The State Of Orissa vs Dabaki Devi And Ors.

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 29 October 1963

Coram: A.K. Sarkar, K.C. Das Gupta, N. Rajagopala Ayyangar

The case titled The State Of Orissa versus Dabaki Devi and Others was decided on 29 October 1963 by the Supreme Court of India. The bench comprised Justice A. K. Sarkar, Justice K. C. Das Gupta and Justice N. Rajagopala Ayyangar. Justice Sarkar delivered the judgment. The appeals primarily concerned the interpretation of the Orissa Sales Tax Act, 1947, specifically whether that statute imposed a statutory time‑limit for the Collector to make an order under section 23(3) revising a previous assessment order. The answer to this question required an examination of several provisions of the Act, which would be referred to in the discussion that follows.

According to the facts presented, the respondents had been assessed to sales tax for a number of quarters by a Sales Tax Officer. They challenged those assessments before the Assistant Collector of Sales Tax, arguing that the Officer had improperly denied certain deductions that should have been allowed against their taxable turnover. The Assistant Collector allowed the respondents’ claim and set aside the original assessments. Later, the Orissa High Court, in a separate proceeding, held that the Assistant Collector’s decision to permit those deductions was erroneous. Acting on that basis, the Collector of Sales Tax invoked section 23(3) of the Act, which authorises the Collector, on his own motion or upon application, to revise any order passed under the Act by an officer appointed under section 3 to assist him. The Collector therefore revised the Assistant Collector’s orders by increasing the amount of taxable turnover that could be deducted. The respondents subsequently moved the High Court of Orissa under Article 226 of the Constitution, seeking to quash the Collector’s revision orders on the ground that they were illegal because they were issued more than thirty‑six months after the expiry of the quarters to which the original assessments related. The High Court accepted that contention and held the revision orders to be illegal, classifying them as reassessments of turnover that had either escaped assessment or been under‑assessed. The High Court relied on subsection (7) of section 12, which permits the Collector, within thirty‑six months of the end of a period, to call for a return and to proceed with assessment of any escaped or under‑assessed turnover. The High Court reasoned that because many revision orders were made after the thirty‑six‑month period, the Collector’s actions were unlawful. However, Justice Sarkar observed that the High Court’s reliance on subsection (7) was misplaced. The language of subsection (7) limits the thirty‑six‑month period solely to the step of calling for a return; it does not impose any time‑limit on the subsequent making of an assessment order. Consequently, the High Court’s conclusion that the revision orders were illegal on the basis of that subsection was erroneous. The judgment therefore proceeded to examine other relevant provisions to determine the correct temporal limits, if any, applicable to the Collector’s revision power under section 23(3).

Consequently, the Court held that the provision under discussion does not render the orders that are the subject of these appeals illegal in any manner. The matter then turned to the second proviso contained in sub‑section (6) of section 12 of the Act, which appears to prescribe a thirty‑six‑month time limit for the issuance of such orders. The full text of that sub‑section reads as follows: “Any assessment made under this section shall be without prejudice to any prosecution instituted for an offence under this Act: Provided that when the Collector has imposed a penalty in addition to the amount assessed under this section, no further proceedings either revenue or criminal shall be taken against the dealer. Provided further that no order assessing the amount of tax due from a dealer in respect of any period shall be passed later than thirty‑six months from the expiry of such period.” The Court observed that this sub‑section would unquestionably apply if the orders at issue were indeed “orders assessing the amount of tax due” as contemplated by the proviso. Accordingly, the Court identified the essential question as the proper meaning of the phrase “order assessing the amount of the tax due” appearing in the proviso. In order to interpret those words, the Court noted that the entire context of section 12 must be examined. While doing so, the Court pointed out that section 12 primarily refers to assessments made by the Collector, but it also permits assessment by other officers appointed under the Act. Specifically, under section 17, the Collector is empowered to delegate his assessment powers to subordinate officers who assist him in the performance of his functions.

Turning to a detailed analysis of section 12, the Court explained that the section consists of seven sub‑sections, each dealing with a particular situation of assessment, with the exception of sub‑section (6) which has already been discussed. Every sub‑section, aside from sub‑section (6), expressly provides for the making of an assessment order. The first sub‑section concerns a situation where the assessing officer is satisfied, without hearing the dealer or taking evidence, that the return filed is correct. The second sub‑section deals with cases where the officer is not satisfied and therefore must conduct a hearing and consider evidence before making an assessment. The third sub‑section addresses instances in which the dealer fails to attend or to produce evidence when summoned under the provisions of the preceding sub‑section. Sub‑section (4) deals with a dealer’s failure to furnish returns that the Act requires. The fifth sub‑section relates to a dealer’s wrongful failure to apply for registration. Sub‑section (6) has already been set out, and the seventh sub‑section, as previously noted, concerns the assessment of turnover that escaped assessment or was under‑assessed. After this comprehensive review, the Court expressed the view that an order issued under section 23(3) cannot properly be described as an “order assessing the amount of tax due” within the meaning of the Act. The Court observed that section 12 is the only provision that expressly provides for the assessment of tax; no other provision in the Act refers to an “order of assessment.” Consequently, it follows that an order that is not made under section 12 cannot be classified as an order assessing the amount of tax due.

The Court observed that an order could be considered an assessment of tax due only if it was made under the specific statutory provision that expressly provided for assessment. Consequently, the Court held that an order issued under section 23(3) could not be described as an order of assessment, because that subsection related to the revision of an existing order passed under the Act, which itself was an assessment made under section 12. This interpretation reinforced the view that the legislation did not treat a revision order as an assessment order. The Court further supported this conclusion by referring to subsection (2) of section 23, which stated that “the appellate authority in disposing of any appeal … may – (a) confirm, reduce, enhance or annul the assessment.” The Court noted that when an appellate authority confirms, reduces, enhances, or annuls an assessment, it is not itself making a new assessment. Therefore, if an appellate order that enhances an assessment is not an assessment order, a similar order issued in revision could not be classified as an assessment either. In all respects, the Court concluded that the Act did not envisage any order that was not made under section 12 as an order assessing the amount of tax due.

Subsequently, the Court explained that subsections (1) to (5) and (7) of section 12 dealt with original assessment orders, distinguishing them from orders made on appeal, by revision, or by review of those original assessments. The Court pointed out that the first part of subsection (6) and its first proviso expressly applied to orders made under the section, and therefore did not extend to appellate or revisional orders. Although the second proviso, which was the subject of the present case, did not contain an explicit reference to assessment under the section, the Court deemed it unlikely that the proviso was intended to govern assessment orders made in appeals or revisions, assuming such orders could be correctly termed assessment orders. The Court reasoned that if the proviso were meant to set a limitation period for appellate or revisional orders, it would not have been placed within section 12, nor would the orders have been described as “orders assessing the amount of tax due.” The Court acknowledged that the limitation period in the second proviso might not apply to an assessment order under subsection (7), a position confirmed by a recent amendment to section 12 that expressly exempted orders under subsection (7) from the second proviso’s time limit. Finally, the Court expressed concern that if the second proviso in section 12(6) imposed a thirty‑six‑month period from the end of the time within which an order could be made under section 23(3) to revise an assessment, such a result would be disastrous for taxpayers and could not have been intended, as it would allow a collector to issue a revision order after the limitation period had expired.

In this case, the Court noted that a dealer’s application for revision of an assessment order or an appellate order could become useless simply by allowing the thirty‑six‑month period prescribed in the statute to expire. The Court emphasized that the Act contains no provision obligating the revising authority to dispose of a revision application within any fixed time, and that the original assessment order itself may be issued at any point during the thirty‑six‑month window. Consequently, a dealer cannot claim a remedy for any delay in the making of an assessment so long as the assessment is issued before the expiry of that period. The Court further observed that it is quite possible in many instances for only a short interval to remain between the filing of a dealer’s revision application and the termination of the thirty‑six‑month period. If the second proviso of section 12(6) were interpreted as imposing a time limit on an order made under section 23(3), the authorities could effectively strip a taxpayer of the statutory right to apply under section 23(3). The Court held that an interpretation producing such a result was unacceptable.

The Court explained that section 23(1) clearly grants a dealer the right to file an appeal within thirty days of receiving the assessment order. Since an order made in revision can itself be an assessment order, an appellate order may likewise be considered an assessment order and therefore must also be issued within the thirty‑six‑month period. The Court considered a hypothetical situation where the thirty‑six‑month period ends before the thirty‑day appeal window prescribed by section 23(1) expires, which is plausible because an assessment may be made at any time within those thirty‑six months. Under the interpretation favored by the respondent dealers, the dealer’s right to appeal within thirty days would disappear, creating a direct conflict between section 23(1) and the second proviso of section 12(6). The Court rejected any interpretation that gave rise to such a conflict. It also highlighted that the Act provides no time limit for filing a revision application, indicating that such applications may be made at any time. Imposing a practical, though not explicit, time restriction on the right to apply for revision would be doubtful in validity, and the Court refused to accept an interpretation that was neither the sole possible meaning nor clearly supported by the language of the statute. Finally, the Court acknowledged that permitting orders in appeal or revision to be made at any time could leave a dealer’s case pending for an extended duration at the discretion of the authority, but it held that this consideration did not justify adopting the respondents’ view.

The Court observed that the calamity and the resulting anomaly previously mentioned appeared to be considerably more serious than the inconvenience it was intended to avoid. The Court further expressed the view that the inconvenience, as imagined by the respondents, seemed more fanciful than real. It was also considered unlikely that the authorities would deliberately keep an appeal or a revision application pending without any purpose, because such a delay would confer no advantage on them. Consequently, and for the reasons articulated, the Court decided to allow the appeals. Das Gupta, J.

The twelve appeals filed by the State of Orissa relate to twelve distinct orders of sales‑tax assessment issued by the Collector of Sales Tax, Orissa, exercising the revision powers granted by section 23 of the Orissa Sales Tax Act. The respondents, who are the dealers subject to those assessments, approached the Orissa High Court under article 226 of the Constitution, seeking writs that would direct the State of Orissa not to collect the amounts claimed to have been illegally assessed. The High Court allowed those petitions and consequently set aside the Collector’s assessment orders. The State of Orissa thereafter filed the present appeals against the High Court’s judgments, obtaining special leave to appeal from this Court. All of the Collector’s assessment orders were issued more than thirty‑six months after the expiry of the period for which the assessments pertained. The common question of law that arises for determination is whether the High Court was correct in holding that those orders are void because they violate the provisions of the second proviso to sub‑section 6 of section 12 of the Orissa Sales Tax Act. For context, section 4 of the Act is the charging provision that defines the incidence of tax on sales, while section 5 specifies the tax rates. The Court noted that it was unnecessary for the present purpose to examine sections 6 to 10, which deal with the State Government’s power to declare tax‑free goods, to exempt certain dealers, to prescribe points of taxation, to register dealers, to publish the list of registered dealers, and to regulate tax collection by dealers. Section 11 requires any dealer who is so directed by the Collector, through a notice served in the prescribed manner, to file returns on the dates and before the authority prescribed. Section 12, the provision primarily in issue, governs the assessment of tax. The first five sub‑sections of section 12 set out the various modes by which tax may be assessed. Under the first sub‑section, the Collector is required to assess the tax amount on the basis of the return filed by the dealer.

The legislation provides that when a registered dealer furnishes a return, the Collector may be satisfied with the return and may make an assessment without calling the dealer personally or requiring the dealer to produce any evidence to confirm that the return is correct and complete. The second and third sub‑sections address the situation in which the Collector is not satisfied with the return filed by the dealer. In such circumstances the Collector is required to issue a notice and then hear any evidence that the dealer chooses to present in support of the return, together with any additional evidence that the Collector may deem necessary on the matters specifically identified in the notice, as prescribed in sub‑section two. If, after the notice has been issued, the registered dealer fails to obey the terms of that notice, the Collector is empowered, under sub‑section three, to determine the tax liability by exercising his own judgment.

Sub‑section four deals with the scenario where a registered dealer does not file a return by the date stipulated by the statute. In that event the Collector must also make an assessment based on his own judgment, but only after giving the dealer a reasonable chance to be heard. Sub‑section five provides that the Collector may assess tax payable by any dealer about whom he is convinced that the dealer was liable to pay tax under the Act for a particular period, yet the dealer nevertheless failed to apply for registration. Sub‑section six then states that any assessment made under the provisions of this section shall not affect any criminal prosecution that may be instituted for an offence under the Act; however, if the Collector imposes a penalty in addition to the assessed amount, no further revenue or criminal proceedings shall be instituted against that order, and no assessment order concerning any period shall be passed later than thirty‑six months after the expiry of that period.

Sub‑section seven provides that if, for any reason, the turnover of a dealer has escaped assessment or has been assessed at a lower amount than appropriate, the Collector may require the dealer to file a return within thirty‑six months of the end of the relevant period and may then assess the tax due in the manner prescribed in sub‑section five. After an assessment order is issued under section twelve, the dealer has the right to appeal the order to the authority prescribed by law, as provided in section twenty‑three, sub‑section one. The statute subsequently outlines the powers of the appellate authority with respect to such appeals, stating that, subject to any rules or procedures that may be prescribed, the appellate authority may, in disposing of an appeal, either confirm, reduce, increase, or set aside the assessment or any penalty, or may direct the assessing authority to make a fresh order after conducting further inquiry as directed. Finally, the statute authorises the Collector, subject to prescribed rules and for reasons to be recorded in writing, to revise an assessment on his own motion.

The statute authorises the Collector, either upon application by a taxpayer or on his own initiative, to revise any order that has been issued under this Act or under the rules made pursuant to it, provided that the revision is carried out by a person appointed under section 3 to assist the Collector. In the same manner, the Revenue Commissioner is empowered, subject to the same qualifications, to revise any order that has been passed by the Collector. Although the Act itself does not specify a time limit within which these revisional powers must be exercised, the power is expressly made conditional upon “such rules as may be prescribed.” Accordingly, Rule 54, framed by the State Government under section 29 of the Act, provides that the Collector may, of his own motion, exercise his revisional authority within one year from the date on which the order to be revised was passed. The same rule likewise stipulates that the Revenue Commissioner may exercise his revisional authority within one year from the date of the Collector’s order that is subject to revision.

In the matters presently before the Court, the impugned orders were issued by the Collector of Sales Tax under the claim that he was exercising the revisional power granted by section 23(3). Nevertheless, the petitioners in several petitions contended that, in substance, those orders were assessments made under section 12(7) of the Act. The High Court held that section 12(7) also encompassed the assessment order made by the revising authority pursuant to section 23(3). Relying on that interpretation, the High Court concluded that any assessment order issued more than thirty‑six months after the end of the relevant period was barred by the limitation period prescribed in the legislation.

The State of Orissa, appearing as the appellant, advanced its first primary contention that the High Court’s view was erroneous. It argued that an assessment order issued by a revising authority is not automatically an order made under section 12(7). The power of revision conferred by section 23(3) is a distinct and separate authority from the power to assess tax after a return is called for, which is exercised in cases of under‑assessment or escaped assessment. The State maintained that even if, in a particular case, the revising authority issues a fresh assessment that renders the dealer liable for tax that had previously been under‑assessed or escaped, this does not transform the revisional power into an assessment power governed by section 12(7). Consequently, the State found it difficult to accept the High Court’s view that section 12(7) necessarily includes the re‑assessment made by the revising authority under section 23(3).

The second issue that remained for determination concerned the applicability of the limitation period prescribed in the second proviso to section 12(6). The question was whether, assuming that the orders issued by the Collector were not orders made under section 12(7), they nevertheless qualified as “orders of assessment” to which the limitation period in the second proviso would apply. Counsel for the appellant submitted that the limitation expressed in that proviso is applicable only to assessment orders made under section 12. Since the challenged orders were issued under section 23 rather than section 12, the appellant argued that the limitation period in the second proviso should not apply to those orders. The Court noted that this point required careful consideration before reaching a final conclusion.

The Court observed that the clause identified as the second proviso within section 12(6) bears no relationship to the legislative provision contained in the first part of that subsection. The first part of the subsection, which the Court had already set out, provides that any assessment made under section 12 is to be without prejudice to any prosecution that may be instituted for an offence under the Act. The Court noted that the first proviso is clearly linked to this main provision. In contrast, the Court held that the second proviso contains no saving clause or exception to the main provision and does not address the issue of any prosecution at all. Turning to the substance of the matter, the Court found that the limitation of thirty‑six months for the issuance of a tax assessment order functions as an independent legislative provision of the Act. Although the draftsmen placed this limitation in the form of a proviso within section 12(6), the Court concluded that, in reality, it is not a genuine proviso to the main provision. The independent provision, as the Court explained, stipulates that no order assessing the amount of tax may be passed after the lapse of thirty‑six months from the expiry of the period for which the assessment is made. The Court emphasized that the language of this provision is not confined to orders of assessment made solely under section 12; rather, it applies to any order that assesses the amount of tax, which naturally includes assessments made under any other provision of the Act besides section 12. Consequently, even if an assessment order is issued in the exercise of revision powers under section 23 and is held not to be an order made under section 12, the thirty‑six‑month limitation from the expiry of the relevant period would still govern the validity of that order.

Mr Sastri argued that because the limitation appears as a proviso in section 12(6), the Legislature intended it to apply only to those assessment orders to which the main provision—using the words “any assessment made under this section”—relates. He contended that the main provision expressly concerns only assessments made under section 12, and therefore the limitation in the second proviso was meant to govern only such assessments. The Court responded that it had already explained the reasons for treating the limitation as an independent legislative provision, noting that its subject‑matter bears no connection whatsoever with the main provision in section 12(6) or with the preceding first proviso. If, as the Court holds, the limitation is truly independent and unrelated to section 12(6), there is no logical basis for interpreting its operation as being confined to assessments under section 12. On a plain reading, the Court said, any reasonable construction of the provision would lead to the conclusion that it is a limitation imposed on any order of assessment made under the Act, i.e., on any provision of the Act. The Court therefore rejected the narrower construction advocated by Mr Sastri and affirmed that the limitation applies broadly, although the passage in question ends abruptly, leaving the sentence incomplete.

The Court explained that the limitation provision would operate as a restriction on any order of assessment issued under the Act, meaning it would apply to assessments made under any provision of the Act. Even if, for the sake of argument, the limitation were limited only to orders of assessment made under section 12, that interpretation would not assist the appellant unless it could be shown that the orders being challenged were not made under section 12. The Court found it difficult to accept such a proposition. It acknowledged that the orders in question were indeed issued by virtue of powers granted by section 23, but stressed that section 23 does not give the appellate or revising authority an independent power to assess tax apart from the powers already existing under section 12. A careful reading of section 23 clarified this point. First, the Court considered the powers of the appellate authority under subsection 23(2). Among the orders that the appellate authority may pass when disposing of an appeal is the power to “set aside the assessment … and direct the assessing authority to pass a fresh order after such further enquiry as may be directed.” The counsel for the appellant did not dispute that if the appellate authority exercises this power, the “assessing authority” may only undertake the fresh assessment pursuant to section 12, and that in such a case the authority to proceed with the assessment would be subject to the three‑year limitation prescribed by the second proviso to section 12(6). Consequently, the appellate authority could set aside an assessment at any time, but the assessing authority would be barred from implementing a fresh assessment if the three‑year period had already elapsed. This scenario would mean that, when the appeal is finally decided and the three‑year limitation has expired or is nearly expired, the appellate authority’s powers would be confined to those enumerated in clause (a) of subsection 23(2), a result that could not have been intended by the legislature. In other words, accepting the appellant’s construction would create an anomalous situation: if the appellate authority merely sets aside the original assessment and remands the matter for a new assessment, the fresh assessment could not be carried out after the limitation period, whereas if the appellate authority itself performed the reassessment, the limitation would not apply. Under such a construction, the applicability of the limitation would depend on the precise wording of the order issued by the appellate authority, giving the authority discretion to decide whether the statutory limitation period attaches to the assessment. This reasoning was sufficient to reject the appellant’s argument that subsection 23(2) itself furnishes the source of power to make an assessment. The Court added that the same principles governing an appeal under subsection 23(2) also govern a revision under subsection 23(3), since the powers and types of orders of the revising authority are not conceived as being different from those of the appellate authority.

The Court observed that the powers conferred on the revising authority and the orders that it may issue were not intended to differ in any respect from those of the appellate authority. Accordingly, the Court expressed no hesitation in holding that when an appellate authority or a revising authority carries out a fresh assessment by increasing the tax liability, it is exercising the power granted by section 12 and, in effect, performing the duty that an assessing authority would ordinarily perform. Consequently, any assessment order issued by the appellate authority, or in the present appeals by the revising authority, must be regarded as an order made under both section 12 and section 23. Because of this dual character, the period of limitation laid down in the second proviso to section 12(6) becomes applicable to such assessment orders.

The counsel for the appellant warned of an anomalous situation that would arise if the thirty‑six‑month limitation period were to apply to appellate or revisional assessment orders. He pointed out that, in many instances, the original assessment order might be issued on the very last day of the thirty‑six‑month period or shortly before it, making it impossible for any appellate or revisional assessment order to be issued within that same period. The counsel argued that the legislature could not have intended such a result and therefore must have meant that the limitation period applied only to original assessment orders. The Court replied that, had the legislature intended a limited scope, it could have expressed that intention plainly. The Court also noted that, apart from the second proviso to section 12(6), the Act contains no provision dealing with limitation for assessment orders. If the counsel’s view were accepted, the law would permit an appellate or revising authority to issue an assessment order after any length of delay, once the original assessment had been made within the thirty‑six‑month window. The Court found this outcome implausible and held that the legislature, while prescribing a limitation period for original assessments, would not have deliberately omitted a similar limitation for appellate or revisional assessments. Although Rule 54 prescribes a one‑year period within which the Collector or Revenue Commissioner may, of his own motion, revise an order, that rule is a subordinate provision that may be amended or removed. Moreover, the rule‑making authority has not prescribed any limitation period for an appellate assessment order. Thus, in the absence of a specific legislative limitation for appellate or revisional assessments, the period of limitation in section 12(6) applies uniformly to all types of assessment orders.

The Court observed that the legislature had not enacted any distinct limitation rule for orders issued by a revisional authority or an appellate authority. No statutory provision was found that set a time limit within which a collector or a revising authority must pass an order when exercising revisional jurisdiction upon an application by a dealer. Consequently, the absence of a specific period for appellate or revisional assessments led the Court to infer that the legislature intended the limitation period prescribed in section 12(6) to govern all assessments, regardless of whether they were original, appellate, or revisional in nature. This inference was drawn on the basis that the legislature chose not to specify a separate limitation, thereby suggesting a uniform application of the thirty‑six‑month period to every type of assessment order.

The Court noted that counsel for the State had cautioned that difficulties might arise in certain situations where the original assessment was not made promptly. It was considered reasonable to expect that in most cases such difficulty would not occur because an original assessment made without undue delay would allow the appellate or revisional authority to act within the prescribed thirty‑six‑month window. Even if a difficulty did arise in some instances, the Court held that this circumstance alone did not demonstrate a legislative intention to limit the period of limitation solely to original assessments. Counsel also referred to the Patna High Court decision in Gajo Ram v. State of Bihar (7 Sales Tax Cases 248), where the Court, interpreting a similar provision in section 10(6) of the Bihar Sales Tax Act, 1944, limited a twenty‑four‑month limitation to original orders only, persuaded by an argument that applying the same limitation to appellate or revisional orders would produce absurd results. The present Court found that argument unconvincing in the context of the statute under consideration. Accordingly, the Court concluded that the assessment orders under scrutiny were barred by limitation because they were issued more than thirty‑six months after the tax became assessable. The Court affirmed the High Court’s decision to set aside those orders, dismissed the appeals with costs, and ordered that a single set of hearing fees be payable for all the appeals.