M/S. Jaipuria Brothers Co vs State Of Uttar Pradesh A Others

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 830 of 1963

Decision Date: 21 October 1964

Coram: J.C. Shah, S.M. Sikri

In this case, the petitioner M/S. Jaipuria Brothers Co. challenged a series of assessments under section 21 of the Uttar Pradesh Sales Tax Act, 1948. The sales tax officer initially made a best‑judgment assessment of the appellant’s turnover for the assessment year 1948‑49. That assessment was subsequently set aside by the appellate authority. The revisional authority then reviewed the appellate order and remanded the matter back to the sales tax officer, directing him to make a fresh assessment. When the officer issued the notice for the new assessment, the assessee argued that because the original assessment had been set aside, no proceeding relating to it remained pending, and that a reassessment was barred by the three‑year limitation since more than three years had elapsed since the end of the year of assessment. The officer rejected those submissions and proceeded with the assessment.

The assessee filed a writ petition in the High Court contesting the officer’s action. A single judge of the High Court allowed the petition, holding in favour of the assessee. The State appealed that decision before a Division Bench of the High Court. While the appeal was pending, the legislature enacted a comprehensive amendment to section 21 in 1956, providing that when the assessing officer acted on a direction of the revisional authority, no limitation period would apply. The Division Bench, however, chose to rely on the pre‑amendment version of the section and set aside the single judge’s order, reasoning that even under the unamended provision, the period of limitation did not apply when the officer was directed by the revisional authority to proceed.

The appellant then appealed to the Supreme Court. The Supreme Court held that the appeal must be dismissed. Although the High Court had erred in its interpretation of the unamended provision, the Court confirmed the High Court’s order because the 1956 amendment superseded the earlier language. The Court observed that the words inserted by the legislature were precise and could be understood in only one way: nothing in the amended section limited the time from the year of assessment within which proceedings could be taken for assessment or reassessment in consequence of, or to give effect to, an order of the revisional authority. The Court further noted that even assuming the amendment applied only to pending proceedings, the revisional authority’s order directing a fresh assessment created a pending proceeding before the officer, and therefore the limitation period was inapplicable.

In the facts before the Court, there was a proceeding pending before the assessing officer that was undertaken in compliance with the direction previously issued. The matter came before the Supreme Court on Civil Appeal No. 830 of 1963, filed by special leave from the judgment and decree dated 3 March 1960 of the Allahabad High Court in Special Appeal No. 3 of 1956. The appellants were represented by counsel and the respondents by counsel, while an intervener was also represented in this proceeding. The judgment of the Court was delivered by Justice Shah, who presided over the appeal and addressed the submissions of all parties. The appellant was a limited company whose registered office was in Calcutta, and which, effective 5 October 1946, had been appointed the sole agent for selling goods manufactured by Swadeshi Cotton Mills Company Limited. On 20 March 1952, the Sales Tax Officer in Kanpur issued a notice under section 21 of the Uttar Pradesh Sales Tax Act, 1948, requiring the appellant to file a turnover return for assessment year 1948‑49 because the turnover had escaped assessment. On 31 March 1952, the Sales Tax Office made a best‑judgment assessment and fixed the appellant’s taxable turnover at Rs. 50,00,000 for 1948‑49, thereby establishing the tax liability. The appellant appealed this assessment to the Judge (Appeals) Sales Tax, who set aside the officer’s order on the ground that the appellant was not a dealer within the meaning of section 2(c) of the Act. The appellate order was thereafter reversed by the Judge (Revisions) Sales Tax by an order dated 28 March 1955, and the case was remanded to the Sales Tax Officer for fresh assessment. The revisional judge expressed the view that it was necessary to determine the ownership of the goods at the time of their sale. Accordingly, on 23 July 1955 the Sales Tax Officer issued a notice directing the appellant to produce its books of account and other relevant documents for the purpose of assessing the year 1948‑49. The appellant contended that, because the original assessment under section 21 had been set aside, no proceeding remained pending and that a fresh assessment was barred by the three‑year limitation period that had elapsed since the end of the assessment year. The Sales Tax Officer rejected this contention and insisted that the appellant comply with the earlier direction to produce the books and documents. Consequently, on 2 September 1955 the appellant filed a petition before the Allahabad High Court under article 226 of the Constitution, seeking a writ of prohibition to restrain the Kanpur Sales Tax Officer from proceeding with the assessment for the year 1948‑49 and a writ of certiorari to quash the officer’s order dated that day and the subsequent reassessment proceedings. Justice Chaturvedi held that the assessment sought to be made by

The Court observed that the Sales Tax Officer, acting under the order of the Judge (Revisions) Sales Tax, was unmistakably prohibited by the limitation rule set out in Section 21 of the Uttar Pradesh Sales Tax Act. According to the learned Judge, it was irrelevant whether the assessment was initiated by the Sales Tax Officer on his own initiative or was undertaken pursuant to instructions from a higher authority; once the period specified in Section 21 had elapsed, the power to make a re‑assessment was extinguished. The order issued by Justice Chaturvedi was subsequently overturned on appeal by a Division Bench of the High Court. The High Court held that the Sales Tax Officer possessed authority because a remand order had directed a “fresh assessment” to be started against the appellant company. In commencing and maintaining those proceedings, the officer was said to be complying with the duties imposed by Sections 9 and 10 of the Act, and consequently the limitation period prescribed by Section 21 was held not to apply to those assessment proceedings. An appeal against the High Court’s reversal of Justice Chaturvedi’s order was filed with special leave.

The Court then set out the pertinent provisions of the Uttar Pradesh Sales Tax Act. Section 9 gave the designated authority the power to entertain an appeal against an order made by the Sales Tax authority. Sub‑section (3) of Section 9 provided that the appellate authority, after giving the appellant a reasonable opportunity to be heard, could (a) confirm, reduce, enhance or annul the assessment, (b) set aside the assessment and direct the assessing authority to pass a fresh order after any further inquiry that might be directed, or (c) …. Sub‑section (3) of Section 10, as it stood at the relevant time, stated: “The Revising Authority may in his discretion at any time suo motu or on the application of the Commissioner of Sales Tax or the person aggrieved, call for and examine the record of any order made by any Appellate or Assessing Authority under this Act, for the purpose of satisfying himself as to the legality or propriety of such order and may pass such order as he thinks fit: Provided that no such application shall be entertained in any case where an appeal lay against the order, but was not preferred.” Section 21, as it existed at the relevant time, read: “Where the whole or any part of the turnover of a dealer has, for any reason, escaped assessment to tax in any year, the Assessing Authority may, at any time within three years from the expiry of such years, and after issuing notice to the dealer and making such enquiry as may be necessary, assess the tax payable on such turnover.” The High Court interpreted Section 21 to impose upon the Assessing Authority a duty to exercise his power to assess turnover that had escaped assessment within three years from the end of the year of assessment, but the Court found this interpretation to be erroneous.

In this case the Court explained that the provision allowing assessment of turnover which escaped assessment within three years of the end of the assessment year was intended to apply only to orders that the Assessing Authority issued on its own initiative. When the Assessing Authority was instructed, by an order of an appellate or revisional authority under sections 9 and 10 of the Act, to carry out a re‑assessment, the three‑year limitation period did not apply. The Court held that the High Court was wrong in interpreting section 21 so narrowly. Section 21 merely restricts the Sales Tax Officer to assess tax on escaped turnover within the three years immediately following the year to which the tax relates. The section does not expressly state, nor can it be read to imply, that this time limit is confined to cases where the officer acts suo motu and not where he acts on directions of an appellate or revisional authority.

The Court further observed that the principle laid down in the Privy Council decision in Commissioner of Income‑tax, Bombay Presidency and Aden v. Khemchand Ramdas (a firm) applied to the present matter. In that precedent the taxpayer, a registered firm, was assessed to income tax by an order dated 17 January 1927 for the year 1926‑27 under section 23(4) of the Income‑tax Act. At that time a registered firm was not liable to super‑tax and was liable to income tax at the maximum rate. On 9 January 1928 the Commissioner of Income‑tax, exercising revision powers under section 33 of the Act, issued a notice requiring the assessee to show cause why the earlier registration and income‑tax assessment should be set aside. By an order of 13 February 1928 the Commissioner cancelled the registration and directed the Income‑tax Officer to take necessary action. Subsequently, on 4 May 1929, the Income‑tax Officer assessed super‑tax on the basis that the registration had been cancelled.

The authority of the Income‑tax Officer to make that assessment was challenged. The Judicial Committee held that the officer’s order imposing super‑tax was beyond jurisdiction because it was made more than one year after the original income‑tax demand. The Committee emphasised that once a final assessment has been made it cannot be reopened either by the officer of his own motion or by direction of the Commissioner under section 33, except in the circumstances and within the time limits prescribed by sections 34 and 35 of the Act. The Committee further observed that sections 34 and 35 are exhaustive; they alone specify the situations and the time periods in which fresh assessments and fresh notices of demand may be issued.

In this case the Court observed that the Income‑tax Officer had failed to take any fresh step within the one‑year period prescribed by the statute, and therefore was hopelessly out of time whichever of the two relevant sections might have applied. Nevertheless the Court held that the order of the High Court must still be affirmed because, during the pendency of the suit, section 21 of the sales‑tax legislation was extensively amended. The amendment, effected by Act 19 of 1956 and taking effect on 28 May 1956, provides that if the assessing authority has reason to believe that the whole or any part of the turnover of a dealer has, for any reason, escaped assessment to tax for any year, the authority may, after issuing notice to the dealer and making such enquiry as may be necessary, assess or reassess the dealer. The provision further stipulates that the tax shall be charged at the rate that would have applied had the turnover not escaped assessment, or a full assessment, as appropriate, and adds an explanation that nothing in the sub‑section shall be deemed to prevent the assessing authority from making an assessment to the best of its judgment. The second clause of the amended section limits the period for making an assessment or reassessment to four years after the end of the year in which the turnover escaped assessment, but provides that where notice under the first sub‑section has been served within those four years, the assessment or reassessment may be made within one year of the date of service of the notice even if the four‑year period has been exceeded. A further proviso states that nothing in this section restricting the time for assessment or reassessment shall apply to an assessment or reassessment made pursuant to any finding or direction contained in an order under sections 9, 10 or 11. The explanation to sub‑section (1) clarifies that the assessing authority may make an assessment within four years from the end of the year in which the turnover escaped assessment, subject to two exceptions: first, if notice under sub‑section (1) is served within four years, the assessment may be completed within one year of that notice even though the four‑year limit is passed; and second, the time limitation does not apply to assessments made as a consequence of, or to give effect to, any finding or direction under an order under sections 9, 10 or 11. Consequently, where the Sales Tax Officer proceeds in pursuance of a direction given by an appellate or revising authority, or under an order made by the High Court in a reference under section II, the period of limitation prescribed by sub‑section (2) of section 21 does not apply.

In the present matter, the Court observed that when an order is issued either by an appellate authority, a revising authority, or by the High Court in a reference made under section eleven, the limitation period prescribed by sub‑section two of section twenty‑one does not apply. The Court explained that this provision was introduced into the legislation by section fifteen of the amending Act, which expressly substituted the text of section twenty‑one of the Principal Act. Consequently, the amended section was deemed to have been operative at all relevant times since the commencement of the Uttar Pradesh Sales Tax Act of 1948. The legislature, by means of this amendment, intended a clear retrospective effect, so that from the very date on which the principal Act became effective, the amended provision governed. Accordingly, the correctness of the Sales Tax Officer’s order, which held that no limitation barred the making of a fresh assessment pursuant to an order of the appellate or revising authority, had to be evaluated in light of section twenty‑one as amended by Act nineteen of 1956. The Court stressed that the wording employed by the legislature is precise and admits only a single interpretation: that any assessment or re‑assessment undertaken because of, or to give effect to, an order of an appellate authority, a revising authority, or an order of the High Court under section eleven may be undertaken notwithstanding the expiry of the period prescribed by sub‑section two of section twenty‑one. Counsel for the appellant, Mr Pathak, argued that even assuming that interpretation to be correct, the amended section could apply solely to proceedings that were already pending at the date of the amendment, contending that no such proceeding existed because the Judge (Revisions) of the Sales Tax Board lacked authority to direct a fresh assessment for the year 1948‑49 after the original limitation period under section twenty‑one had elapsed. The Court identified two clear responses to this submission, each sufficient to reject it. First, under section ten sub‑paragraph three, the revisional authority possessed the power to issue any order it deemed appropriate after calling for and examining the record of any order made by an appellate or assessing authority and after being satisfied of the legality and propriety of that order. Even if the revisional authority arrived at a conclusion that was erroneous in law, the order remained one within its jurisdiction and could not be disregarded solely on the basis of alleged lack of jurisdiction unless it was set aside in a proper proceeding. Consequently, a proceeding was deemed to be pending before the Sales Tax Officer, acting upon the direction issued by the Judge (Revisions) of the Sales Tax Board, who had instructed the officer to make a fresh assessment. The Court noted that it was unnecessary to determine whether such a fresh assessment could have been made under the pre‑amended section twenty‑one; the issue before the Court concerned only the jurisdiction of the revising authority to make the order under the amended statutory framework.

In this case, the Court observed that the revising authority had made his order under the provision as it existed after amendment, and that the issue was not whether the assessing authority possessed competence to issue an assessment order under the statute before it was amended. The Court said that another equally decisive ground concerned the effect of section 15 of Act 19 of 1956. According to that provision, section 21 of the Act, as amended, was to be considered as having been on the statute book on the date on which the revising authority issued his order. Consequently, under the amended section 21, the power of the assessing authority to assess or re‑assess pursuant to the revising authority’s order did not cease when the period prescribed by sub‑section 2 of section 21 for assessment or re‑assessment had expired. The Court explained that before the amendment, section 21 barred any order of assessment or re‑assessment, whether made by the Sales Tax Officer on his own initiative or pursuant to a direction of the appellate or revising authority, after the expiry of the three‑year period fixed by the statute. After amendment, however, the Sales Tax Officer could exercise that power on his own initiative within four years for assessment or re‑assessment. The Court added that the first proviso allowed this power to be exercised for an additional one‑year period if a notice under sub‑section (1) was served within four years of the end of the assessment year, and that there was no time limit when the notice was issued to give effect to any finding or direction contained in an order of the appellate or revising authority or under an order of the High Court under section 11. When the Sales Tax Officer initiated proceedings for assessment in compliance with the revising authority’s direction, the Court held that, by virtue of the amended section 21, the Officer was not subject to any restriction regarding the time within which the assessment order could be made. Accordingly, the Court concluded that the order passed by the High Court must be affirmed. The appeal was therefore dismissed with costs, and the judgment was recorded as sup,/65‑7.