State of Punjab & Ors Vs. M/S.
Tara Chand Lajpat Rai  INSC 49 (28 February 1967)
28/02/1967 SHELAT, J.M.
CITATION: 1967 AIR 1408 1967 SCR (3) 10
CITATOR INFO :
R 1970 SC 311 (3) R 1977 SC 540 (12)
Punjab General Sales Tax Act (46 of 1948), s.
11(2) and (4)Return by assessee-Notice under s. 11(2) within the prescribed
period--Compliance with notice by assessee-Order by Assessing Authority on the
basis of best judgment-Order passed after prescribed period-Order, if falls
tinder s. 11 (4)--Order, if barred by limitation.
The respondent firm, was a registered dealer
and furnished quarterly returns of its turnover as required by the Rules under
the Punjab General Sales Tax Act, 1948. The Assessing Authority was not
satisfied with the returns and issued a notice, under s. 11(2) of the Act
asking the firm to produce evidence to establish that the returns were full and
cornplete. The notice was served on the firm before the expiry of three years
from the respective dates for furnishing the returns. A partner of the firm
complied with the notice by appearing and producing its account books. The
officer held an enquiry, and passed an order stating that he was assessing the
firm to the best of his judgment. The order was passed after the expiry of
three years from the dates when the quarterly returns had to be filed. The firm
challenged its validity by a writ petition, and the High Court hold that the
order fell -Linder s. 11(4) of the Act and that it was barred by limitation.
In appeal to this Court, HELD : The impugned
order could not be said to be under s.
11(4) ,even though it was stated that the
assessment was made to the best of the officer's judgment, because, the
condition precedent under that subsection is that a registered dealer who has
furnished returns should fail to comply with the terms of the notice issued
under s. 11(2).
But assuming it was made under s. 11(4), the
order could not be attacked on the ground of its being beyond limitation.
Under s. 11(4), if a registered dealer having
furnished returns in respect of a period, fails to comply with the terms of a
notice under s. 11(2), the Assessing Authority shall, within three years after
the expiry of such period, proceed to assess, to the best of his judgment, the
amount of tax due from the dealer. "Such period"., refers to the
period mentioned earlier in the sub-section, that is, in the present case, to
the quarters in respect of which the firm had to submit returns. The assessment
proceedings commence, in the case of a registered dealer, either when be
furnishes a return or when a notice is issued to him under s. 11(2), and would
be pending from the time they ,ire initiated until they are terminated by a
final order of assessment.
Therefore, if such proceedings were taken
within the prescribed time, though the assessment was made final subsequently,
even after the expiry of the prescribed time, no question of limitation would
arise. [14 H; 15 A, F, G; 17 G;
18 E-F] Madan Lal Arora v. Excise and
Taxation Officer, Amritsar,  1 S.C.R., 823 and Ghanshyam Das v. Regional
Assistant Commissioner of Sales Tax, Nagpur,  4 S.C.R. 436, followed.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 1080 of 1965.
Dipak Dutta Chaudhuri and R. N. Sachthey, for
C. D. Garg, for the respondent.
The Judgment of the Court was delivered by
Shelat, J. This appeal by certificate granted by the Punjab High Court raises
the following question :"Where the sales tax authority is not satisfied
with the returns filed by a registered dealer and issues a notice under s.
11 (2) of the Punjab General Sales Tax Act,
1948 before the expiry of three years from the termination of the period for
furnishing returns but finalises the assessment order after three years from
the aforesaid date, whether such an assessment order can be said to be time
barred and, therefore, without jurisdiction".
A few facts for understanding this question
may first be.
stated. The respondent is a partnership firm
registered under the Act and was at the material time carrying on business in
vegetable ghee, sugar and other commodities.
The assessment year in question commenced
from April 1, 1955 and. ended on March 31, 1956. The dealer furnished four
quarterly returns as required by the Rules framed under the Act. viz,., for the
period April to June, 1954 on October 1, 1954; July to September, 1954 on
December 16, 1954; October to December, 1954 on March 12, 1955 and for January
to March, 1955 on June 16, 1956. Though these returns were not filed within 30
days after expiry of each of the quarters as required by the Rules, no
objection was taken by the Assessing Authority. The firm deposited three sums
at the time of filing the returns aggregating to Rs. 10,649-4-0.
Subsequently, it paid a further sum of Rs.
14,477 on the basis of those returns.
Not satisfied with these returns, the
Assessing Authority issued a notice under S. 1 1 (2) in form S.T. XIV which is
a comprehensive form and which admittedly was served on the dealer on January
11, 1957, i.e.. before three years expired from each of the respective dates
for filing of the said returns. This is clear from the fact that the date for
filing the first return would be July 30, 1954 and the date for filing the last
return would be April 30, 1955. On July 5, 1960, the Assessing Authority
examined Tara Chand, a partner in the firm but did not finalise the 12
assessment order on that day as he wanted to make further enquiries and passed
the assessment order impugned in this appeal on August 11, 1960. The Assessing
Authority disbelieved the accounts produced by Tara Chand and added sales of
Rs. 4,00,000 in the gross turnover shown in the returns and assessed the firm
on the turnover of Rs.
16,92,148-1-0 to a tax of Rs. 33,127-1-6.
After giving credit of the said two sums deposited by the dealer the balance of
Rs. 8,000 and odd remained payable by the firm.
The firm filed a writ petition in the High
Court challenging the validity of the assessment order on the ground that as it
was made after three years from the dates when the said returns had to be
furnished, it was without jurisdiction.
The department on the other hand urged (1)
that the order was made under S. 11 (3) which provided no limitation and (2)
that assuming that the order was passed under S. 11(4) or S. 11(5) proceedings
in respect thereof having commenced on the issuance of the said notice dated
January 11, 1957 which was within time, no question of the order being time
barred would arise. These were the only contentions raised before the High
Court and as no contention regarding the merits of the order was raised, the
High Court did not enter into that question. We need not also go into the
merits of the assessment and we will consider only the question whether the
order was invalid on the ground taken by the dealer in the High Court. The High
Court following its earlier decision in Mis. Rameshwar Lai Sarup Chand v. The
Excise and Taxation Officer(1), held that the order was an assessment on best
judgment basis under S. 11 (4) and as it was made after three years after the
close of the assessment year it was without jurisdiction.
For the reasons which we shall presently set
out, the question whether the assessment order was passed under s.
11(3) or s. 11 (4) or (5) does not need any
answer as it makes no difference so far as this case is concerned whether it
was made under one or the other sub-section. However, the mere fact that the
Assessing Authority mentioned that he made the order on the best judgment. basis
cannot be conclusive, for, by merely calling it as the best judgment
assessment, the order does not become one.
Section 10 of the Act provides that the tax
payable shall be paid in the manner thereinafter provided and at such intervals
as may be prescribed. Rule 20 of the Punjab General Sales Tax Rules, 1949
provides that every registered dealer, other than those referred to in rules
17, 18 and 19 (with whom we are not presently concerned) shall furnish returns
quarterly within 30 days from the expiry of each quarter. Rule 25 provides that
all returns which are required to be furnished under these rules, (1) 
13 shall be signed by the registered dealer
or his agent and shall be sent to the appropriate Assessing Authority together
with the Treasury or the Bank receipt as proof of the payment of the tax due.
Rule 40 provides that a dealer and his partner or partners shall be jointly and
severally responsible for payment of the tax, and that every dealer liable to
pay the tax shall pay it quarterly unless directed otherwise by the appropriate
Assessing Authority. Sub-rule (3) provides that the tax due for any quarter
shall be paid before furnishing the return for that quarter. Rule 32 provides
that every assessment order shall be recorded in writing and, where the
Assessing Authority determines the turnover of a dealer at a figure different
from that shown in the return submitted under the provisions of these rules,
the order shall state briefly the reasons therefore. Rule 33 provides that when
it appears to the appropriate Assessing Authority to be necessary to make an
assessment under s. 1 1 in respect of a dealer, he shall serve a notice in form
S.T. XIV on him calling upon him to produce books of accounts and other
documents and stating the period or the return period or periods in respect of
which assessment is proposed. He shall fix a date ordinarily not less than
after 10 days from the date of the notice for considering any objection which
the dealer may prefer. Section 11(1) provides that if the Assessing Authority
is satisfied without requiring the presence of the registered dealer or the
production by him of any evidence that the returns furnished in respect of any
period are correct and complete, he shall assess the amount of tax due from the
dealer on the basis of such returns. Sub-section (2) provides that if the
Assessing Authority is not satisfied without requiring the presence of the
registered dealer who furnished the returns or production of evidence that the
returns furnished in respect of any period are correct or complete, he shall
serve on such dealer a notice in the prescribed manner requiring him at a date
and at place specified there under either to attend in person or to produce or
to cause to be produced any evidence on which such dealer may rely in support
of such returns. Sub-section (3) provides that on the day specified in the
notice or as soon afterwards as may be, the Assessing Authority shall, after
hearing such evidence as the Assessing Authority may require on specified
points assess the amount of tax due from the dealer. Subsection (4) provides
that if a registered dealer having furnished returns in respect of a period,
fails to comply with the terms of a notice issued under sub-section (2), the
Assessing Authority shall within three years after the expiry of such period,
proceed to assess to the best of his judgment the amount of the tax due from
the dealer. Subsection (5) provides that if a registered dealer does not
furnish returns in respect of any period by the prescribed date, the Assessing
Authority shall within three years after the expiry of such period, after
giving the dealer a reasonable opportunity of being heard, 14 proceed to assess
to the best of his judgment amount of tax, if any, due from the dealer.
Sub-section (6) deals with a case where a dealer has failed to apply for
registration, in which case the Assessing Authority is empowered within the
prescribed period to assess such a dealer to the best of his judgment. Since
the firm in the instant case was duly registered, the question of application
of sub-section (6) does not arise.
Section 11 envisages the following cases (a)
Where the dealer duly files returns and the Authority is satisfied with such
returns and accepts them and formally passes an order of assessment which means
no more than that he appropriates the amount deposited by the dealer towards
(b) Where the Authority is not Satisfied with
the returns, and issues a notice calling upon the dealer to appear and produce
evidence in support of the returns, the Authority holds an enquiry under
subsection (3) and then makes an order of assessment.
(c) Where the registered dealer having
furnished returns fails to comply with the terms of the notice issued under
sub-section (2) the Assessing Authority is empowered within three years after
the expiry of the period in respect of which the returns are filed to proceed
to assess to the best of his judgment the tax due from the dealer.
(d) Where the registered dealer has failed to
furnish returns in respect of any period by the prescribed date, the Assessing
Authority is empowered to assess to the best of his judgment within three years
after the expiry of the period in respect of which the returns have not been
filed, and (e) Where the dealer has failed to apply for registration in respect
of the period for which he is liable to pay tax, the Assessing Authority is
empowered within three years after the expiry of such period to as sess him to
the best of his judgment.
Sub-sections (4), (5) and (6) lay down the
conditions precedent which must be satisfied before the power to make an
assessment to the best of his judgment can be exercised.
Under sub-section (4) the condition is that
though the registered dealer has furnished returns he fails to comply with the
terms of the notice issued under sub-section (2).
Under sub-section (5) the condition is that
the registered dealer has failed 'to furnish returns and under subsection (6)
the condition is that the dealer has failed to apply 15 for registration. Prima
facie, none of these conditions existed in the present case and therefore
though the Assessing Authority states that he had to assess the firm to the
best of his judgment, the impugned order cannot be said to be either under
sub-section (4) or sub-section (5) or sub-section (6). But as we have stated
earlier this question need not be -One into in the present case and we do not,
therefore, have to decide whether the order was one under subsection (3) or
sub-section (4) or sub-section (5).
The question that falls for determination is
whether it was one under sub-section (3) or sub-section (4), is it one which
can be said to be time barred? So far as sub-section (4) is concerned the
question as to when an assessment order there under becomes bar-red arose in
Madan Lal Arora v. Excise and Taxation Officer, Amritsar(1). The petitioner, a
registered dealer, filed his returns for the four quarters of the financial
year ending on March 31, 1955, and likewise, for the four quarters of the financial
year ending on March 31, 1956. In respect of each year the Sales Tax Assessing
Authority served three successive notices on him on March 7, 1958, April 4,
1958 and August 18, 1959, requiring him to attend with the documents and other
evidence in support of his returns. It was, however, only in the last of the
said notices that he stated that on failure to produce the documents and other
evidence mentioned therein, the case would be decided on "best judgment
assessment basis". The petitioner did not comply with any of the notices,
but on receiving the last notice he filed a writ petition in this Court
challenging the right of the Authority to make the best judgment assessment.
Sarkar, J. (as he then was) who spoke for the Court, posing the question as how
to compute the three years mentioned in subsection (4) observed : 'The
sub-section says "within three years after the expiry of such period"
So the three years have to be counted from the expiry of the period mentioned.
What then is that period ? The period
referred, therefore, is the period mentioned earlier in the subsection, and
that is the period in respect of which returns had been furnished by the
dealer'. After considering s. 11(1) and Rule 20 of the Rules, he further
observed : 'It would, therefore, appear that when sub-section (4) of s. 11
talks of "returns in respect of a period" that refers in the case of
the, petitioner to the quarters in respect of which he submitted the returns.
We then come to this that the three years within which the authority could
proceed to make the best judgment assessment had to be counted from the end of
each quarter in respect of which returns had been filed'. The Court held that
the last of the quarters in respect of which the petitioner filed his returns
having ended on March 31, 1956 the Assessing Authority could not proceed (1)
(1962] 1 S.C.R. 823.
16 to make the best judgment assessment in
respect of that quarter after March 31, 1959. In the case of the earlier
quarters the three years had expired even prior to that date. There was no
dispute that the Assessing Officer had not proceeded to make any assessment on
the petitioner at the date of any of the notices. The notices given on August
18, 1959 that best judgment assessment would be made in respect of the quarters
constituting the financial years 1955 and 1956 the last of which expired on
March 31, 1956, were futile as no such assessment could be made in respect of
any of the quarters after March 31, 1959. The question as to the effect of the
two earlier notices was not canvassed. What this decision laid down was that
the notice dated August 18, 1959 under which the authority proposed to proceed
under s. II (4) having been served after expiry of three years from the
respective dates when the said returns had to be furnished, the notice was
futile and the authority not having proceeded to assess within time any action
taken by him would be without jurisdiction.
The question as to the legal effect of such a
notice was considered in Ghanshyam Das v. Regional Assistant Commissioner of
Sales Tax, Nagpur(1). The points which fell for determination there were : (1)
when can a proceeding be said to commence and (2) if a proceeding has commenced
within the prescribed period but is pending when such period expires and an
order is finalised thereafter, whether such an order is invalid on the ground
of its being time-barred.
Tile appellant there was a registered dealer.
For the year 1949-50 he submitted only one return for one quarter and defaulted
in respect of the other quarters. A notice was served on him on August 13, 1954
under s. 11 (1) and (2) of the C.P. and Berar Sales Tax Act, 1947 in respect of
the turnover of the firm for the said period He filed the returns subsequently
but contended that the proceedings before the Sales Tax Commissioner were
barred by time. He then filed a writ petition in the High Court challenging the
said proceedings. For the year 1950-51, he had filed no returns at all and was
served with a notice on October 15, 1954 under s. 11 (4) of the Act. That
notice was within three years from October 16, 1951 which fell within the
fourth quarter of the year in question. He also filed another writ petition for
a similar relief in respect of that year. The contention was that whatever may
be said in the case of an unregistered dealer, in the case of a registered
dealer, the proceedings commence from the date of the registration certificate
within which he has a statutory obligation to furnish his returns. This Court
held that assessment proceedings under the Act must be held to be pending from
the time they are initiated until they are terminated by a final order of
assess(1)  4 S.C.R.436.
17 ment. It was then stated that in the case
of a registered dealer there would be four variations in the matter of
assessment of his turnover : (1) he submits a return by the date prescribed and
pays the tax due in terms of the said return, the Commissioner accepts the
correctness of the return and appropriates the amount paid towards the tax due
for the period covered by the return; (2) the Commissioner is not satisfied
with the correctness of the return, he issues a notice to him under s. 11 (2),
but does not finalise the assessment; (3) the registered dealer does not submit
a return, the Commissioner issues a notice under s. 10(3) and s. II (4) of the
Act, and (4) the registered dealer does not submit any return for any period
and the Commissioner issues a notice to him beyond three years. The Court held
that in the case of a registered dealer the proceedings before the Commissioner
start factually when a return is made or when a notice is issued to him either
under s. 10(3) or under s. 11(2) of the Act. Since the proceedings commenced
after the return was submitted and continued till a final order of assessment
was made in regard to the return, the Tribunal had no jurisdiction to issue a
notice under s. 1 1 -A with respect to the quarters other than that covered by
the return made by the appellant.
As regards the second case it held that the
Commissioner had jurisdiction to assess the turnover in respect of the entire
fourth quarter. At page 450, the Court observed that in a case where a return
has been made, but the Commissioner has not accepted it and has issued a notice
for enquiry, the assessment proceedings would be pending till the final
assessment is made. Even in a case where no return has been made, but the
Commissioner initiates proceedings by issuing the notice either under s. 10(3)
or under s. 11(4), the proceedings would be pending till the final assessment
is made. But where no return has been made and the Commissioner has not issued
any notice under the Act, it cannot be held that any proceedings are pending
before the Commissioner. In the case of a registered dealer the proceedings
before the Commissioner start factually when a return is made or a notice is
issued and no question of limitation would arise where such proceedings are
taken before the expiry of the prescribed period though an assessment order is
finalised after the expiry of such period. This decision is, therefore, a clear
authority for the proposition that assessment proceedings commence in the case
of a registered dealer either taken he furnishes a return or when a notice is
issued to him under s.11 (2) of the present Act, and that if such proceeding
are taken within the prescribed time though the assessment is finalised
subsequently even after the expiry of the prescribed period, no question of
limitation would arise.
In the instant case the dealer filed returns.
Though they were led after the expiry of 30 days from the relevant date, they
were 18 not rejected by the department on that ground. In fact the notice dated
January 11, 1957 issued under s. 11 (2) was on the footing that returns were
filed, but the Assessing Authority was not satisfied with them and desired
evidence to establish that the returns were full and complete. It is also an
admitted fact that the dealer appeared and produced books of accounts in answer
to the said notice and thereupon the Officer held an enquiry. The notice dated
January 11, 1957 was within time though the assessment order was made much
after the expiry of three years from the respective dates when the returns had
to be filed. But on the authority of Ghanshyam Das's case(1), the assessment
proceedings commenced either when the respondent firm filed the returns or in
any event from the date of the said notice. Both the events, therefore, were
within prescribed time.
Reliance, however, was placed on two
decisions of the High Court of Punjab: M/s. Rameshwar Lal Sarup Chand v. Excise
and Taxation Officer(2) and Jagat Ram Om Parkash v. Excise and Taxation
Officer, Assessing Authority, Amritsar(3).
Neither of these decisions would be of
assistance as the question which was canvassed in Ghanshyam Das's case (1)
regarding assessment proceedings having commenced within time and then
remaining pending did not come up for consideration. Since the said notice
dated January 11, 1957 was served on the respondent firm before the expiry of
three years from the respective dates for furnishing the returns, the
assessment proceedings must be held to have commenced from that date which was
within time and thus the assessment proceedings remained pending until they
were terminated by the assessment order. Though that order was finalised after
the expiry of three years from the said period, it could not be attacked on the
ground of its being beyond limitation and therefore without jurisdiction. The
order passed by the High Court allowing the respondent's writ petition has,
therefore, to be set aside. The appeal succeeds and the writ petition is
dismissed. In the circumstances of the case, however, we do not propose to pass
any order as to costs.
V.P.S. Appeal allowed.
(1)  4 S. C. R. 436.
(3)  16 P.L.R. 107.
(2)  P.L.R. 768.