w w w . L a w y e r S e r v i c e s . i n



M/s. Parle Biscuits Ltd. & Another v/s The State of Assam Represented by the Commissioner & Secretary to the Govt. of Assam, Guwahati & Others

    WP(C) No. 214 of 2004 & WP(C) No. 253 of 2004

    Decided On, 26 March 2014

    At, High Court of Gauhati

    By, THE HONOURABLE CHIEF JUSTICE MR. ABHAY MANOHAR SAPRE & THE HONOURABLE MR. JUSTICE A.K. GOSWAMI

    For the Appellants: G.K. Joshi, Senior Advocate Assisted by R.K. Joshi, Advocate. For the Respondents: R. Dubey, Standing Counsel for Finance (Taxation) Department.



Judgment Text

A.M. Sapre, CJ.

The decision rendered in this writ petition shall also govern the disposal of the connected writ petition being W.P(C) No 253 of 2004 because firstly: both the writ petitions are filed by the same writ petitioners against the same set of respondents (Sales Tax authorities of the State) and secondly: both involves identical issues and arise out of one impugned order of the Board.

By filing this writ petition under Article 226/227 of the Constitution of India, the writ petitioners seek to challenge the order dated 24.7.2003 passed by the Assam Board of Revenue (for short hereinafter called the 'Board ') in case no 15 STA and 16 STA of 2001 which in turn arise out of the order dated 14.7.2000 passed by the Commissioner of Sales Tax arising out of two assessment order dated 11.8.1999 passed by the Assessing Authority for the assessment year 96-97/97-98.

In order to appreciate the issue involved in the case, few relevant facts need mention in brief.

The petitioner is a leading biscuits and confectionary items manufacturer in the country. They sell their products by and under the brand name – 'Parle' all over the country including in State of Assam. They are registered dealer under the Assam General Sales Tax Act 1993 (for short hereinafter called the Act).

The petitioner filed their sales tax returns for the year 96-97 and 97-98 as required under the Act. The Assessing Authority then made an assessment order dated 11.8.1999 under Section 17 (4) of the Act and accordingly determined the gross turnover of 8 % taxable goods at Rs. 3,69,16,030.00 so far as assessment year 96-97 was concerned. Whereas the Assessing Authority determined gross turnover of 8 % taxable goods at Rs. 3,89,3130.00 and 12 % taxable good at Rs. 4,63,62,240.00 so far the assessment year 97-98 by another order of the same date. The petitioner was satisfied and hence did not prefer any appeal against these assessment orders.

On 7.3.2000/16.3.2000, the Commissioner of Sales Tax issued a notice under Section 36 (1) of the Act to the petitioners. According to the Commissioner, both the assessment orders were erroneous and prejudicial to the interest of revenue and therefore, they were liable to be recalled for making re-assessment. In substance, the Commissioner sought to re-open the assessment on the ground that - firstly: the petitioners suppressed the sales figure and secondly: the profit margin was shown less by them.

The petitioners, on 20.4.2011, requested the Assessing Authority to supply the certified copy of the two assessment orders. However, according to the petitioners, till date the certified copies have not been supplied.

The petitioners then filed detail reply on 22.6.2000 to the show cause issued under Section 36 (1) ibid. While denying the allegations made therein, the petitioners in detail explained their mode and manner of selling the products all over India including in North East.

We consider it apposite to reproduce in verbatim the detail reply submitted by the petitioner herein:-

'In this connection, it is humbly submitted that we have not made suppression of sales during the years 1996-97 and 1997-98 as alleged. The alleged suppression of sales has been worked out in your aforesaid notice by assuming the stock transfer value of the goods as the sale price of the said goods during the relevant years and then comparing the same with the actual sale price realized by us in respect of intra-state sales within Assam and inter-state sales affected from Assam to the registered dealers of other States of the North Eastern Region. The sale price of our products in the other states of the North Eastern Region is not uniform. The said States are divided into two category, viz. N.E. 1 (consisting the States of Meghalaya, Manipur, Tripura and Nagaland) and N.E. 2 (consisting the States of Arunachal Pradesh and Mizoram). The sales prices of our product for both the N.E. 1 and N.E. 2 States are different as will be clear from the relevant price lists produced before you for your verification. The said price lists will show that sale price of the products in N.E. 2 States is higher as compared to the such sale price for the N.E. 1 States. It may further be noted that the sale price of our products for the N.E. 2 States is even more than such sale price fixed for sales of the products within Assam. But such sale price for the N.E. 1 States is lower than the sale price of the same goods within Assam. Because of this variation in sale prices in the different States of the N.E. Region, the actual sales proceeds realized by us do not and cannot remain the same as compared to our stock transfer value. That is why a difference has been made out by you by deeming it to be alleged suppression of sales whereas a case of suppression of sales in fact does not exist in the facts and circumstances of the case.

3. As to the fixation of different sales prices of our products in case of Assam, N.E. 1 States and N.E. 2 States, we like to clarify that we have to fix our sale price at a higher value in respect of such States where no sales tax is payable by the dealer of those States. Similarly for those states where sales tax is payable on sale of our products, we have to fix the sale price at lower rate. This entire exercise has to be done in order to provide a reasonable margin of profit to the dealers of M.R.P. price. If this consideration is not shown, the dealers shall be left with no incentives for marketing our products. Thus, the difference made out by you does not represent any suppression of sales at all. Rather, the difference is because of variation in the rate of our sales as above stated.'

After explaining the marketing strategy for sale of their products, the petitioner furnished the details of intra-state and inter-state sales effected by them in entire country including in North East during these two years. The petitioner also filed the price list prepared by them for each State including the price list separately prepared for the North East in support of their contentions. The petitioner on the basis of the aforesaid explanation and the documents contended that the show cause notice issued by the Commissioner be withdrawn because the assessment orders can not be termed as being either erroneous or/and prejudicial to the interest of revenue as alleged in the show cause notice and nor the petitioner can be accused of suppressing any sales figures and nor can they be said to have applied low profit rate to avoid payment of tax.

The Commissioner by order dated 14.7.2000 set aside the original assessment orders by holding the same to be erroneous and prejudicial to the interest of revenue. He also held that petitioner suppressed the sales to the extent of Rs 11,39,132.24 during the years in question and also applied low margin of profit rate.

The petitioners felt aggrieved, filed the appeal before the Board against the order of the Commissioner. The Board by impugned order dismissed the appeal and affirmed the order of the Commissioner. It is against this order of the Board; the petitioner felt aggrieved and filed this writ petition under Article 226/227 of the Constitution of India.

Learned senior counsel for the petitioner, while assailing the cause notice issued by the Commissioner contended that the Commissioner erred in invoking suo motu revisionary power under Section 36 ibid in relation to two assessment orders and further erred in passing orders on the basis of the said show cause notice against the petitioner.

Elaborating his submissions, learned senior counsel contended that – firstly: the assessment orders were neither erroneous and nor prejudicial to the interest of Revenue, as alleged by the Commissioner in his show cause notice within the meaning of Section 36 ibid, Secondly: the show cause notice did not mention any grounds as to how the assessment orders were erroneous and prejudicial to the interest of Revenue, thirdly and most importantly neither the Commissioner and nor the Board took into consideration the detail reply filed by the petitioner and lastly: a change of opinion on any particular issue could not be made basis to invoke the suo motu jurisdiction by the Commissioner for treating the assessment to be erroneous and prejudicial to the interest of Revenue.

Learned counsel placed reliance on the decisions reported in [2002] 1 GLR 197, Santalal Mehendi Ratta (HUF) vs. Commissioner of Taxes and Others, [1990] 1 GLR 449, Shri Rajendra Singh & Others vs. The Superintendent of Taxes and Others and [2000] 243 ITR 83 (SC) Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax in support of his contentions.

In reply, learned counsel appearing for the Revenue supported the impugned orders and prayed for dismissal of the petition.

Having heard the learned counsel for the parties and on perusal of the record of the case, we are inclined to allow the writ petition finding force in the submission of the learned counsel for the petitioner.

Section 36 of the Act, which is relevant for the disposal of the petition, reads as under:

36. (1) The Commissioner may call for and examine the records of any proceeding under this Act and if he considers that any order passed therein by any person appointed under sub-section (1) of section 3 to assist him is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the dealer or the person to whom the order relates an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary pass such order as the circumstances of the case justify, including an order enhancing or modifying the assessment of tax or penalty or cancelling such order and directing that a fresh order should be made: Provided that no order under this sub-section shall be made after the expiry of eight years from the end of the financial year in which the order sought to be revised was made.

Explanations:-

The provisions of this sub-section shall apply, notwithstanding that the order sought to be revised has been made the subject of any proceeding by way of appeal, in respect of matters not actually considered and decided in such proceedings.'

The expression 'erroneous and prejudicial to the interest of revenue 'occurring in Section 36 also finds place in Section 263 of the Income Tax Act. This expression was the subject matter of interpretation before the Supreme Court in several cases. One such decision, which explains the import, and its true meaning is reported in [2000] 243 ITR 83 (SC) Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax. Justice Quadri, speaking for the Bench, held as under:

'6. A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income Tax Officer is erroneous insofar as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to Section 263(1) of the Act. 7. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.

8. The phrase 'prejudicial to the interests of the Revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. v. S.P. Jain & Ano. [1957] 3 ITR 872 (Cal), the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 98 ITR 422 (KAR), the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom) and the High Court of Gujarat in CIT v. Minalben S. Parikh [1995] 215 ITR 81 (Guj) treated loss of tax as prejudicial to the interests of the Revenue.

9. Mr Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129 (Mad) interpreting 'prejudicial to the interests of the Revenue'. The High Court held, 'In this context, (it must) be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income Tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration.'In our view this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue.

10. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. (See Rampyari Devi Saraogi v. CIT [1968]67 ITR 84 (SC) and in Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)' Since the object and scope of Section 36 of the Act is in pari materia with the object and scope of Section 263 of the Income Tax Act, we can safely apply the principle laid down by the Supreme Court in the case of Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax. (Supra) to the facts of this case. Indeed, this court too, while interpreting Section 36 of the Act in the case of Shri Rajendra Singh & Others vs. The Superintendent of Taxes and Others (Supra) has held as under:

'9. The power of Suo Motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of suo-motu revision under this sub-section, (i) the order is erroneous (ii) by virtue of the order being erroneous prejudice has been caused to the interest of the revenue. It is not sufficient that the order is erroneous. It must be erroneous and also prejudicial to the interest of the revenue. If an order is erroneous but not prejudicial to the revenue, the Commissioner cannot exercise power under this sub-section. Likewise, it is not sufficient to exercise power under Section 20(1) that the order in question is prejudicial to the interest of the revenue. It must be erroneous first and if it is so then it can be revised in so far as it is prejudicial to the interest of the revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions 'erroneous', 'erroneous assessment', and 'erroneous judgment' have been defined in Black’s Law Dictionary. According to definitions 'Erroneous' means 'involving error; deviating from the law'. 'Erroneous assessment' refers to an assessment that deviates from the law and is therefore invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the assessing officer in fixing the amount of valuation of the property. Similarly ‘erroneous judgment' means:

‘One rendered according to course and practice of court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles’.

10. From the aforesaid definitions it is clear that n order can not be termed as erroneous unless it is not in accordance with law. If an officer acting in accordance with law makes certain assessment and determines the turnover of a dealer, the same cannot be branded as erroneous by the Commissioner simply because according to him the order should have been written more elaborately. This section does not visualize a case of substitution of judgment of the Commissioner for that of the officer, who passed the order, unless the decision of the subordinate officer is held to be erroneous. Cases may be visualised where assessing officer while making as assessment examines the accounts, makes his enquiries, applies his mind to the facts and circumstances of the case and determines the turn over either by accepting the accounts or by making some estimates himself. The Commissioner on perusal of the records may be of the opinion that concerned was on the lower side and left to the Commissioner he would have estimated the turnover at a higher figure than the one determined by the assessing officer. That would not vest the Commissioner with power to re-examine the accounts and determine the turnover himself at a higher figure. It is because the officer has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interest of the revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, that the order is erroneous, is absent. Similarly if aa order is erroneous but not prejudicial to the interest of the revenue then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be subject matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.'

Applying the aforesaid principles to the facts of this case, we notice that the only grounds on which the Commissioner invoked his suo motu revisional jurisdiction for recalling of the assessment orders was that – firstly: petitioner had shown low profit margin and therefore it seemed unreasonable to him and secondly: the petitioner was alleged to had suppressed sales to the extent of Rs.11,39,132.24 in these two years. With respect, we do not find any basis for these grounds for invoking suo motu powers under Section 36 more than one reason.

In the first place, there was no factual basis for forming the opinion that two grounds exists for invoking Section 36 against the petitioner. Secondly: neither the Commissioner and nor the Board took into consideration the detail explanation offered by the petitioner with a view to find out as to whether any ground had been made out to withdraw the show cause notice. This being the legal error in the proceedings, the impugned orders are not legally sustainable. Thirdly, mere perusal of the explanation given by the petitioner would go to show that they had disclosed in their reply all sales both (inter-state and intra- state) and had also filed their price lists applicable for the North East Region. It clearly indicated that looking to their market strategy applied for North East Region due to long distances from other part of the country, coupled with a separate price list for sale of the products, the explanation offered deserved acceptance for withdrawal of the show cause notice issued under Section 36 ibid. In fact, such market strategy was permissible for selling the products and no flaw could be noticed therein. Fourthly: it was for the manufacturer to decide as to what should be their profit margin ratio. It was only when the Assessing Authority or/and Commissioner had been able to notice some kind of manipulation or false entries made i

Please Login To View The Full Judgment!

n the books of accounts made with an intention to evade the payment of taxes, the issue could have been examined. Such was not the case here. Fifthly: no order of assessment could be said as being erroneous and prejudicial to interest of revenue only because in the opinion of the Commissioner, the dealer claimed low profit margin. It was for the reason that it is bound to vary from manufacturer to manufacturer and depends upon various market and financial strategy. Once it is determined by the assessing authority by applying his mind on the basis of facts brought on record by the dealer, then Commissioner in his suo motu jurisdiction could not substitute his own opinion. To us, it appears that Commissioner acted like an Appellate Court over the decision of the Assessing Authority for examining the findings. It was not permissible in law while invoking powers under Section 36 ibid. As rightly argued by the learned counsel for the petitioners, there was no reason for the petitioners to have suppressed their sales to the extent of Rs. 11,39,132. 24 because petitioner’s yearly sales were in crores. If the petitioner’s intention was to evade the payment of taxes, then they would have indulged in suppression in crores rather than in few lacs. We find substance in this submission which is clear from the reply filed by petitioner. It is apart from the fact that even the revised tax liability after invoking the powers under Section 36 ibid was not found to be such so as to satisfy the phrase 'prejudicial to the interest of revenue'. In the light of all these reasons, we are of the considered opinion that finding recorded by the Commissioner that the petitioners suppressed the sale to the extent of Rs. 11,39,132.24 is not factually and legally sustainable. In our considered opinion, therefore, there was neither any material nor any ground for invoking the suo motu jurisdiction contemplated under Section 36 ibid. In view of foregoing discussion, the petition succeeds and is accordingly allowed. The impugned orders dated 24.7.2003 passed by the Assam Board of Revenue in case no 15 STA and 16 STA of 2001 which in turn arise out of the order dated 14.7.2000 passed by the Commissioner of Sales Tax for the assessment year 96-97/97-98 are quashed by issuance of writ of certiorari. No cost.
O R