Titaghur Paper Mills Co. Ltd. Vs.
State of Orissa [1983] INSC 40 (13 April 1983)
SEN, A.P. (J) SEN, A.P. (J) VENKATARAMIAH,
E.S. (J) MISRA, R.B. (J)
CITATION: 1983 SCR (2) 743 1983 SCC (2) 433
1983 SCALE (1)437
ACT:
Sales-tax-Central Sales Tax Act, 1956-Repeated
notices for production of records issued to assessee-Best judgment assessment
made-Assessee, if could impugn order under Article 226 of the Constitution.
HEADNOTE:
It appears that proceedings under r. 12(5) of
the Central Sales Tax (Orissa) Rules 1957 and under sub-s. (4) of s. 12 of the
Orissa Sales Tax Act, 1947 were initiated against the petitioners for the
assessment year 1980-81 in relation to assessment of tax on sales in the course
of inter-state trade and commerce under the Central Sales Tax Act, 1956 and
inside sales effected during the year in question under the Orissa Sales Tax
Act, 1947. Despite repeated opportunities to get themselves ready for the
assessment of tax and to produce their account books and other documents, they
sought adjournments on the one pretext or another. Eventually the Assistant
Sales Tax Officer, Cuttack II circle, Cuttack before whom the assessment
proceedings were pending, refused to grant any further adjournment and
proceeded to best judgment assessment and treated the gross turnover of Rs.
7,13,94,903.63 p. as returned by the petitioners for purposes of the Central Sales
Tax Act, 1956 to be their taxable turnover. Similarly, he treated the gross
turnover of Rs. 2,02,07,852.65 p returned by the petitioners as representing
inside sales vis-a-vis the State of Orissa to be their taxable turnover.
After allowing adjustment of Rs. 27,88,388.47
p paid by the petitioners, the learned Sales Tax Officer raised a demand for
the payment of a sum of Rs. 43,57,101.89 p towards tax on sales in the course
of inter-State trade and commerce payable under the Central Sales Tax Act, 1956
and after allowing adjustment of Rs. 1,08,480.11 p paid by the petitioners, he
raised the demand for payment of a sum of Rs. 13,06, 069.60 p as tax payable
under the Orissa Sales Tax Act, 1947. Thus the petitioners were faced with a
total demand of Rs. 56,57,171.49 p for the assessment year 1980-
81. The petitioners instead of preferring
appeals under sub- s (1) of s. 23 of the Act filed petitions before the High
Court under Art. 226 of the Constitution challenging the validity of the two
orders of assessment. The High Court was not satisfied that this was a case of
inherent lack of jurisdiction or any violation of principles of natural justice
and accordingly held that they were not entitled to invoke the extraordinary
jurisdiction of the High Court under Art. 226 of the Constitution, Dismissing
the Petitions, ^
HELD: In the provenance, of tax where the Act
provides for a complete machinery which enables an assessee to effectively
raise in the courts the question of the validity of an assessment denied an
alternative jurisdiction 744 to the High Court to interfere under Art. 226 of
the Constitution. The phrase "made under the Act" describes the
provenance of the assessment; it does not relate to its accuracy in point of
law. The use of the machinery provided by the Act, not the result of that use,
is the test. [748 G- H; 749 A] Under the scheme of the Act, there is hierarchy
of authorities before which the petitioners can get adequate redress against
the wrongful act complained of. They have the right to prefer an appeal before
the prescribed authority under sub-s. (1) of s. 23 of the Act. If they are
dissatisfied with the decision in the appeal, they can prefer a further appeal
to the Tribunal under sub-s. (3) of s. 23 of the Act, and then ask for a case
to be stated on a question of law for the opinion of the High Court under s. 24
of the Act. The Act provides for a complete machinery to challenge an order of
assessment, and the impugned orders of assessment can only be challenged by the
mode prescribed by the Act and not by a petition under Art. 226 of the
Constitution. [751 F-H] Raleigh Investment Company Limited v. Governor General
in Council, 74 IA 50, followed.
K.S. Venkataraman & Co. v. State of
Madras [1966] 2 SCR 229 and State of Uttar Pradesh v. Mohammad Nooh [1958] SCR
595; distinguished.
The question whether a provision is ultra
vires or not cannot obviously be decided by any of the authorities created by
the Act and therefore cannot be the subject matter of a reference to the High
Court or a subsequent appeal to this Court. No such question arises in a case
like the present where the impugned orders of assessment are not challenged on
the ground that they are based on a provision which is ultra vires. This is a
case in which the entrustment of power to assess is not in dispute and the authority
within the limits of his power is a Tribunal of exclusive jurisdiction. The
challenge is only to the regularity of the proceedings before the learned Sales
Tax Officer as also his authority to treat the gross turnover returned by the
petitioners to be the taxable turnover.
Investment of authority to tax involves
authority to take transactions which in exercise of his authority the taxing
officer regards as taxable and not merely authority to tax only those
transactions which are, on a true view of the facts and the law, taxable. There
is no justification for extending the principles laid down in Raleigh
Investment Company's case or Mohammad Nooh's case to a case like the present
where there is an assessment made by the learned Sales Tax Officer under the
Act. [749 E-H; 753 A-B] The question whether another adjournment should have
been granted or not was within the discretion of the learned Sales Tax Officer
and is a matter which can properly be raised in an appeal under sub-s. (1) of
s. 23 of the Act.[751 D] The rule laid down in Mohammad Nooh's case which
requires the exhaustion of alternative remedies is a rule of convenience and
discretion, rather than a rule of law. [751 E] 745 The Act provides for an
adequate safeguard against an arbitrary or unjust assessment. The petitioner
have a right to prefer an appeal under sub-s. (1) of s. 23 of the Act subject
to their payment of an admitted amount of tax as enjoined by the proviso
thereto. As regards the disputed amount of tax, they have the remedy of applying
for stay of recovery to the Commissioner of Sales Tax under cl. (a) of the
second proviso to sub-s. (1) of s. 13 of the Act. It is for the Commissioner to
decide whether or not there should be such stay on such terms and conditions as
he thinks fit, looking to the nature of the demand raised in the facts and
circumstances of the present case. [752 E-F; 753B-C]
CIVIL APPELLATE JURISDICTION: Special Leave
Petition Nos. 4513-14 of 1983.
From the Judgment and Order dated the 10th
March, 1983 of the Orissa High Court in O.J.C. No. 590 of 1983.
WITH
Writ Petition Nos. 3363-64 of 1983.
(Under Article 32 of the Constitution) S.R.
Banerjee and Vinoo Bhagat for the Petitioners in S.L.P.
Vinoo Bhagat for the Petitioner in Writ
Petition.
F.S. Nariman, V.S. Desai, and R.K. Mehta: for
the Respondent in S.L.P. S,K. Mehta, for the Respondent in Writ Petition.
The Judgment of the Court was delivered by
SEN, J. These two special leave petitions are directed against an order of the
Orissa High Court dated March 18, 1983 dismissing the Writ Petitions flied by
the petitioners in limine challenging the two orders of assessment passed by
the Assistant Sales Tax Officer, Cuttack II Circle, Cuttack dated February 16,
1983. The connected petitions under Act.
32 of the Constitution are by an Officer of
the Company challenging the two orders of assessment.
By one of the Writ Petitions, the petitioners
challenged the validity of the order of assessment under the Central Sales Tax
Act, 1956 for the assessment year 1980-81 passed by the Assistant Sales Tax
Officer, Cuttack II Circle, Cuttack dated February 16, 1983 under r.15 of the
Central Sales Tax (Orissa) Rules, 1957 treating the gross turnover of Rs. 7, 13,
94, 903. 63p. as returned by the 746 petitioners to be their taxable turnover
and the tax payable thereon at 10% at Rs. 71,39,490.36p. By the other, the
petitioners challenged the validity of an order of assessment under the Orissa
Sales Tax Act. 1947 for the assessment year 1980-81 passed by the Assistant
Sales Tax Officer, Cuttack II Circle, Cuttack dated February 16, 1983 under
sub-s. (4) of s.12 of the Orissa Sales Tax Act, 1947 treating the gross
turnover of Rs. 2,02,07,852.65p. as returned by the petitioners to be their
taxable turnover and the tax payable thereon at 7% at Rs. 14,14,549.71p.
It appears from the impugned orders of
assessment that proceedings under r.12 (5) of the Central Sales Tax (Orissa)
Rules, 1957 ("Rules" for short) and under sub-s. (4) of s.12 of the
Orissa Sales Tax Act, 1947 ("Act" for short) were initiated against
the petitioners for the assessment year 1980-81 in relation to assessment of
tax on sales in the course of inter-state trade and commerce under the Central Sales
Tax Act, 1956 and inside sales effected during the year in question under the
Orissa Sales Tax Act, 1947. The provisions contained in r. 12 (5) of the Rules
and in sub-s.
(4) of s.12 of the Act enjoin the affording
of reasonable opportunity to the dealer for completion of assessment. The
learned Sales Tax Officer observes that he gave repeated opportunities to the
petitioners to get themselves ready for the assessment of tax and to produce
their account books and other documents but they sought adjournments on one
pretext or another. Eventually on February 16,1983 the learned Sales Tax
Officer refused to grant any further adjournment holding that the petitioners
had sufficient opportunity and accordingly proceeded to best judgment under
r.15 of the Rules and sub-s. (4) of s.12 of the Act. In the absence of any
material, the learned Sales Tax Officer made an assessment under r.15 of the
Rules treating the gross turnover of sales in the course of inter-State trade
and commerce amounting to Rs. 7,13,94,903.63p. as returned by the petitioners
under the Central Sales Tax Act, 1956 to be their taxable turnover and the tax
payable thereon at 10% at Rs. 71,39,490.36p. After allowing an adjustment of
Rs. 27,88,388.47p. paid by the petitioners along with the quarterly return, the
learned Sales Tax Officer has raised a demand for payment of a sum of Rs.
43,51,101.89p. He disallowed their claim for deduction of Rs. 6,74,99,085.65p.
representing sales to registered dealers and
departments of Government as well as of Rs. 28,24,224.42p. claimed as deduction
on account of tax collected from purchasers as the requisite declarations in
Form 'C' were not forthcoming. He also disallowed the concessional rate of tax
at 4%.
Similarly, while 747 making an assessment
under sub-s. (4) of s.12 of the Orissa Sales Tax Act, 1947, he treated the
gross turnover of inside sales amounting to Rs. 2,02,07,852.65p. as returned by
the petitioners to be their taxable turnover and the tax payable thereon at 7%
at Rs. 14,14,549. 71p. After allowing an adjustment of Rs. 1,08,480.11p. paid by
the petitioners along with the quarterly return, the learned Sales Tax Officer
has raised a demand for payment of a sum of Rs.
13,06,069.60p. It would thus appear that by
the impugned orders of assessment the petitioners are faced with a total demand
of Rs. 56,57,171.49p. for the assessment year 1980-
81. The petitioners instead of preferring
appeals under sub- s. (1) of s. 23 of the Act filed petitions before the High
Court under Art. 226 of the Constitution challenging the validity of the two
orders of assessment.
The only contention raised before the High
Court was that the impugned orders of assessment being a nullity, the
petitioners were entitled to invoke the extraordinary jurisdiction of the High
Court under Art. 226 of the Constitution, but the High Court was not satisfied
that this was a case of inherent lack of jurisdiction. The High Court while
dismissing the writ petitions observed:
"Having heard the learned counsel for
both the parties and having gone through the records, we are not inclined to
interfere with the impugned order (s) in exercise with our extra-ordinary
jurisdiction since there is a right of appeal against the same. It is contended
on behalf of the petitioner that the impunged order being a nullity is entitled
to invoke our extra- ordinary jurisdiction. We are not satisfied that this is a
case of inherent lack of jurisdiction. There is no violation of principles of
natural justice." In support of these petitions, the submissions advanced
by learned counsel for the petitioners rest purely on procedural irregularities
or touch upon the merits of the assessments. Broadly speaking, the contentions
were that:
(1) The learned Sales Tax Officer had no
authority or jurisdiction while making an assessment under r. 15 of the Central
Sales Tax (Orissa) Rules, 1957 to treat the gross turnover as returned by the
petitioners to be their taxable turnover. (2) He was not justified in
disallowing the claim for deduction of Rs. 6,74,99,085.65p. representing sales
to registered dealers and departments of Government as well as of Rs.
28,24,224.42p. on account of tax collected from the purchasers from the gross
748 turnover of sales in the course of inter-State trade and commerce amounting
to Rs. 7,13,94,903.63p. (3) He wrongly denied the petitioners the benefit of
the concessional rate of tax at 4% merely because they failed to furnish the
requisite declarations in Form 'C' (4) He could not, for similar reasons, while
making an assessment under sub-s. (4) of s. 12 of the Orissa Sales Tax Act,
1947 treat the gross turnover of inside sales amounting to Rs. 2,02,07,852.65p.
as returned by the petitioners to be their
taxable turnover nor was he justified in disallowing their claim for deduction
of Rs. 1, 80, 65, 167.66p. representing sales to registered dealers merely
because they failed to produce the prescribed declarations from registered
dealers. (5) And the learned Sales Tax officer had acted in flagrant violation
of the rules of natural justice as the petitioners were deprived of an
opportunity to place their case for the assessment year in question. We are
afraid, these contentions cannot prevail. It is not for us to say whether or
not the learned Sales Tax Officer was justified in proceeding to best judgment
under r. 15 of the Central Sales Tax (Orissa) Rules, 1957 and under sub-s. (4)
of s. 12 of the Orissa Sales Tax Act, 1947 or whether he was justified in
treating the gross turnover as returned by the petitioners to be their taxable
turnover or whether he was wrong in disallowing the deductions claimed for the
assessment year in question. In the very nature of things, these are the
questions which the petitioners should raise in appeals preferred before the
prescribed Appellate Authority under sub-s. (1) of s. 23 of the Act.
We are constrained to dismiss these petitions
on the short ground that the petitioners have an equally efficacious
alternative remedy by way of an appeal to the prescribed authority under sub-s.
(1) of s. 23 of the Act, then a second appeal to the Tribunal under sub s. (3)
(a) thereof, and thereafter in the event the petitioners get no relief, to have
the case stated to the High Court under s.
23 of the Act. In Raleigh Investment Company
Limited v. Governor General in Council,(1) Lord Uthwatt, J. in delivering the
judgment of the Board observed that in the provenance of tax where the Act
provided for a complete machinery which enabled an assessee to effectively to
raise in the courts the question of the validity of an assessment denied an
alternative jurisdiction to the High Court to interfere. It is true that the
decision of the Privy Council in Raleigh Investment Company's case, supra, was
in relation to a suit brought for a declaration that an assessment made by the
Income Tax Officer was 749 a nullity, and it was held by the Privy Council that
an assessment made under the machinery provided by the Act, even if based on a
provision subsequently held to be ultra vires, was not a nullity like an order
of a court lacking jurisdiction and that s. 67 of the Income Tax Act, 1922 operated
as a bar to the maintainability of such a suit. In dealing with the question
whether s. 67 operated as a bar to a suit to set aside or modify an assessment
made under a provision of the Act which is ultra vires, the Privy Council
observed:
"In construing the section it is
pertinent, in their Lordships opinion to ascertain whether the Act contains
machinery which enables an assessee effectively to raise in the courts the
question whether a particular provision of the Income Tax Act bearing on the assessment
made is or is not ultra vires. The presence of such machinery, though by no
means conclusive, marches with a construction of the section which denies an
alternative jurisdiction to inquire into the same subject-matter." We are
not oblivious of the fact that this Court in K.S. Venkataraman & Co. v.
State of Madras,(1) in a five- Judge Bench by a majority of 3: 2 has dissented
with the view expressed by the Privy Council in Raleigh Investment Company's
case, supra, and held that an assessment made on the basis of a provision which
is ultra vires is not an assessment made under the Act. It was observed that
the entire reasoning of the Judicial Committee was based upon the assumption
that the question of ultra vires can be canvassed and finally decided through
the machinery provided under the Income Tax Act. The majority observed that the
hierarchy of authorities set up under the Act being creatures of statute were
not concerned as to whether the provisions of the Act were intra vires or not.
If an assessee raises such a question, according to the decision of the
majority in Venkataraman's case, supra, the Appellate Tribunal can only reject
it on the ground that it has no jurisdiction to entertain such objection or
render any decision on it. As no such question can be raised or can even arise
out of the order of the Appellate Tribunal, the High Court cannot possibly give
any decision on the question of ultra vires because its jurisdiction under s.
66 is a special advisory jurisdiction and its scope is strictly limited. It can
only decide questions of law that arise out of the order of the Appellate
Tribunal and that are referred to it. Further, an appeal to this 750 Court
under s. 66A (2) does not enlarge the scope of the jurisdiction of this Court
as this Court can only do what the High Court can under s. 66. It would
therefore appear that the majority decision in Venkataramon's case, supra,
rests on the principle that (i) An ultra vires provision cannot be regarded as
a part of the Act at all, and an assessment under such a provision is not
"made under the Act" but is wholly without the jurisdiction and is
not directed by s. 67 of the Act. And (ii) The question whether a provision is
ultra vires or not cannot be decided by any of the authorities created by the
Act and therefore cannot be the subject matter of a reference to the High Court
or a subsequent appeal to this Court.
No such question arises in a case like the
present where the impugned orders of assessment are not challenged on the
ground that they are based on a provision which is ultra vires. We are dealing
with a case in which the entrustment of power to assess is not in dispute, and
the authority within the limits of his power is a Tribunal of exclusive
jurisdiction. The challenge is only to the regularity of the proceeding before
the learned Sales Tax Officer as also his authority to treat the gross turnover
returned by the petitioners to be the taxable turnover.
Investment of authority to tax involves
authority to tax transactions which in exercise of his authority the Taxing
Officer regards as taxable, and not merely authority to tax only those
transactions which are, on a true view of the facts and the law, taxable.
Emphasis is laid on the following
observations made by this Court in State of Uttar Pradesh v. Mohammad Nooh(1):
"If an inferior Court or tribunal of
first instance acts wholly without jurisdiction or patently in excess of
jurisdiction or manifestly conducts the proceedings before it in a manner which
is contrary to the rules of natural justice and all accepted rules of procedure
and which offends the superior court's sense of fair play the superior Court
may, we think, quite properly exercise its power to issue the prerogative writ
of certiorari to correct the error of the Court or tribunal of first instance,
even if an appeal to another inferior Court or tribunal was available and
recourse was not had to it or if recourse was had to it, it confirmed what ex
facie was a nullity for reasons aforementioned." We find no justification for
extending the principles laid down in Mohammad Nooh's case, supra, to a case
like the present where 751 there is an assessment made by the learned Sales Tax
Officer under the Act. In Raleigh Investment Company's case, supra, the Privy
Council rightly observed that the phrase "made under the Act"
described the provenance of the assessment;
it does not relate to its accuracy in point
of law. The use of the machinery provided by the Act, not the result of that
use, is the test.
The decision in Mohamamd Nooh's case, (supra)
is clearly distinguishable as in that case there was total lack of
jurisdiction. There is no suggestion that the learned Sales Tax Officer had no
jurisdiction to make an assessment.
Nor can it be contended that he had acted in
breach of rules of natural justice. There is no denying the fact that the
petitioner was served with a notice of the proceedings under r. 12(5) of the
Rules and sub-s. (4) of s. 12 of the Act.
The impugned orders clearly show that the
petitioners were afforded sufficient opportunity to place their case. Merely
because the learned Sales Tax Officer refused to grant any further adjournment
and decided to proceed to best judgment, it cannot be said that he acted in
violation of the rules of natural justice. The question whether another
adjournment should have been granted or not was within the discretion of the
learned Sales Tax Officer and is a matter which can properly be raised only in
an appeal under sub-s. (1) of s. 23 of the Act. All that this Court laid down in
Mohammad Nooh's case, supra, is that the rule which requires the exhaustion of
alternative remedies is a rule of convenience and discretion rather than a rule
of law; in other words, it does not bar the jurisdiction of the Court.
Under the scheme of the Act, there is a
hierarchy of authorities before which the petitioners can get adequate redress
against the wrongful acts complained of. The petitioners have the right to
prefer an appeal before the prescribed authority under sub-s. (1) of s. 23 of
the Act.
If the petitioners are dissatisfied with the
decision in the appeal, they can prefer a further appeal to the Tribunal under
sub-s. (3) of s. 23 of the Act, and then ask for a case to be stated upon a
question of law for the opinion of the High Court under s. 24 of the Act. The
Act provides for a complete machinery to challenge an order of assessment and
the impugned orders of assessment can only be challenged by the mode prescribed
by the Act and not by a petition under Art. 226 of the Constitution. It is now
well recognised that where a right or liability is created by a statute which
gives a special remedy for enforcing it, the remedy provided by that statute
only must 752 be availed of. This rule was stated with great clarity by Willes,
J. in Wolverhampton New Water Works Co. v. Hawkesford(1) in the following
passage:
"There are three classes of cases in
which a liability may be established founded upon
statute....................................But there is a third class, viz.,
where a liability not existing at common law is created by a statute which at
the same time gives a special and particular remedy for enforcing
it................the remedy provided by the statute must be followed, and it
is not competent to the party to pursue the course applicable to cases of the
second class. The form given by the statute must be adopted and adhered
to." The rule laid down in this passage was approved by the House of Lords
in Neville v. London Express Newspaper Ltd.(2) and has been reaffirmed by the
Privy Council in Attorney-General of Trinidad and Tobago v. Gordon Grant &
Co.(3) and Secretary of State v. Mask & Co.(4) It has also been held to be
equally applicable to enforcement of rights, and has been followed by this
Court throughout. The High Court was therefore justified in dismissing the writ
petitions in limine.
Furthermore, the Act provides for an adequate
safeguard against an arbitrary or unjust assessment. The petitioners have a
right to prefer an appeal under sub-s. (1) of s. 23 of the Act subject to their
payment of the admitted amount of tax as enjoined by the proviso thereto. As
regards the disputed amount of tax, the petitioners have the remedy of applying
for stay of recovery to the Commissioner of Sales Tax under cl. (a) of the
second proviso to sub-s. (1) of s. 13 of the Act which runs:
"Provided further that- (a) When the
dealer or person, as the case may be, has presented an appeal under sub-s. (1)
of s. 23, the Commissioner may, on an application in that behalf filed by such
dealer or person within thirty days from the date of 753 receipt by him of the
notice under sub-s. (4), in his discretion, stay the recovery of the amount in
respect of which such notice has been issued or any portion thereof, for such
period and subject to such conditions as the Commissioner thinks fit;" The
petitioners are at liberty to make an application for stay of the disputed
amount and the Commissioner will decide whether or not there should be such
stay on such terms and conditions as he thinks fit, looking to the nature of
the demand raised in the facts and circumstances of the present case.
For these reasons, the petitions must fail
and are dismissed. We hope and trust that the Appellate Authority will dispose
of the appeals as expeditiously as possible.
Shri Nariman, appearing on behalf of the
State of Orissa fairly stated that he has no objection to the appeal being
heard as early as possible without any objection as to limitation.
Petitions dismissed.
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