M/s. Daluram Pannalal Modi vs The Assistant Commissioner of Sales Tax

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 870 of 1962

Decision Date: 8 March 1963

Coram: A.K. Sarkar, K.N. Wanchoo, K.C. Das Gupta

In the matter titled M/s. Daluram Pannalal Modi versus The Assistant Commissioner of Sales Tax, the Supreme Court of India delivered its judgment on 8 March 1963. The case was reported in 1963 AIR 1581 and 1964 SCR (2) 286. The bench consisted of Justice A.K. Sarkar, Justice K.N. Wanchoo and Justice K.C. Das Gupta. The petitioner was M/s. Daluram Pannalal Modi and the respondent was the Assistant Commissioner of Sales Tax. The judgment was authored by Justice A.K. Sarkar. The relevant statutory framework involved the Madhya Pradesh General Sales Tax Act, 1958 (M. P. 2 of 1959), specifically sections 19, 30 and related provisions. Section 19 of the Act empowers the Commissioner, when satisfied that any sale or purchase of goods has escaped assessment, to reassess the tax payable and to impose a penalty. Section 30 authorises the Commissioner to delegate any of his powers and duties under the Act to subordinate officers.

The Commissioner had delegated to the Assistant Commissioner both the powers and duties necessary to make an assessment or reassessment of tax or penalty and to exercise all other powers under sections 18, 19 and 20. Acting under this delegation, the Assistant Commissioner issued a notice to the appellant stating that he was satisfied that sales made between 1 April 1957 and 31 March 1958 had escaped assessment, and consequently assessed an additional tax and penalty. The appellant contended that the delegation covered only the power under section 19 and not the accompanying duty to be personally satisfied, arguing that the Assistant Commissioner could validly reassess only after the Commissioner himself had become satisfied that sales had escaped assessment. The Court held that the order of reassessment and penalty made by the Assistant Commissioner was valid. It observed that the requirement of the Commissioner’s satisfaction before exercising the power under section 19 is a condition or limitation on the exercise of the power, not a separate duty that must be performed personally. Even if the requirement of satisfaction were treated as a duty, it would be an adjunct to the power and would necessarily pass with the delegation of that power. The Court further noted that multiple conditions precedent to the exercise of a power do not acquire independent existence; they remain attached to the power itself. The decisions in Mungoni v. Attorney‑General [1960] A.C. 336 and Hazrat Syed Shah Mastarshid Ali Al Quadari v. Commissioner of Wakfs, West Bengal, [1961] 3 S.C.R. 759 were relied upon in reaching this conclusion.

The civil appeal, numbered 870 of 1962, arose by special leave from the judgment and order dated 5 April 1962 of the Madhya Pradesh High Court at Jabalpur in case M. P. No. 14 of 1962. The appellant was represented by counsel for the appellant, while the State of Madhya Pradesh was represented by counsel for the respondents, including the Advocate‑General. The judgment of the Court was pronounced on 8 March 1963 by Justice A.K. Sarkar. The Court began its analysis by noting that the appellant had been assessed to sales tax for the year 1957‑58 under the Madhya Bharat Sales Tax Act, 1950, which had been repealed on 1 April 1959 by the Madhya Pradesh General Sales Tax Act, 1958. The subsequent proceedings and the validity of the reassessment formed the core of the dispute, leading to the Court’s affirmation of the delegation principle and the legitimacy of the Assistant Commissioner’s order.

In this case the Court observed that the appellant had been assessed to sales tax for the fiscal year 1957‑58 under the Madhya Bharat Sales Tax Act, 1950, which was later repealed on 1 April 1959 by the Madhya Pradesh General Sales Tax Act, 1958. On 31 December 1960 an Assistant Commissioner of Sales Tax, acting under the 1958 Act, issued a notice to the appellant stating, “I am satisfied that your sale during the period from 1‑4‑1957 to 31‑3‑58 has escaped assessment and thereby rendered yourself liable to be reassessed under section 19(1) of the Act.” Following that notice the Assistant Commissioner commenced fresh assessment proceedings concerning the appellant’s sales for 1957‑58. On 31 March 1961 the Assistant Commissioner issued an order imposing an additional tax of Rs 31,250 for that year together with a penalty of Rs 15,000. The appellant challenged that order by filing a writ of certiorari in the Madhya Pradesh High Court, but the High Court refused to set aside the order. Consequently the appellant appealed to this Court against the High Court’s judgment. The Court then set out the operative part of section 19(1) of the 1958 Act, which provides that when an assessment has been made under the Act and the Commissioner, on the basis of information that comes to his knowledge, is satisfied that any sale or purchase of goods chargeable to tax during any year has escaped assessment, and after giving the dealer a reasonable opportunity of being heard and after making such enquiry as he considers necessary, the Commissioner may proceed, in the manner prescribed, to reassess the tax payable on such sale or purchase and may direct that the dealer pay, as a penalty in addition to the amount of tax so assessed, a sum not exceeding that amount. The Court further noted that section 30 of the same Act authorises the Commissioner to delegate any of his powers and duties under the Act to Assistant Commissioners and other officers, subject to certain restrictions and exceptions that were not relevant for consideration in the present matter. On 1 April 1959 the Commissioner exercised this delegation power by issuing an order that delegated to Assistant Commissioners the “powers and duties specified in column (3) of the table” attached to the order. That column, headed “Description of Powers,” listed the authority to make an assessment or re‑assessment of tax or penalty and to exercise all other powers under sections 18, 19 and 21. The Court recorded that the power to reassess conferred by section 19(1) on the Commissioner was conditioned upon several duties, one of which required the Commissioner to be satisfied that sales had escaped assessment, without the performance of that duty the power could not be exercised. It was contended that, although section 30 made provision for the delegation of duties, the Commissioner’s order of 1 April 1959 had delegated only the power under section 19 and had not delegated the associated duties. On that basis it was argued that the Assistant Commissioner could validly exercise the reassessment power only after the Commissioner himself had become personally satisfied that the sales had escaped assessment, and that because the Assistant Commissioner had acted on his own satisfaction, the exercise of the power was void.

The argument put forward was that the Assistant Commissioner, to whom the power of re‑assessment had been delegated, could validly exercise that power only after the Commissioner himself had been personally satisfied that sales had escaped assessment. It was further submitted that, because the Assistant Commissioner had exercised the power to re‑assess on the basis of his own satisfaction that sales had escaped assessment, the exercise of the power was void. Section 19(1) indeed required that the Commissioner be satisfied that sales had escaped assessment before he could proceed to exercise his power to re‑assess. The Court accepted that without such satisfaction a re‑assessment could not be made. However, the Court found that this requirement did not impose a separate duty on the Commissioner. The Commissioner’s satisfaction was necessary only when he intended to exercise his power to re‑assess and functioned as a condition or limitation on the exercise of that power. Apart from the power itself, the satisfaction requirement had no independent purpose or existence. Even if the requirement were described as a duty, it was a duty created solely as an adjunct to the exercise of the power and therefore passed automatically with the delegation of the power. The Court considered it common sense that when a power is delegated, the delegate is expected to fulfil all conditions precedent to the exercise of that power. The view adopted by the Court was consistent with the decision of the Judicial Committee in Mungoni v. Attorney General, a decision that the Court later approved in Hazrat Syed Shah Mastershid Ali Al Qaudari v. Commissioner of Wakfs, West Bengal. In that later case the Court observed that where powers and duties are inter‑connected and cannot be separated so that powers may be delegated while duties are retained, the delegation of powers necessarily includes the duties. The duty of being satisfied—if it may be called a duty—was inseparably linked with the power to re‑assess and, by passing to the delegate along with the power, could not be delegated independently. Consequently, that duty could not be the subject of a separate delegation under Section 30.

For these reasons the Court concluded that the Assistant Commissioner, as the delegate of the power to re‑assess, validly exercised the power on his own satisfaction that sales had escaped assessment. The Court then addressed the contention that the authorities in Mungoni and in cases cited by the High Court were of no assistance because those statutes required only a single condition precedent before the power could be exercised, whereas Section 19(1) of the 1958 Act required a number of conditions to be fulfilled. It was argued that the multiplicity of conditions might make them independent duties capable of separate delegation. The Court rejected that argument, holding that even a plurality of conditions remains a set of conditions precedent, each functioning as a limitation on the exercise of the power rather than as an independent duty. Accordingly, the presence of several conditions did not alter the principle that the conditions are attached to the power and pass with its delegation. The Court therefore dismissed the contention that the power exercised by the Assistant Commissioner was void on the ground of an alleged lack of separate delegation of the satisfaction requirement.

It could not be said that the steps which had to be completed before the power to reassess could be exercised were duties that could be delegated under section 30. In Mungoni’s case [1960] A.C. 336, there was only a single condition precedent, and the Court assumed that the cases cited in the High Court’s judgment were of the same nature. The Court also presumed that sub‑section (1) of section 19 required several steps to be performed before the power of re‑assessment could be invoked, although at present the Court doubted that the provision actually imposed such multiple requirements. The Court was unable to understand how the existence of a number of conditions precedent could transform them into independent duties that might be delegated separately. In its view, regardless of their number, these conditions remained merely conditions precedent—limitations on the exercise of the power—and they possessed no independent existence, just as a single condition would not. Accordingly, if, as held in Mungoni’s case [1960] A.C. 336, the performance of a single condition precedent passes with the delegation of the power to which it is attached, then a delegation of a power must also carry with it all of the conditions precedent attached to it, no matter how many there are. The Court found no material distinction between the present case and Mungoni’s case, and therefore treated the delegation of the reassessment power as valid despite the presence of multiple conditions precedent.

The second objection to the validity of the order concerned sales that had earlier been assessed under the 1950 Act as sales by an individual named Gajanand Satyanarayan, with the argument that such sales could not be assessed again. That earlier assessment had been cancelled by an order issued under section 39(2) of the 1958 Act. It was argued that the section allowed cancellation only of orders made under the 1958 Act and therefore could not nullify the assessment made under the 1950 Act. The Court found that it was unnecessary for the validity of the present re‑assessment order to demonstrate that the assessment against Gajanand Satyanarayan had been cancelled. Assuming that the sales covered by the order against Gajanand Satyanarayan were the same as those involved in the present order, the Court noted that the re‑assessment proceedings had established as a fact that the name Gajanand Satyanarayan was fictitious and that no real person by that name existed. This finding could not be contested in the present proceedings, leading the Court to conclude that the assessment order against Gajanand Satyanarayan was a nullity. Clearly, an assessment cannot be made against a non‑existent person; consequently, because the earlier order was a nullity and counsel had been unable to demonstrate otherwise, it could not impede the re‑assessment undertaken in this case.

The judgment noted that the appellant’s re‑assessment could not be sustained and therefore the second challenge to the impugned order was also rejected. Counsel for the appellant attempted to raise two additional arguments, but the court did not allow those arguments to be presented because they had not been included in the writ petition and had not been raised at any prior stage of the proceedings. Although the court declined to consider those arguments, it nevertheless set out what they were, expressly stating that it did not express any opinion on their merit. The first argument asserted that, pursuant to section 19(1) of the 1958 Act, only sales that were chargeable to tax under that Act could be subject to re‑assessment, and that the sales brought within the present order involved sugar, a commodity whose sale was not chargeable under the Act. The second argument contended that the impugned order had imposed a penalty under section 14 of the 1950 Act, which was unlawful because the 1950 Act had been repealed and the right to impose a penalty under the repealed statute was not preserved by the saving provision, namely section 52. After considering the foregoing, the judgment concluded that the appeal could not succeed and ordered that the appeal be dismissed with costs, thereby confirming the dismissal of the appeal.