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Sales Tax Reference The Commissioner Of Sales Tax v/s Benson Industries

    Sales Tax Reference Appeal No. 43 of 1977
    Decided On, 28 February 1986
    At, High Court of Delhi
    By, THE HONOURABLE MR. JUSTICE T.P.S. CHAWLA & THE HONOURABLE MR. JUSTICE J.D. JAIN
    For the Appearing Parties: Gopal Bansal, R.C. Chawla, Advocates.


Judgment Text
T. P. S. CHAWLA J.


(1) M/s. Benson Industries was a firm which carried on the business of selling electrical goods in Chandni Chowk, Delhi They were registered as a dealer' under the Bengal Finance (Sales Tax) Act "1941 as extended to the Union Territory of Delhi, and, also, under the Central Sales Tax Act 1956 (the Local and the Central Act).


(2) FOR the financial year 1968-69, proceedings for assessment were commenced, both under the Local and the Central Act, by serving notices on the firm in Form ST XIV requiring them to allend before the Sales Tax Officer on 20th January 1970. No. one appeared on behalf of the firm before the Sales Tax Officer on the appointed date. For almost three years thereafter, dates were fixed and notices to attend were sent to the firm, but still no one appeared on their behalf. Ulltimately. on 19th. December, 1972, the Sales Tax Officer proceeded ex parte, and made two orders of assessment : one under the Local and the other under the Central Act. Additional demands for tax were raised under both these orders.


(3) AGAINST those orders, one L. C. Goel, describing himself as an ex-partner of M/s. Benson Industries, filed two appeals before the Assistant Commissioner of Sales Tax. It was shown to the Assistant Commissioner that a letter dated 30th March 1972 had been sent to the Sales Tax Officer, intimating that the firm had been dissolved with effect from 25th March 1972. Along with tills letter were enclosed an attested copy of the deed of dissolution, the original registration certificates under the Local and the Central Act, and some unused "c' forms. This letter was admittedly received in the office of the Sales Tax Officer on 30th March 1972, but for some reason or other, he did not advert to it in the assessment Orders made by him.


(4) IT was argued before the Assistant Commissioner that since the firm stood dissolved with effect from 25th March 1972, and intimation of this fact had been given to the Sales Tax Officer on 30th March 1972, assessments could not thereafter be made against, the firm as it had cea. sed to be an assessable entity. The Assistant Commissioner accepted this proposition of law. He was of the opinion that even though the 'dealer' had not appeared before the Sales Tax Officer and the assessment orders had been made ex parte; it was, nevertheless, the duty of the Assessing Authority to consider the letter recsived intimating the dissolution of the firm. Consequently, by a conjoint order dated 12th April 1973. the Assistant Commissioner set aside both the assessments, and remanded the cases to the Sales Tax Officer with the direction that he may verify the plea of dissolution taken by the dealer and then frame the assessments if permissible under the law


(5) BEING aggrieved by the orders of remand made by the Assistant Commissioner, M/s. Benson Industries filed two petitions for revision of those orders. These petitions were heard by the Additional Commissioner of Sales Tax. It was contended before her that whilst the Assistant Commissioner was right in setting aside the assessments, he should not have remanded the cases to the Sales Tax Officer for verifying whether, in fact, the firm had been dissolved or not. The argurment was based on Ranjit Singh and another vs. The Assessing Authority. Sales Tax Officer, Ward No. VII, Delhi, and others, (1972) 29 S. T. C. 499 (1). The Additional Commissioner did not accept the submission. and dismissed both the petitions for revision by an order dated 5th March 1974.


(6) M/s. Benson Industries then filed two petitions for revision before the Financial Commissioner, Delhi. Their contention was the same as before the Additional Commissioner. In an order dated 29th October 1974, the Financial Commissioner accepted their argument. He held that Ranjit Singh's case plainly established that after the receipt of an intimation regarding the dissolution of a firm, the Assessing Authority becomes functus (sic) in the matter of framing the assessment' so there was no question of making any further inquiry. The petitions for revision were, therefore, allied by him. The orders of remand made by the Assistant Commissioner were set aside, and it was held 'that. no assessment could be framed against the petitioner firm which stood dissolved before the passing of the assessment Order


(7) AT the request of the Commissioner of Sales Tax, the present two references of an identical question of law, arising out of the order pasted by the Financial Commissioner, have been made to this court. One reference pertains to the assessment under the Local, and the other, under the Central Act. The question referred is as follows: "whether on the facts and in the circumstances of the case, the learned Financial Commissioner was justified in holding that after the receipt of an intimation regarding the dissolution of a firm. the Assessing Authority becomes functus officio in the matter of framing the assessment and that the question of further inquiry to verify the factum of dissolution did not arise at all.


(8) THIS question has arisen out of the application of the propositions of law enunciated by the Supreme Court in The State of Punjab vs. Jullundur Vegetables Syndicate, (1966) 17 S. T. C. 326 (2). The propositions are contained in the following passage: Though under the partnership law a firm is not a legal entity but only consists of individual partners for the time being, for tax law. , income-tax as well as sales tax, it is a legal entity. If 'that be so, on dissolution, the firm ceases to be a legal entity. Thereafter, on principle, unless there is a statutory provision permitting the assessment of a dissolved firm, there, is no longer any scope for assessing the firm which ceased to have a legal existence. As in the present case, admittedly, the firm was dissolved before the order of assessment was made, the said order was bad. In this context as we have stated earlier, there cannot be a distinction on principle between an assessment made on a firm under a proceeding initialed before the dissolution and that made in a proceeding started after the dissolution. In either case, unless there is an express provision, no assessment can be made on a firm which has lost its character as an assessable entity. There is no dispute about these propositions. The question referred is concerned with the manner of their application. In short, the question is whether, on being informed that a firm has been dissolved, the Assessing Authority can inquire into the truth of that information or must accept the ipse dixit of the dealer.


(9) THE Assistant Commissioner, it will be recalled, remanded the cases of M/s. Benson Industries to the Sales Tax Officer and directed him to verify the plea of dissolution. The Additional Commissioner upheld that order. However, the Financial Commissioner reached a different conclusion, and set aside the orders of remand. He followed the view taken by Prakash Narain, J. (as he then was), in Ranjit Singh's case.


(10) THERE is no doubt that in that case Prakash Narain, J" did hold that only intimation of the dissolution of a firm had to be given to the sales tax authorities, and no proof of that fact need be produced. He said : According to rule 16 (presumably, be meant section 16 of the local Act) of the aforesaid Rules all that is required is that intimation of the change should be given. This intimation was given. It is not provided by the rules or the statute that any proof of change must be produced and in any case even if there was any such requirement the duty was on the respondents to fix a hearing and not to proceed with the assessment till they were satisfied that assessment could be made. A little later in his judgment he repeated that no rule had been brought to his notice, and there was no provision in the statute, requiring that proof of dissolution of a firm was necessary prior to the department recognising the dissolution.


(11) WITH respect, I am not able to agree with this view. In fact. it seems to me that the judgment was delivered per incuriam because the relevant provisions of the Local Act and the Rules were not brought to the notice of the judge.


(12) THE scheme of the Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi, is briefly as follows. When an assessment is to be made, section 11 (1) and (2) require the Assessing Authority to proceed in such manner as may be prescribed The word prescribed is defined in section 2 (e) to mean prescribed by rules made under this Act. That means one must turn to the rules lor ascertaining the procedure to be followed.


(13) THE first relevant rule is rule 32. It reads as follows: 32. When it appears to the appropriate Assessing Authority to be necessary to make an assessment under section 11 in respect of a dealer, he shall serve a notice in Form S. T. XIV upon him- (a) calling upon him to produce his books of accounts and other documents, which such authority wishes to examine, together with any objection which the dealer may wish to prefer and any evidence which he may wish to produce in support thereof;' The rest of the rule is not material It is important to observe that the notice issued under this rule requires the dealer to raise any objection which he may wish to prefer and, also, bring with him any evidence which he may wish to produce in support thereof.


(14) RULE 33 empowers the Assessing Authority to depute an inspector to hear and record the evidence produced by or on behalf of the dealer Rule 35 says that a dealer who has been served with a notice under rule 32 may prefer an objection in writing personally or through an agent. Lastly, comes the most vital rule. It is rule 36, which, omitting the irrelevant portion, reads as follows: 36. After considering any objection made by the dealer and any evidence produced in support thereof, the Assessing Authority after giving the dealer an opportunity of being heard shall assess the amount of fax (if any). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . to be paid by the dealer.


(15) II is evident from the procedure laid down by these rules that if the dealer wishes 'to raise any objection to the proposed assessment it is for him to do so; and, it seems from. rule 35 that the objection should be in writing. Furthermore, he must produce his evidence in support of the objection. It is only then that the Assessing Authority is required to consider it. This procedure is applicable to any kind of objection that the dealer may wish to raise. For, no exceptions are stated. If, therefore, a dealer, which is a firm, wishes to contend that it has been dissolved and can no longer be assessed, not only must the dealer raise the objection, but must, also, produce evidence in support of it.


(16) IN the face of these rules, it seems to me with respect, that the view taken by Prakash Narain, J" is simply not tenable. Far from there being no rules dealing with the matter, the rules are specific on the point. And, they accord with the general principle regarding burden of proof, that the person who asserts the existence of a fact must prove it.


(17) THE same result emerges from the provisions requiring information to be given by the dealer in certain cases. When a firm is dissolved, information of that fact is required to be given by section 16 to the prescribed authority within the prescribed time. According to rule 10 (1)- When any registered dealer makes any report under section 16, he shall within 30 days of the contingency arising send his registration certificate to the appropriate Assessing Authority, together with the requisite information. On receipt of such information the Commissioner may amend, replace or cancel the registration certificate. It is apparent from this rule 'that on receipt of the information the Commissioner 'may' amend, replace or cancel the registration certificate, but is not bound to do so. That implies that he may refuse. to accept as true the information sought to be given. Thus, even when acting under rule 10, the Commissioner may well refuse to recognise the dissolution of a firm if he is not satisfied with the evidence adduced.


(18) SO, whichever way one looks at the matter, the conclusion is the same: the Sales Tax Authorities are not bound by the mere statement of a dealer, which is a firm that it has been dissolved, and may inquire into the truth of the allegation. It would be startling if it were otherwise. For. that would mean that a firm could well nigh command the Assessing Authority not to make an assessment by simply telling him that it had been dissolved. There would have to be very strong reasons for the legislature wanting to produce such a result. No such reasons are apparent from the scheme of the Act or the Rules.


(19) THERE is nothing in the Jullundur Vegetables Syndicate case to suggest that the Assessing Authority is barred from inquiring into the question whether a firm has, in fact, been dissolved or not. Even Prakash Narain. J. , does not, in Ranjit Singhs case, attribute such a proposition to the Supreme Court. He merely reaches his conclusion on the ground that there is nothing in the Act and the Rules requiring that proof should be given of the dissolution of a firm.


(20) AS it happens, there are two judgments of the Supreme I Court itself which make it perfectly plain that the question whether a linn has, in fact, been dissolved is open to inquiry. In Khushi Ram Behari Lal and Co. vs. The Assessing Authority, Sangarur, and another, (1967) 19 S. T. C. 381, the Supreme Court (3) set aside the judgment of the Punjab High Court because it did not accord with the law stated in the Jullundur Vegetable Syndicate case. The Supreme Court then remanded the case to the High Court 'for giving a fresh decision in the petition, after recordi

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ng a definite finding whether the appellant- firm was in fact dissolved before the order of assessment was. Made on 12th March, 1962. (21) THEREAFTER, the High Court directed the Sales Tax Officer to make an enquiry and submit a report on the point as to whether the appellant-firm had been dissolved on August 8, 1961, as alleged by the appellant'. After making an inquiry, the Sales Tax Officer reported that the appellant-firm had not proved ifs dissolution on that date or before the date of the assessment order. The High Court then. itself examined the matter and came to the like conclusion. The Supreme Court, in Khushi Ram Behari Lal and Co. vs. The Assessing Authority, Sangrur. and another, (1977.) 39 S. T. C. 34, 4 upheld the view taken by the High Court. (22) THESE judgments are conclusive to show that even the High Court, in exercise of its limited jurisdiction under Article 226 of the Constitution, can inquire into the question whether a firm has, in fact, been dissolved. A fortiori, the Sales Tax Officer must have the power to do so when making an assessment. (23) FOR these reasons, I answer the question referred in the negative: that is to say, the view of the Financial Commissioner was not justified, and he erred in setting aside the orders of remand made by the Assistant Commissioner for verifying whether the firm, M/s. Benson Industries, was, in fact, dissolved. (24) THE Commissioner of Sales Tax will have the costs of these references. Counsel's fee Rs. 500 in each case.
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