir Kameshwar Singh v. State of Bihar ([1960] 1 S.C.R. 332); Commissioner of Income‑Tax, Bombay v. Narsee Nagsee & Co. ([1960] 3 S.C.R. 988); and State of Madras v. Balu Chettiar (1956) 7 S.T.C. 519. These cases support the view that assessment proceedings are deemed pending from the moment they are initiated until a final assessment order terminates them.

The Court further explained that, prior to the issuance of a final assessment order, it could not be said that the entire turnover, or any part of it, of a dealer had escaped assessment, because the assessment process had not yet concluded and might eventually capture the whole turnover. The decisions In re Lachhiram Basantlal (1930) I.L.R. 58 Cal. 909 and Rajendra Nath Mukherjee v. Income‑Tax Commissioner (1938) L.R. 61 I.A. 10 were cited to reinforce this principle. Under subsection (1) of section 10, the Commissioner is not required to serve a notice to a registered dealer to compel the filing of the relevant return; nevertheless, the law imposes a statutory duty on the dealer to submit the return by the prescribed date to the authority designated by the statute. Regarding the assessment of a registered dealer’s turnover, the Court identified four possible scenarios. First, the dealer may file a return by the prescribed deadline, pay the tax due on the basis of that return, and have the Commissioner accept the return as correct, thereby appropriating the tax paid to the period covered. Second, if the Commissioner is dissatisfied with the accuracy of the return, he may issue a notice to the dealer under the provisions of the Act, initiating a further enquiry. The discussion of the remaining scenarios continued beyond the present excerpt.

The judgment explained that there are four possible situations concerning the assessment of a registered dealer’s turnover. First, the dealer may file a return by the prescribed date and pay the tax shown in that return, after which the Commissioner may accept the return as correct and apply the sum paid to the tax due for the period covered. Second, the Commissioner may be dissatisfied with the correctness of the return, may issue a notice under section 11(2), and may conduct an enquiry as provided by the Act, yet may not finally assess the tax. Third, the dealer may fail to file any return; in that event the Commissioner may issue a notice under section 10(3) together with a notice under section 11(4). Fourth, the dealer may fail to file any return for any period and the Commissioner may issue a notice after the lapse of three years. In the case of a registered dealer, factual commencement of the proceedings before the Commissioner occurs either when a return is filed or when a notice is issued under section 10(3) or section 11(2). The Court rejected the argument that the mere statutory duty to file a return itself starts the assessment proceedings, characterising that view as a fiction not authorised by the statute. The Court distinguished Bisesar House v. State of Bombay (1958) 9 S.T.C. 654 and Ramakrishna Ramnath v. Sales Tax Officer, Nagpur (1960) 11 S.T.C. 811, holding that a statutory obligation to submit a return within a prescribed period does not, of its own force, initiate assessment proceedings. Rather, the proceedings begin after the return has actually been filed and continue until a final assessment order is made in respect of that return. 438

Applying these principles, the Court found that in the first appeal the tribunal lacked authority to issue a notice under section 11‑A for any quarter beyond that covered by the appellant’s return. In the second appeal, the Commissioner possessed authority to assess the turnover for the entire fourth quarter, but because the assessment did not separately show tax payable for each quarter, the Court could not restrict the relief to the period barred by section 11‑A. Consequently, the Court allowed the appeals. Per Justice Raghubar Dayal, the turnovers for the years 1949‑50 and 1950‑51 could not be described as turnovers that escaped assessment within the meaning of section 11‑A; therefore, the notices issued by the Assistant Commissioner of Sales Tax in 1954 under section 11(2) were not notices issued beyond the permissible period. The assessment proceedings against a registered dealer commence from the date prescribed for the dealer to submit the return, a date mandated by subsection (1) of section 10. No separate notice is required to compel the dealer to file the return for assessment purposes because the statute itself, through subsection (1) of section 10, provides the necessary notice directing the dealer to file the requisite returns by the dates set out in the rules. The dealer’s registration certificate specifies the dealer’s financial year, the prescribed return period, and the dates by which the returns must be filed. Accordingly, a registered dealer is placed in no worse position than an ordinary dealer who receives a notice directing him to submit returns by a certain date. 439

In the discussion of assessment procedures, the Court observed that a dealer who is registered under the Act is placed in a position no different from an ordinary dealer who simply receives a notice directing the submission of returns by a specified date. For a dealer who is not registered, the assessment proceedings are initiated only after the issuance of a notice pursuant to subsection (1) of section 10. The Court further noted that the statute does not prescribe any fixed time limit within which a sales‑tax officer must act against a registered dealer under subsections (2) and (4) of section 11. Consequently, the Court held that the officer’s decision to take action against a registered dealer under either subsection (2) or subsection (4) of section 11 does not infringe Article 14 of the Constitution, even if the action is taken after the three‑year period that ordinarily would have expired for the turnover that escaped assessment.

The matter before the Court arose from two civil appeals, numbered 101 and 102 of 1961, which were filed by way of certificate. Both appeals challenged orders dated 13 December 1957 that had been rendered by the Madhya Pradesh High Court in the context of Letters Patent Appeals numbered 208 and 207 of 1956. Counsel for the appellants presented the case, while counsel for the respondents opposed it. The judgment was delivered on 16 August 1963 by a bench consisting of Acting Chief Justice S. K. Das, Justice K. Subba Rao, Justice N. Rajagopala Ayyangar and Justice J. R. Mudholkar, with Justice Subba Rao authoring the majority opinion and Justice Raghubar Dayal delivering a dissenting opinion.

The principal issue examined by the Court concerned the proper interpretation of the expression “escaped assessment” as employed in section 11‑A of the Central Provinces & Berar Sales Tax Act, 1947. The factual background of the first appeal was that the appellant, acting as manager of a joint Hindu family firm engaged in the bidi trade, was a registered dealer under section 8 of the Act. Under the Act, every registered dealer was required to file quarterly turnover returns within one month after the close of each quarter. For the fiscal year 1949‑50, covering the period from 22 October 1949 to 9 November 1950, the appellant submitted a return for only one quarter on 5 October 1950 and failed to file returns for the remaining three quarters. On 13 August 1954, the Assistant Commissioner of Sales Tax in Nagpur issued a notice in Form No. 11 invoking sections 11(1) and 11(2) of the Act, seeking assessment of the firm’s turnover for the aforesaid period. The appellant subsequently filed the pending returns for the three defaulted quarters, but during the assessment proceedings contended that the Assistant Commissioner lacked authority to assess the turnover that had “escaped” assessment because such assessment could be made only within three years from the expiry of the period to which the turnover related. The Sales‑Tax Commissioner rejected this limitation argument, proceeded with the assessment, and fixed the tax liability at Rs. 15,846.00. Dissatisfied with that determination, the appellant filed a petition under Article 226 of the Constitution in the High Court of Nagpur, primarily asserting that the assessment proceedings were barred by the limitation period prescribed in section 11‑A of the Act.

In the matter, the appellant contended that the assessment proceedings before the Sales‑tax Commissioner were barred by the limitation provision contained in section 11‑A of the Act. The litigation concerned Civil Appeal No 102 of 1961, which related to the assessment of sales‑tax on the appellant’s turnover for the financial year 1950‑51. The appellant had failed to file any return for the entire year. Consequently, the Assistant Commissioner of Sales‑tax, Nagpur, served a notice on the appellant on 15 October 1954 under section 11(4) of the Act. After receiving the notice, the appellant submitted his returns and produced the relevant account‑books, but he did so under protest and also raised an objection that the assessment proceedings were barred by the limitation prescribed in section 11‑A. The Assistant Commissioner rejected the appellant’s plea of limitation and fixed the tax liability at Rs 16,537‑5‑0. The appellant subsequently filed another petition under Article 226 of the Constitution in the same High Court, seeking the same relief. Both petitions were heard together by Justice Kotwal. Justice Kotwal, relying on the decision of a division bench of that Court in Firm Sheonarayan Matadin v. Sales‑tax Officer, Raipur (1956 S.T.C. 623), concluded that the notices had been issued beyond three years from the expiry of the relevant periods, and therefore the Sales‑tax Commissioner possessed no jurisdiction to make the assessments; on that basis he set aside the assessments.

The respondent appealed the judgment by filing Letters Patent Appeals before a division bench of the High Court. After the formation of the State of Madhya Pradesh, the appeals were transferred to the Madhya Pradesh High Court, where they were heard by a division bench consisting of Chief Justice Hidayatullah and Justice Choudhuri. The division bench held that section 11‑A of the Act could be applied only where a final assessment had already been made, and observed that in the present cases the first assessment proceedings were still pending; consequently, the provision did not apply to those proceedings. By a common judgment, the division bench set aside the orders of Justice Kotwal, thereby giving rise to the present appeals.

Counsel for the appellant, Mr J M Thakar, then presented four points for consideration. First, he argued that the expression “escaped assessment” in section 11‑A should also cover a situation where no assessment had been made at all. Second, he submitted that even if the first assessment proceedings were pending before the appropriate authority, that authority could make the assessment only within three years from the date on which the proceedings commenced, a date he said began with the issuance of the notice in accordance with the Central Provinces & Berar Sales Tax Rules, 1947. Third, he claimed that in the present case no assessment proceedings were pending before the authority. Fourth, he maintained that only a portion of the fourth quarter in Civil Appeal No 102 of 1961 fell within the three‑year period, and therefore the proceedings for the entire quarter should be barred under section 11‑A, leaving only the turnover for the period from 16 October 1951 to 31 October 1951 subject to assessment.

In this case the Court observed that only the period running from October 16 1951 to October 31 1951 was open to assessment. Counsel for the respondent challenged the argument presented by the appellant and asserted that, for dealers who are registered, the law imposes a duty to file a return; consequently, the assessment proceedings must be considered to have been pending from the moment the assessee became legally obliged to file the return. Accordingly, the respondent argued that because the proceedings were, by operation of statute, already pending, the provisions of section 11‑A of the Sales Tax Act could not be invoked. In the earlier appeal numbered 102 of 1961 the respondent had also suggested that a calendar year under section 11‑A should be interpreted as running from January to December, a construction that would place the entire fourth quarter within the three‑year limitation; however, that line of argument was not pursued further in the present proceedings. The principal issue before the Court was therefore the correct construction of section 11‑A of the Act. The relevant portion of that section reads: “Section 11‑A (1): If in consequence of any information which has come into his possession, the Commissioner is satisfied that any turnover of a dealer during any period has escaped assessment the Commissioner may, at any time within three calendar years from the expiry of such period proceed in such manner as may be prescribed to assess the tax payable on any such turnover.” Under this provision, when a dealer’s turnover for a particular period has escaped assessment, the Commissioner is empowered to initiate assessment within three calendar years after the period ends, following the prescribed procedure. The term “escaped assessment” is therefore the focal point of the enquiry. The Court noted that the appellant contended the expression should be understood to include situations where no assessment was ever made, whereas the respondent maintained that it ought to be limited to cases detected after an assessment had already been attempted. The Court referenced earlier decisions that had examined the same expression in other tax statutes. In Commissioner of Income‑Tax, Bombay v. Pirojbai N. Contractor the phrase “escaped assessment” in the Income‑Tax Act was interpreted broadly to cover circumstances where no notice under section 22(2) of the Income‑Tax Act had been issued, resulting in the assessee’s income never being assessed under section 23. Subsequent judgments, including Maharaj Kumar Kamal Singh v. Commissioner of Income‑Tax, Bihar & Orissa and Maharajadhiraj Sir Kameshwar Singh v. State of Bihar, adopted that expansive view and extended it to situations where the first assessment was completed but a portion of the income nevertheless escaped assessment. The Court also referred to Commissioner of Income‑Tax, Bombay v. Narsee Nagsee & Co., which, while interpreting section 14 of the Business Profits Tax Act, 1947, examined the same issue. By citing these authorities, the Court intended to illuminate the established jurisprudence on the meaning of “escaped assessment” and to consider whether a narrower construction should be applied in the present context.

The Court considered the matter and arrived at the conclusion that “All these cases show that the words ‘escaping assessment’ apply equally to cases where a notice was received by the assessee but resulted in no assessment at all and to cases where, for any reason, no notice was issued to the assessee, and, therefore, there was no assessment of his income.” The Court noted that although the cited decisions were rendered in relation to either section 34(1) of the Income‑tax Act or section 14 of the Business Profits Tax Act, the same principles are applicable to section 11‑A of the Governing Act because the three provisions are pari materia, each being a taxing provision intended to recover revenue that has improperly escaped assessment. In construing the expression “escaped assessment” in section 11‑A, the Court found no justification for giving the term a narrower meaning than that which it carries under the two earlier statutes. All three statutes aim to capture revenue that has not been assessed. The Court then referred to a division bench of the Madras High Court in The State of Madras v. Balu Chettiar (1), which followed a Full Bench decision and held that when an assessee fails to file a return of turnover for a particular year, resulting in the absence of any assessment, the turnover for that year is said to have escaped assessment. The High Court observed that whether the omission was deliberate or accidental, the assessee’s failure to submit a return caused the entire turnover for 1951‑52 to escape assessment, and that the whole amount for that year escaped assessment. The Court stated that it is unnecessary to multiply citations and therefore held that the expression “escaped assessment” in section 11‑A includes turnover that has not been assessed at all because, for one reason or another, assessment proceedings were never commenced and consequently no assessment was made. The Court then turned to the next issue, namely whether turnover can be said to escape assessment when the first assessment proceedings are still pending and no final order has been rendered. Referring to In re Lachhiram Basantlal (2), the Court quoted Rankin C.J.’s concise observation that “Income has not escaped assessment if there are pending at the time proceedings for the assessment of the assessee’s income which have not yet terminated in a final assessment thereof.” This statement established a clear principle that a turnover cannot be said to have escaped assessment before the assessment process is completed. The Court further noted that the Judicial Committee in Rajendra Nath Mukherjee v. Income‑tax Commissioner (1) relied on this dictum when rejecting the opposite contention raised by the assessee, thereby endorsing the view that pending assessment proceedings preclude a finding of escaped assessment.

In that appeal, the judicial committee examined the arguments presented by the assessee and upheld the view expressed by the earlier tribunal. The decision hinged upon the construction of section 34 of the Indian Income‑Tax Act. In the factual background, Burn & Co., which was an unregistered firm, filed a return of its total income on 13 January 1928. Subsequently, on 25 February 1928, the Income‑Tax Officer issued an assessment against Martin & Co., whose partners had purchased the business of Burn & Co., and the assessment covered the combined incomes returned by both Martin & Co. and Burn & Co. The High Court ruled that, under the Income‑Tax Act, the incomes of the two firms could not be aggregated; each firm’s income had to be assessed separately. Later, on 8 November 1930, an assessment was made specifically against Burn & Co. based on the income it had returned on 13 January 1928. It was argued that, pursuant to the Income‑Tax Act, an assessment could not be made after the end of the year for which the tax was levied unless the circumstances fell within the exceptions enumerated in section 34 of the Act. The judicial committee held that the income of Burn & Co. had not “escaped assessment” within the meaning of section 34. The committee observed that the submission that “if an assessment is not made on income within the tax year then that income has escaped assessment within that year and can be subsequently assessed only under section 34 with its time limitation” amounted to interpreting the phrase “has escaped assessment” as synonymous with “has not been assessed.” The Lordships could not accept that interpretation because it would give an unduly narrow meaning to “assessment” and an overly broad meaning to “escaped.” They noted that section 66, which refers to “the course of any assessment,” demonstrates that “assessment” is not confined to the act of issuing a final order. To declare that the income of Burn & Co., which had been returned for assessment in January 1928, accepted as correct, and mistakenly included in the assessment of Martin & Co., had “escaped assessment” in the year 1927‑28 was deemed an inadmissible reading. The committee further pointed out that section 34 requires a notice to be served calling for a return of income that has escaped assessment, which strongly suggests that income already duly returned for assessment cannot be said to have “escaped” assessment within the statutory meaning. Since section 34 of the Income‑Tax Act did not apply and no other time limit was prescribed or could be implied by the Act, the committee concluded that the assessment was not out of time. This judgment thus serves as a clear authority for the proposition that, where a return has been duly made, an assessment may be issued at any time unless the statute expressly provides a time limitation. The reasoning rests on the principle that proceedings properly initiated within the appropriate time remain pending and may be completed without a prescribed limitation.

In the Court’s view, once a proceeding is properly commenced it may continue without any statutory time limitation, because a proceeding is regarded as pending from the moment it begins until a final assessment order finally terminates it. Applying that principle to assessment matters under the Sales‑Tax Act, the Court held that the assessment process remains pending from the date the assessment is initiated and persists until the authority issues a conclusive assessment order. Consequently, before the issuance of such a final order, it is inaccurate to say that any portion of a dealer’s turnover has escaped assessment, since the assessment has not yet been completed and, if it were completed, the whole turnover could potentially be captured within the tax net. The Court then identified the more complex issue that required resolution: the exact point at which assessment proceedings commence for a registered dealer and the moment at which they are deemed to have terminated. Counsel for the appellant argued that assessment proceedings should be said to start only after the appropriate authority serves a notice under section 10(1) or sections 11(2) or 11(5) of the Act. In contrast, counsel for the respondent maintained that, unlike the situation with an unregistered dealer, the proceedings for a registered dealer begin on the date fixed in the dealer’s registration certificate, which also indicates the statutory deadline by which the dealer must file his return. To evaluate these competing positions, the Court noted it was necessary to examine the relevant statutory provisions contained in the Act and the accompanying Rules.

The Court then set out the statutory framework governing registration and liability under the Sales‑Tax Act. Section 4 provides that any dealer whose turnover exceeds the limits prescribed in sub‑section (5) becomes liable to pay tax on all sales made, according to the provisions of the Act. Section 8 further stipulates that a dealer who is liable to pay tax may not carry on business as a dealer unless he has first been registered and possesses a valid registration certificate. Part IV of the Rules describes the procedure by which a dealer obtains registration. When a dealer satisfies the conditions laid down in section 8, the Sales‑Tax Officer issues a registration certificate in Form II, which records details such as the business location, nature of the business, and other particulars. The Officer records the name of each registered dealer in a ledger kept under section 9 and provides copies of the registration certificates for display at the dealer’s place of business. One of the columns in Form II specifies the period covered by the registration and the exact date by which the dealer must file his return. A consolidated list of all registered dealers is published under Rule 17. The Act repeatedly emphasizes that no dealer who is liable for tax may conduct business without being registered and holding a registration certificate. From these provisions, the Court concluded that the purpose of registration is primarily fiscal, intended to facilitate tax collection and to deter tax evasion. Having clarified the registration regime, the Court signalled that it would next consider the provisions governing how a registered dealer is assessed for tax.

In this case, the Court explained that the law prescribed the manner in which a registered dealer would be assessed to tax. Section ten required every registered dealer to file returns on the dates and before the authority that the statute prescribed. Rule nineteen detailed the filing procedure, mandating that a registered dealer submit quarterly returns to the appropriate sales‑tax officer within one calendar month after the quarter ended. Where the dealer operated more than one place of business in the province, the rule demanded a consolidated return covering all locations as well as separate returns for each place, each to be filed within two calendar months of the quarter’s end. The rule further required that every return be accompanied by a treasury‑receipted chalan in Form V reflecting the tax due according to the return. Consequently, the dealer was obligated to lodge the return or returns in the prescribed form within the prescribed time and to pay the tax liability together with the filing.

The Court then turned to the assessment provisions. Section eleven, clause one provided that if the commissioner was satisfied that a dealer’s return for a period was correct and complete, the commissioner could assess the dealer based on that return. If the commissioner was not satisfied, clause two authorized the commissioner to serve the dealer with a notice appointing a place and date for an enquiry, after which the commissioner would assess the dealer under rule three. Rule thirty‑one prescribed that the notice under section eleven, clause two be served on the dealer in Form II, although the rule mistakenly referred to sub‑section one, which did not contemplate any notice. The Court noted that if a registered dealer failed to file the return as required by section ten, sub‑section three, the commissioner could, after granting a reasonable opportunity to be heard, impose a penalty not exceeding one‑fourth of the tax that could be assessed under section eleven. Rule thirty‑two, an omnibus provision, required that a notice in Form XII be issued in such an event. Under sub‑section four of section eleven, if a registered dealer committed the defaults specified therein, the commissioner was mandated to assess the dealer to the best of his judgment, with rule thirty‑two also governing the procedure for that assessment. Rule thirty‑three required maintenance of a register of cases instituted under section eleven, rule thirty‑four prescribed the form of the assessment order, and rule thirty‑nine dealt with preparation of the assessment record. At this stage, the Court considered an argument advanced by counsel for the appellant, who contended that section ten, clause one obliges the commissioner to give notice in the prescribed manner to a registered dealer.

In this case, the Court observed that section 10(1) of the Act reads: “Every such dealer as may be required so to do by the Commissioner by notice served in the prescribed manner and every registered dealer shall furnish such returns by such dates and to such authority as may be prescribed.” The Court explained that the term “dealer” ordinarily denotes any person who carries on the business of selling or supplying goods, and that, in its ordinary breadth, the term embraces both a dealer who is registered under the Act and a dealer who has not obtained such registration, unless the surrounding subject or context makes the term inconsistent with that meaning. Accordingly, the Court examined whether anything in the subject matter or context of section 10 would justify limiting the word “dealer” in the first part of sub‑section (1) to exclude a registered dealer. It noted that sub‑section (1) consists of two clauses: the first refers to “a dealer” and the second to “every registered dealer,” and both clauses command the furnishing of returns. If the dealer mentioned in the first clause already includes a registered dealer, the reference to “every registered dealer” in the second clause would be redundant, and the Court held that a statutory provision should not be interpreted to create such redundancy unless there are compelling reasons to do so. The redundancy disappears if the expression “dealer” in the first clause is read as excluding a registered dealer, thereby preserving the purpose of the second clause. The Court further pointed to sections 14 and 17 of the Act, which respectively impose a duty on every registered dealer or on every dealer who has received a notice to keep true accounts of goods bought and sold and to inform the prescribed authority of any change in business. The distinction between the two categories of dealers is therefore echoed in sections 14 and 17 as well as in section 10. From this, the Court concluded that, under sub‑section (1) of section 10, the Commissioner does not need to issue a notice to a dealer who is already registered; rather, the law imposes a statutory obligation on such a registered dealer to file the required returns by the dates and to the authority prescribed. In contrast, a dealer who has not registered under the Act bears no statutory duty to submit a return; his failure to register represents an evasion of his legal obligation. Nonetheless, section 10(1) empowers the Commissioner to serve a notice to such an unregistered dealer, requiring him to furnish a return in the manner prescribed. When a notice is issued to an unregistered dealer, the Court said that the procedure laid down in sections 10(3), 11(1) and 11(2) must be followed for the assessment of tax. Finally, the Court noted that sub‑section (5) of section 11 introduces a stringent provision intended to prevent evasion of tax.

In dealing with deliberate tax evasion, the statute provides a specific procedure. If, after receiving information, the Commissioner is convinced that a dealer who is liable for tax under the Act for a particular period has intentionally failed to apply for registration, the Commissioner is empowered to act within three calendar years after the end of that period. Before taking action, the Commissioner must give the dealer a reasonable chance to be heard. Following that hearing, the Commissioner may, in accordance with the prescribed method, assess, to the best of his judgment, the amount of tax that should be payable by the dealer for the period in question as well as for any later periods. In addition to the tax assessed, the Commissioner may also order the dealer to pay a penalty that does not exceed eleven times the amount of tax determined. Consequently, when a dealer who should pay tax under the Act fails to register, the Commissioner may serve a notice to the dealer under rule 22 and may assess the dealer under section 11. If later information confirms that the dealer has evaded the law, the Commissioner is still authorized to assess the tax liability within the three‑year window measured from the expiry of the period for which the dealer was liable, and to do so for subsequent years as well, imposing the permissible penalty if appropriate. This provision makes clear that for a non‑registered dealer who evades registration, the assessment authority is limited to the three‑year period following the relevant tax period. By contrast, the argument advanced by counsel for the respondent suggests that a registered dealer faces no time limit on assessment, whereas a dealer who evaded registration enjoys only the three‑year limitation.

The discussion further outlines four distinct scenarios that arise when a dealer is already registered. First, the dealer may file a return by the prescribed deadline and pay the tax indicated in that return; if the Commissioner is satisfied with the return’s accuracy, he accepts it and applies the amount paid as final tax for the period covered. Second, the Commissioner may find the return unsatisfactory, issue a notice under section 11(2), and conduct an enquiry as mandated by the Act, yet refrain from finalising the assessment at that stage. Third, the registered dealer might fail to file any return; in that event, the Commissioner can issue a notice under section 10(3) together with a notice under section 11(4) to initiate assessment proceedings. Fourth, the dealer may omit filing a return for any period and the Commissioner may issue a notice after the lapse of three years. When a return is accepted and the payment is appropriated to the tax due for the relevant period, this constitutes a final assessment for that period. However, if any portion of the dealer’s turnover escapes assessment, the law permits that portion to be reopened and reassessed.

In this case, the Court observed that the period within which assessment proceedings may be initiated is limited to the time prescribed in section 11‑A of the Act. The Court explained that when a dealer files a return but the Commissioner does not accept the return and instead issues a notice for inquiry, the assessment proceedings remain pending until the Commissioner makes a final assessment. The Court further noted that even where a dealer fails to file any return, if the Commissioner commences proceedings by issuing a notice under section 10(3) or under section 11(4), the proceedings likewise remain pending before the Commissioner until a final assessment is rendered. However, the Court questioned how any proceedings could be said to be pending when the dealer has neither filed a return nor has the Commissioner issued any notice under the Act, because in such a circumstance no proceedings have actually arisen. The matter before the Court concerned precisely this last possibility.

The Court stated that, as a matter of fact, the initiation of proceedings against a registered dealer occurs only when the dealer files a return or when the Commissioner issues a notice to the dealer either under section 10(3) or under section 11(2). The Court rejected the argument that the mere statutory duty to file a return itself creates proceedings, describing such a view as a legal fiction unsupported by the legislation. According to the Court, the statutory duty may be enforced by the Commissioner taking an appropriate action under the Act, and that action may give rise to assessment proceedings. The default by the dealer may provide the occasion for the Commissioner to act, but the default by itself does not, of its own force, start any assessment proceedings. Consequently, the Court concluded that assessment of turnover for a particular period cannot be said to be pending before the Commissioner in the absence of a return or a notice.

The Court then addressed the respondent’s submission that the registration certificate itself serves as a notice requiring the dealer to file returns within the prescribed time. The respondent relied on Form 11, which, in the relevant column, records the particulars of the return and the date by which it must be submitted. The Court observed that the primary purpose of the registration certificate is to identify dealers who have taxable turnover and to facilitate the collection of tax, thereby enabling the dealer to carry on business. Neither section 8, which mandates registration of every dealer with taxable turnover, nor rule 8, which prescribes the contents of the certificate, indicates that the certificate functions as a statutory notice. The Court emphasized that the objectives of a registration certificate differ from those of statutory notices issued under the Act, and therefore the two cannot be equated.

Finally, the Court referred to the procedural rules governing the commencement of assessment proceedings. Rule 33 requires the assessing authority to keep a register in Form XIII containing details of each case that is instituted under rules 31 and 32. Rule 31 provides that, upon receipt of a return required under rules 19, 20 or 22, the assessing authority must serve a notice on the dealer in Form XI. Rule 32 prescribes, among other matters, the manner in which such notices and subsequent proceedings are to be handled. These provisions confirm that the filing of a return or the issuance of a notice is the factual trigger for assessment proceedings against a registered dealer.

Form XII set out the serial number, the taxable turnover as determined for the relevant years, and the date on which a notice in Form XI or Form XII was issued. The rules and the forms made clear that, for a registered dealer, the assessment process did not begin until the assessing authority actually received the return or returns that were required under the rules. Rule 33 required the assessing authority to keep a register in Form XIII that recorded the details of each case that was “instituted” under Rules 31 and 32. Rule 34 further stipulated that once a case was instituted it would remain pending until an order of assessment was made. By implication, the case would continue to be pending until a final order of assessment was issued by the highest tribunal or court that had jurisdiction under the Act.

The Court then examined several precedents that had been cited. A Full Bench of the Bombay High Court in Bisesar House v. State of Bombay held that a notice issued under sub‑section (2) of section 11 of the C.P. & Berar Sales Tax Act, 1947 could not be issued more than three years after the expiry of the period for which the assessment was intended, whereas an assessment made under sub‑section (1) of the same section could be made even after that three‑year period had passed. In that case the dealer had filed his return and paid the tax that he claimed was due for three chargeable accounting years. The Commissioner of Sales‑Tax later served notices under section 11(2) for the first two years, but did so more than three years after the end of those accounting years. The Court distinguished between the two sub‑sections, observing that sub‑section (1) merely involved a formal appropriation of amounts already paid and therefore could be effected after three years, while sub‑section (2) effectively initiated fresh proceedings. The Court said that failure to tax those turnovers under sub‑section (2) amounted to an “escaped assessment” within the meaning of section 11‑A, and consequently could be reopened only within the three‑year period prescribed therein. The learned judges, the Court noted, had not addressed the specific question of when assessment proceedings could be considered pending. Having previously held that the filing of a statutory return started the assessment proceedings and that those proceedings remained pending until a final assessment order was rendered, the Court concluded that no limitation question arose. A Division Bench of the same High Court, in Ramakrishna Ramnath v. Sales Tax Officer, Nagpur, distinguished proceedings under section 11(4)(a) from those under section 11(2), holding that the former were taken “in terrorem” and resulted in a best‑judgment assessment in default of compliance, whereas the latter were for the purpose of assessment.

In that earlier decision the Court explained that provisions under section 11(2) of the Sales Tax Act are intended to effect an assessment, whereas provisions under section 11(4)(a) are intended as a threat to compel compliance, resulting in a best‑judgment assessment when the dealer fails to cooperate. Accordingly, the Court held that the limitation period prescribed in section 11‑A could apply to proceedings initiated under section 11(2), but that the Act did not specify any limitation period for proceedings under section 10(3) or section 11(4)(a). The Court expressed difficulty in accepting the reasoning by which the learned judges of the Division Bench distinguished the earlier Full Bench decision, noting that the question of whether assessment proceedings were pending had not been raised before the Division Bench and therefore was not examined by it. The Court then concluded that the statutory duty to file a return within a prescribed time does not, by itself, start the assessment process before the Commissioner; the assessment process only begins after the return has actually been filed and it continues until the Commissioner issues a final assessment order concerning that return.

Applying that legal principle to the facts of Civil Appeal No. 101 of 1961, the appellant was required to file returns every quarter and the assessments were to be made on the basis of those quarterly returns, meaning that each quarter constituted a separate period for assessment. For the fiscal year 1949‑50, covering the interval from 22 October 1949 to 9 November 1950, the appellant should have filed four separate quarterly returns. He filed only one return on 5 October 1950, covering a single quarter, and no assessment was issued for any of the four quarters. Consequently, the Court held that assessment proceedings were pending before the Commissioner only with respect to the quarter for which the return had been filed; for the remaining quarters no proceedings could be said to be pending, and the Tribunal lacked jurisdiction to serve a notice under section 11‑A for those quarters. Regarding Civil Appeal No. 102 of 1961, the appellant had not filed any returns for the year 1950‑51, which spanned from 10 November 1950 to 31 October 1951. The Assistant Commissioner of Sales Tax issued a notice on 15 October 1954 in Form XII, allegedly under section 11(4) of the Act. That notice was issued within three years of 16 October 1951, a date that fell in the fourth quarter of the year in question. Under section 11‑A the three‑year limitation is measured from the end of the period during which any turnover escaped assessment, and in this case the relevant period was the fourth quarter, which ended on 31 October 1951. As the

In this case, the Court observed that the unit of assessment under the Act is a quarter, and therefore the period referred to in section 11‑A must also be understood as a quarter and cannot be broken down into smaller intervals such as months, weeks or days. The specific period at issue was the fourth quarter, which came to an end on 31 October 1951. Because the notice issued by the Commissioner was served within three years of the expiry of that quarter, the Court held that the Commissioner possessed jurisdiction to assess the turnover for the whole of the fourth quarter. However, the Commissioner had proceeded to assess the appellant’s turnover for the entire year without providing a separate assessment of tax payable for each individual quarter. Consequently, the Court concluded that the relief available to the appellant could not be limited solely to the period barred by section 11‑A. The Court therefore set aside the assessments in both appeals and granted the respondent liberty to make assessments separately for those periods that were not barred by section 11‑A – either because a return had been filed, as in the first appeal, or because the last quarter fell within the three‑year period, as in the second appeal. As a result, the appeals were allowed and costs were awarded throughout.

Justice Raghu Bar Dayal expressed a contrary view, stating that the appeals should be dismissed because the turnover for the years 1949‑50 and 1950‑51 could not be described as turnover that escaped assessment within the meaning of section 11‑A of the Central Provinces and Berar Sales Tax Act, 1947. Accordingly, the notices issued by the Assistant Commissioner of Sales Tax in 1954 under section 11(2) were not notices issued beyond the period permitted by section 11‑A. The Court noted that it is not disputed that turnover does not escape assessment if assessment proceedings are pending. The key question, therefore, was whether such proceedings were pending when the impugned notices were served. To answer this, the Court examined when assessment proceedings commence. It explained that every dealer whose annual turnover exceeds the limits prescribed in sub‑section (5) of section 4 of the Act is liable to pay sales tax according to the Act, must register under section 8, and obtain a registration certificate. A registered dealer is then required by section 10(1) to submit the prescribed returns to the appropriate authority on the prescribed dates. Rule 19 of the Rules mandates that quarterly returns in Form IV be filed with the Sales Tax Officer within one calendar month after the quarter ends, although in certain circumstances the return may be submitted within two calendar months.

The tax amount that is calculated on the turnover shown in the return must be paid into the treasury, and the treasury receipt issued in Form V must be filed together with that return. When a registered dealer files the required return, the Sales Tax Officer is authorised under section 11(1) to make an assessment based on the turnover stated in the return, provided that he is satisfied that the return is correct and complete. If the officer is not satisfied with the return, he is required to issue a notice under subsection (2) of section 11 to the registered dealer, directing the dealer to take such steps as are necessary to satisfy the officer regarding the correct amount of turnover. After the dealer complies with that notice, the officer must compute the turnover and then assess the tax in accordance with subsection (3) of section 11. The same procedure applies to an unregistered dealer, although the officer may first require the unregistered dealer to file returns by issuing a notice under subsection (1) of section 10. If the unregistered dealer files the returns and the officer is satisfied with their correctness, the officer may assess tax on that basis; otherwise, the officer must serve another notice under subsection (2) of section 11, requiring the dealer to provide further information to establish the correct turnover. Once the dealer responds to that second notice, the officer must, after conducting any necessary inquiry, assess tax under subsection (3) of section 11. Thus, the assessment procedure is identical for both registered and unregistered dealers when each files the turnover returns required by subsection (1) of section 10 and, if needed, complies with the requirements of subsection (2) of section 11. Different procedures become necessary when either type of dealer does not file returns or, after filing, fails to respond to the notice issued under subsection (2) of section 11. The Act does not give the Sales Tax Officer a specific power to assess tax simply because an unregistered dealer has not complied with either notice—that is, when the dealer does not file a return at all, or when, after filing a return that the officer does not accept, the dealer fails to answer the notice under subsection (2) of section 11. Nevertheless, the officer may proceed against such a dealer under subsection (5) of section 11, typically because the dealer’s conduct supports the officer’s earlier information that led to the issuance of the notice under section 10(1). In such a case, the officer’s action is not premised on the dealer’s default in filing a return or on failure to obey the notice under subsection (2) of section 11, but rather on the basis that, according to the officer’s information, the dealer was liable to pay tax for the period in question and willfully failed to do so.

Under sub‑section (5) of section 11, once the Sales Tax Officer has provided the dealer with a reasonable opportunity to be heard, the officer may assess the tax according to his best judgment. This assessment must be made within three calendar years after the expiry of the period whose turnover was liable to tax. The dealer who is assessed in this manner must not only pay the amount of tax determined but also a penalty that may be up to one and a half times the assessed tax. If the same dealer had previously received a notice under sub‑section (1) of section 10 and, without a satisfactory reason, failed to comply with that notice, the officer may also impose an additional penalty not exceeding one‑fourth of the tax assessed under section 11, as provided by sub‑section (3) of section 10. It is important to note that while the officer is required to commence the assessment within the three‑year period, there is no statutory ceiling on the time within which the assessment procedure must be completed; the officer may finish the assessment at any later date after the initiation. The three‑year period prescribed in sub‑section (5) of section 11 was introduced by the Amending Act XX of 1953, which replaced the earlier wording “from the commencement of this Act and thereafter within twelve months.” The same amendment also introduced section 11‑A, which deals with the assessment of turnover that escaped earlier assessment, and applied retrospectively from 1 June 1947, the date the Act originally came into force. Section 11‑A authorises the Sales Tax Officer to assess or reassess such turnover, including turnover that escaped assessment, within three years after the expiry of the relevant period. The procedure applicable to a registered dealer differs when the dealer either fails to file a return for any period by the prescribed date set out in sub‑section (1) of section 10, or, after filing, fails to obey a notice issued under sub‑section (2) of section 11. In those situations, sub‑section (4) of section 11 empowers the officer to assess the registered dealer according to his best judgment and in the manner prescribed by law. However, before making such an assessment, the officer must issue an additional notice if the dealer has not filed the return at all. Should the dealer’s failure to file the return be without sufficient cause, a penalty may be imposed under sub‑section (3) of section 10. No specific time limit is fixed for the officer to take action against a registered dealer under sub‑sections (2) and (4) of section 11.

The legislation does not prescribe a specific time limit for the Sales Tax Officer to initiate action against a registered dealer under sub‑sections (2) and (4) of section 11. Consequently, the Court considered the pivotal question of when the proceedings for assessing sales tax actually commence with respect to a registered dealer. The Court expressed the view that the assessment proceedings begin on the date fixed by law for the dealer to file his return as required by sub‑section (1) of section 10. No additional notice is required to be served to the registered dealer for the purpose of initiating assessment because the statutory requirement itself functions as the necessary notice. Section 10(1) of the Maharashtra Sales Tax Act, 1964, as reproduced in the record, mandates that the dealer receive a notice directing him to submit the returns by the dates prescribed in the rules. The dealer’s registration certificate likewise specifies the fiscal year, the applicable return period and the exact dates by which the returns must be furnished. In this manner the registered dealer is placed in a position no less favorable than that of an unregistered dealer who receives a direct notice from the Sales Tax Officer to file returns by a stipulated date. The purpose of the statutory notice is merely to obtain the information necessary for the officer to compute the dealer’s turnover and, where applicable, to assess the tax payable on that turnover. Thus the notice constitutes a step that triggers the commencement of assessment proceedings. For an unregistered dealer the Sales Tax Officer initiates assessment by issuing a notice under sub‑section (1) of section 10, whereas for a registered dealer the law already designates the return filing date, thereby setting the assessment process in motion. The Court found no persuasive reason to treat the statutory notice to a registered dealer as inferior to a notice issued directly by the officer to an ordinary dealer, and therefore held that the statutory notice should be regarded as commencing the assessment proceedings in the same way. If the registered dealer fails to submit the required return, the officer may, after giving the dealer an opportunity to be heard, assess the tax according to his best judgment, a power that reflects the dealer’s default in the procedural steps. Consequently, the Court concluded that the statutory framework itself initiates the assessment clock from the close of the quarter for which the turnover is to be reported, and that the Sales Tax Officer may lawfully assess tax on a defaulting registered dealer without waiting for a separate procedural notice.

In this case the Court observed that the dealer’s default lay in his failure to submit a return of turnover and in his failure to deposit the tax that was due on the turnover shown in that return. The Court noted that the payment of tax made as a result of the statutory notice issued under section 10(1) and rule 19 demonstrated that the statutory notice and the rule began the assessment proceedings against a registered dealer at least from the date on which the quarter ended for which the turnover had to be furnished and the tax paid. The Court further held that the mere fact that a Sales Tax Officer could not proceed against an unregistered dealer—who, although liable to pay tax, had not become registered—after three years had elapsed from the period of the liable turnover could not be taken to mean that the Officer was also barred from taking the necessary steps to assess a registered dealer under subsections (2) and (4) of section 11 after the expiry of three years from the period whose turnover was to be assessed. The Court explained that neither section 11 nor any other provision of the Act imposed such a restriction on the Officer’s powers under those subsections, and that exercising those powers did not violate article 14 of the Constitution. The Court distinguished between the classes of registered and unregistered dealers, stating that the former admitted liability to tax while the latter had not admitted any liability. To determine liability of an unregistered dealer, the Officer could only issue a notice under subsection (1) of section 10 when he believed the dealer might be liable, and could act under subsection (5) of section 11 only when the information in his possession was sufficiently strong and trustworthy to show that the unregistered dealer was liable for sales tax and had willfully failed to apply for registration. The Court concluded that the circumstances in which the Officer could act against an unregistered dealer were different from those in which he could act against a registered dealer, and therefore the Officer’s action against a registered dealer under subsection (2) or (4) of section 11 after three years had passed did not contravene article 14. The Court also pointed out that the original version of the Act did not contain section 11‑A; this provision was introduced in 1953 and made retrospective to 1 June 1947, and that the amendment made in 1953 to subsection (5) of section 11 created a limitation period.

The Court noted that the statute expressly limits the period for proceeding to assess tax to three years. It further observed that no amendment introducing a limitation was made to sections 11(2) and 11(4) in the 1953 amendment, and that this omission must have been deliberate. The deliberate omission, according to the Court, indicates that the Legislature intended that the periods for taking action under sections 11(2) and 11(4) should not be confined by any limitation. The Court then described the Register of Cases in Form XIII of the Rules and Forms, explaining that this register is used for cases instituted under sections 10(3), 11, 11‑A and 22‑C of the Act. Although the register’s columns do not display the date on which tax assessment proceedings commence, column fourteen is designated for recording the amount of any penalty imposed, the relevant statutory provision under which the penalty is imposed, and a reference to the defaulters’ list. From this, the Court inferred that the Sales Tax Officer maintains a list of registered dealers who have defaulted by failing to comply with notices issued under section 10(1) or section 11(2), or any other provision that renders a registered dealer liable to a penalty. The maintenance of this defaulters’ list, the Court explained, demonstrates that the Sales Tax Officer initiates tax‑assessment proceedings before issuing notices under section 10(3), and that such initiation must occur after the deadline for filing returns prescribed in section 10(1) has passed. In the view of the Court, having expressed the above opinion, it was unnecessary to determine the exact scope of the expression “turnover escaping assessment” found in section 11‑A. Consequently, the Court concluded that the notices issued by the Assistant Commissioner of Sales Tax to the appellant were proper and that the appeals filed against those notices failed. Accordingly, the Court would dismiss those appeals and award costs. However, the final order of the Court, aligning with the majority opinion, allowed the appeals, directing that costs be awarded throughout and that one hearing fee be imposed.