State of Kerala v. K. M. Charia Abdullah & Co.

A. V. Viswanatha Sastri and R. Gopalakrishnan, for the res­ pondent. SuBBA RAo J., delivered a dissenting Opinion. The Judgment of SHAH and SlKRI ]]. was delivered by SHAH J. Sobba Rao J. I regret my inability to agree. The facts arc fully stated in the judgment of my learned brother Shah J. It would, therefore, be enough if only the relevant facts were stated. The respondents are dealers in pepper and other condiments. For the year 1950-51 they submitted their return under the Madras General Sales Tax Act, 1939. wherein they claimed exemption in respect of certain transactions on the ground that they were commission sales exempted under s. 8 of the said Act. The Deputy Commercial Tax Officer, Cannanore (Rural) gave the exemption claimed and assessed the tax on the tum-over rclatini: to transac­ tions otqer than those exempted. The Deputy Commissioner of G Commercial Taxes, Coimbatore Division, called for the record of the case of the respondents for the said assessment year, and in exer­ cise of the powers under s. 12(2)(i) of the Act dir~ted a fresh enquiry in respect of the said exemption. He issued a notice on February 9, 1956, calling upon the respondents to show cause against the proposed rc:_vision of assessment. On the basis of fresh evidence, the Deputy Commissioner of Commercial Taxes came to the conclusion that the respondents did not act as commission agents STATE V. K.M.C. ABDULLAH & co. (Subba Rao J.) 603 but carried on the business of "outright purchase and sale" in respect of the entire tum-over. On that finding, he revised the ordet ot the Deputy Commercial Tax Officer and assessed the respondents on a larger tum-over. The short question is whe. her the Deputy Commissioner of Commercial Taxes has jurisdiction under s. 12(2) (i) of the Act, read with the relevant rule, r. 14-A, to make the order he did. It is well settled that a subordinate provision, if. inconsistent with the Act, must give way to the Act. Though there is an apparent conflict between a section of the Act and a rule made thereunder. an attempt should be made to reconcile them; that is to say, the rule may be so construed, if the phraseology permits it, as to make it consistent with the Act. If it is not possible, the rule must be struck down. It is obvious that the rule cannot override s. 12 of the Act. If s. 12 does not give jurisdiction to the revisional authority to make a fresh enquiry and decide the case on merits, r. 14-A cannot confer on him.such power, for r. "14-A in that event comes into conflict with s. 12 of the Act and must, therefore, yield to it. This leads us to the question whether the revisional jurisdiction conferred under s. I 2 of the Act enables the authority concerned to make a fresh enquiry after issuing notice to the dealer concerned and determine the question of assessment on merits. The Act provides for appeals in some cases·· and revisions in other cases. Under s. I 1 ( 1) of the Act any assessee objecting to an assessment made on him may, within 30 days from the date on which he was served with the notice of assessment, appeal to such authority as F may be prescribed; un,der s. 11 (3), the appellate authority may, after giving the appellant an opportunity of being heard, pass such orders on the appeal as such authority may think fit. Under s. 12(2) of the Act, the revisional authority may suo motu "call for and examine the record of any order passed or proceeding recorded under the provisions of the Act by any officer subordi­ nate to him, for the purpose of satisfying himself as to the legality or propriety of such order, or as to the regularity of such pro- ceeding, and may pass such order with respect thereto as he thinks fit." When the Legislature confers a right of appeal in one case and a discretionary remedy of revision in another, it must be deemed to have created two jurisdictions different in scope and content. When it introduced the familiar concepts of appeal and revision, it is also reasonable to assume that the well-known distinction between these two jurisdictions was also accepted by the 6 Q.j SUPREME COURT REPORTS (1%5] I SCR legisl: lure. There is an essential distinction between an appeal and a revision. The distinction is based on differences implicit in the said two expressions. An appeal is u continuation of the proc~edings; in effect the entire proceedings are before the appel­ late authority and it has power to review the evidence subject to the statutory limitations prescribed. But in the case of a revision, whatever powers the rcvisional authority may or may not have, it has not the power to review the evidence unless the statute expressly confers on it that power. That limitation is implicit in the concept of revision. Section 12 ( 2) is no doubt wider in scope than s. 1 15 of tbe Code of Civil Procedure. Even so the revisional authority's juri,diction is confined to the question of legality or propriety of the order or the regularity of the proceedings. The further limita­ tion on that jurisdiction is that it can only exercise the same on the examination of the record of any order passed or proceedings taken by any authority. The section, therefore, not only.limits the scope ot its jurisdiction but also defines the material on the basis of which the said jurisdiction is exercised. The general expression that the authority "may pass such order as he thinks fit" must necessarily be confined to the scope of the jurisdiction. The revi­ sional authority, therefore, cannot travel beyond the order passed or proceedings recorded by the inferior authority and make fresh enquiry and pass orders on merits on the basis of the said enquiry. If it is not construed in this manner, the distinction between appeal and revision would be effaced. · Bea' ing this distinction in mind let me look at r. 14-A. Ruic 14-A of the rules does not make any distinction between an appellate and a revisional authority. It empowers the revisiona1 authority to issue a notice to a dealer and determine the correct amount of tax after making such enquiry as it considers necessary. The said rule, therefore, ~onfers a power larger than that conferred upon the revising authority under s. 12(2} of the Act. While the· jurisdiction under s. 12(2) of the Act is clearly limited to the ~crutiny of the order passed or the proceedings recorded by the inferior authority and the scope of the scrutiny is confined to the question of legality or propriety of an order or the regularity of such proceedings. r. 14-,\ obviously enl::rges the enquiry beyond the limits prescribed and permits the revising authority to make a fresh enquiry ?nd pass fresh assessment orders on the basis of the said enquiry. It is not necessary to particularize what kind of orders the revising authority can make and what are the defects that ~re compre'1ended by the expression "legality", "propriety" and "rcguhrity'· They arc well-known concepts. But the said defects STATE V. K.M.C. ABDULLAH & CO. (Shah/.) 605 ' A can only be discovered from the said record and proceedings and "not by a fresh enquiry. If so, it follows that r. 14-A insofar as it confers a power on the revising authority to make a fresh enquiry and to determine on the basis of the enquiry the correct amount of tax payable by an assessee is void. Therefore, the order of the High Court is correct. In the result, the appeal fails and is dismissed with costs. Shah J. The respondents are dealers in pepper and other condiments and have their place of business at Baliapatam, Malabar (North) District which formerly was part of the State of c Madras, but since the reorganisation of States under the States Re­ organisation Act, 1956, forms part of the State of Kerala. For the year 1950-51 the respondents submitted their return under the Madras General Sales Tax Act, 1939 showing a gross tum-over of Rs. 67,38,710-10-11 in respect of their business, and claimed ex­ emption in respect of turn-over of the value of Rs. 50,83,441-14-4 D on the plea that it represented commission sales which were exempt from tax by s. 8 of the Act.. The Deputy Commercial Tax Officer, Cannanore (Rural) by order, dated February 19, 1952 granted exemption from tax on the commission saies covered by s. 8 and computed the net taxable tum-over of the respondents at Rs. 16,84,060-11-9. By order, dated February 26, 1952 the E Deputy Commercial Tax Offi"cer assessed Rs .. 26;313-7-3 as the tax payable on the taxable turn-over of the respondents. Some time before February 1956 the Deputy Commissioner of Commercial Taxes, Coimbatore Division, called for the record of the case of the respondents for the assessment year in question in exercise of the powers under s. 12 ( 2) ( i) of the Act and directed an enquiry F into the validity of the claim about exemption in respect of the commission sales under s. 8 of the Act. The Deputy Commissioner then issued a notice on February 9, 1956 calling upon the respondents to show cause against the pro­ posed revision of assessment which would result in enhancement G of tax. After hearing the objections raised by the respondents, by order, dated March 4, 1956, the Deputy Commissioner held that the respondents did not act as commission agents but "carried on business of outright purchase and sale" in respect of the turn­ over of Rs. 50,83,355-13-4 and on that view in purported exercise of the powers vested in him by s. 12(2)(i) of the Act revoked H the exemption granted by the assessing officer by his order, dated February 19, 1952, revised the order, dated February 26, 1952 and assessed the respondents to pay tax on a total net tum-over of GO~ SUPREME COURT REPO!:TS [ 1965) I S.C.R. Rs. 67 ,6 7 ,4 16-9-1 for 1950-51. He directed th~ assessing officer A to lake further action in the matter and to recover the tax due. Against that order, the respondents moved the Sales Tax Appellate Tribunal, Madras. The appeal of the respondenis was heard by the Tribunal and py order, dated October 10, 1956 the Tribunal held that the assessing officer had in assessing the respon- B dents in respect of transactions for which they had previously obtained exemption, acted in excess of his jurisdiction under s. 12 ( 2) (i) of the Act and hi_s order was liable to be set aside. In coming to that conclusion the Tribunal held that rule 14-A of the Rules framed under the Act which was brought into force <m January I, 1948 could be applied only when the amount of tax c payable is found to be less than the correct amount, thereby indi­ cating that in rule 14-A the "emphasis is more on the arithmetical aspect rather" than on the merits of an assessment. In the view of the J'ribunal, rule 14-A was "much more restricted in scope than s. 12 of the Act, and where a case is taken up under the general power of revision, one has to look at the scope of s. 12 to D find out the extent of the general power, and not rule 14-A." Against the order passed by the Tribunal, the State of Kerala which had acquired jurisdiction in respect of the sales tax asse.ss­ ment of the respondents by virtue of the States Reorganisation Act, 1956, applied to the High Court of Judicature, Kcrala. It may suffice to observe that no question about the \"ires of rule 14-A was raised by the assessees before the Taxing authorities, and the State was not interested in raising such a contention. But the High Court held that in dealing with a proceeding under s. '12(2) of the Madras General Sales Tax Act the revising authority is restricted to the record before the assessing authority and his order passed on fresh evidence could not be sustained. Io the view of the High Court the expression "the record of any order passed or proceeding recorded" under s. 12(2) restricted _the revising authority to the examination of the legalitj or propriety of the order of a subordinate officer or as to the regularity of the pro­ ceeding of such authority and prohibited consideration of any other G evidence, and rule 14-A made by the State Government in exercise of the power under s. 19 of the Act, which authorises the revising authority or the appellate authority to correct the amount of tax payable by the dealer after issuing a notice to the dealer and after making such enquiry as such appellate or revising authority con­ siders necessary was ultra vlres the Act. The State of Kerala in this appeal contends that the High Court has erred in declaring rule 14-A ultra vires and in the disposing of STAT.E v. K.M.C. ABDULLAH & CO. (Shah J.) 607 A its petition invoking the revisional jurisdiction of the High Court on that footing. To appreciate the argument it is necessary in the first instance to read the relevant provisions of the Act and rules framed thereunder. Section ·9 of the Act deals with the procedure of the assessing authority and s. 10 deals with the pay­ ment and recovery of tax. Against an order of assessment an B appeal lies under s. 11 to such authority as may be prescribed. By s. 12 as amended by the first sub-section, the Commercial Tax Officer is authorised either suo motu or on application in cases in which an appeal does not lie to him under s, 11, to exercise revisional jurisdiction .. Sub-section (2) with which we are directly C concerned in this appeal provides ·: "(2) The Deputy Commissioner may­ (i) suo motu, or (ii) in respect of an order passed or proceeding recorded by the Commercial Tax Officer under sub- D section (1 ) or any other provision of this Act and against which no appeal has been preferred to the Appellate Tribunal under section 12-A, on application, call for and examine the ~cord of any order passed or proceeding recorded undiar the provisions of this Act by any officer subordinate to him, for the purpose of E satisfying himself as to the legality or propriety of such order, or as to· the regularity of such proceeding, and may pass such order with respect thereto as he thinks fit." Sub-section ( 4), insofar as it is matc!rial, provides that in relation to. an order of assessment passed under the Act, the power of the F Deputy Commissioner under cl. (i) of su!>Cs. (2) shall be exercis­ able only within a period of four years from the date on which the order was communicated to the assessee. Sub-section ( 6) provides _that no order may be· passed under sub-ss. (1 ), (2) ,or ( 3) enhancing the assesment, without giving an opportunity to the a.ssessee 10 show cause against the proposed enhancement. G Sub-section ( 1) of s. 19 authorises the State Government to R rnake rules to carry out the purpoaes of the Act. By sub-s. (2) it is provided : "In. particular and without prejudice to the generality .of 'the . foregoing power, such rules may provide for- (j) the duties and powers of officers appointed for the purpose of enforcing the provisions of this Act; 608 SUPREME COURT. REPORTS [1965] I S.C.R. (k) generally regulating the procedure to be followed and the forms to be adopted in proceedings under this Act; and (I) any other matter for which there is no provision or no sufficient provision in. this Act and for which ·· provision is, in the opinion of the State Govern­ ment, necessary for giving effect to the purposes of this Act." Sub-section (5) of s. 19 provides that all rules made under this section shall be published in the Fort St. George Gazette, and upon such publication shall have effect as if enacted in the Act. The Advocate-General for the State of Kerala contends that rule 14-A was validly made in exercise of the powers under s. 19 and that in any event the rule having by sub-s. '(5) of s. 19 the effect as if it is enacted in the Act it is not liable -to be declared invalid. The alternative ground advanced by the Advocate-General may .be easily disposed .of. The rules made under s. 19 'and pub- D lished in the Government Gazette have by the express. provision to have effect as if enacted in the Act : but thereby no additional sanctity' attaches to the rules. Power to frame rules is conferred by the Act upon the Sta'te Goverrunent and. that power may be exercised within the strict limits of the authority conferred. If in making a rule, the State transcends its authority; the rule will be E invalid, fer statutory rules made in exercise of delegated authority are valid and binding only if made within the limits of authority conferred. Validity of a rule whether it is declared "to have effect as if enacted in the Act or otherwise is always open to challenge on the ground that it is unauthorised. · F Turning then to the jurisdiction. which the revising authority may exercise under s. 12(2), attention must first be directed to the phraseology used by the Legislature. The Deputy Commissioner is thereby invested with power to satisfy himself about the legality or propriety of any order passed or proceeding recorded by any officer subordinate to him, or the regularity of any proceeding of G such officer, and to pass such orders with respect thereto as he thinks fit. ·For exercising this power, he may suo motu or on -application call for and examine the record of any proceeding or order. There is no doubt that the revising authority may only call for the record of the order or the proceeding, and the record alone may be scrutinised for ascertaining the legality or propriety II of an· order or regularity of the proceeding. But there is nothing in the Act that for passing an order in exercise of hi3 revisional -----· -- - .. --------------- ------ - - ----- --=---====----- --=---- _-::__-__ -:::c;::::_-o--==- --------:.--::.=-=--=--=:::---- " -- ----~_,_--- -- -~~-: __ .:..:_-----~-~--------- - - ' ~-----=-==~.::::=.._.:-:__ -- ' - -- -~ -- ------------=--- - -- -- -- ------------- --====- ' i STATE V. K.M.C. ABDULLAH & CO. (Slzah J.) 609 A jurisdiction, if the reyising .authority is satisfied th~t the subordinate officer has committed an il.legality or impropriety in the order or irregularity in the proceedings, he cannot make or direct any further enquiry. The words of sub-s. (2) of s. 12 that Deputy Commissioner· "may pass such order with respect thereto as he thinks fit" .mean such order ·as may in the circumstances of the B case for rectifying the defeet be regarded by him as just. Power to pass such order as the revising authority thinks fit may in some cases include power to make or direct such further enquiry as the Deputy Commissioner may find necessary for rectifying the iilegality or impropriety of the order or irregularity in the proceed· C ipg. It is therefore· not right baldly to propound that in passing an order in the exercise of his revisional jurisdiction, the Deputy Commissioner must. in all cases be restricted to the record main· tained by the Officer subordinate to him, and . can never make enquiry outside that record. D It must be noticed that the Act while conferring upon the prescribed authority power to entertain an appeal under s. 11, and a petition in revision under s. 12 does not prescribe the procedure to be followed by the authorities. Itis left to the State Government by rules framed under s. 19 to prescribe the procedure of the appellate and the revising authorities and a provision authorising E the making of a further enquiry for effectively exercising the appellate or revisional power;· would in the case of a taxing statute fall within the scope of the rules. Jurisdiction to revise the order or .proceeding of a subordinate officer has to be exercised for the purpose of rectifying any. illegality or impropriety of the order or irregularity in the procee4ing. But in taking that course the pro- F cedure to be followed is· prescribed by the rules; framed under s. 19 ( 1 ) to carry out the purposes of the Act and as further illustrated by the head (1), (k) and (j) of sub-s. (2). In our view the amplitude of the power conferred by sub-s. ( I ) and illustrated by sub-s. (2) of s. 19 takes in the power to provide for making further enquiry enabling the revising authority to exercise his powers, and unless the power so conferred expressly or by clear implication nullifies or is inconsistent with. any provi­ ~ion of the Act, it must be regarded as validly exercised. Confer­ ment of power to make further enquiry in cases where after being satisfied about the illegality or impropriety of the order or irregu· larity in the proceeding, the revising authority thinks it just for rectifying the defec~. to do so does not amount to enlarging the jurisdiction conferred by s. 12(2). It is in this light that the ~JO SU fREME COURT REPORTS [1965] I S.C.R. provisions of rule 14-A may be examined. That Rule which was A added with effect from January I, I 948, provides : "Where the: tax as determined by the initial assess­ fog authority appears to the appellate authority under section 11 or revising authority under section 12 to be less than the correct amount of the tax payable by the dealer, the appellate or revising authority shall, before passing orders, determine the correct amount of tax pay­ able by the dealer after issuing a notice to. the dealer and after making such enquiry as such appellate or revising authority considers necessary." It must be noticed that the power to determine the t:Orrect amount of tax after issuing a notice to the dealer and after making such enquiry as the authority considers necessary is vested by this rule in the appellate authority as well as the revising authority. It is usual in taxing statutes to confer such power upon the appellate and revising authorities. Under the Income-tax Act, 1922, by s. 31 (2) the Appellate Assistant Commissioner was given the D power before disposing of any appeal, to make such further inquiry as he thought fit, or cause further inquiry to be made by the Income-tax Officer. By s. 33 ( 4) the Appellate Tribunal was given power to pass such order in the appeal as it thought fit and that power included the power to direct additional evidence to be taken or tq take evidence itself : M. L. Tewary v. Commissioner of E Income-tax, Bihar and Orissa('). Bys. 33-A the Commissidner could on his ov.:n motion or an application presented within one year from the date of the order sought to be revised, call for the record of any proceeding under the Act in which an order had been passed by any authority subordinate to him and could make such inquiry or cause such inquiry to be made and subject to the provisions of the Act to pass such order thereon, as he thought fit. Similar provisions are now incorporated in the Income-tax Act, Act 43 of 1961. By s. 250 ( 4) of that Act the Appellate Assistant Commissioner is authorised before disposing of an appeal to make such further inquiry as he thinks fit or to direct the Income-tax G Officer to make further inquiry and report the result of the same to him. Powers of the Income Tax Appellate Tribunal and the Commissioner are couched in the same terms as under the Act of 1922 : [see s. 254 (I ) and s. 263 (I ) ]. It cannot therefore be said_ that a provision which confers upon the appellate or revising authority power to make ·such inquiry as such appellate or revising H .autbority considers necessary in itself amounts to enlarging the (I) (19,S) 27 l.T.R. 630. STATE V. K.M.C. ABDULLAH & CO. (Shah J.) 611 A rcvisional or appellate jurisdictiol1. The only difference between the Income-tax Acts and the Madras General Sales Tax Act is that whereas the power to entertain the appeal or revision applica­ tion and to make orders for further enquiry in the hearing of the appeal or revision is wholly dealt with by the provisions of the Income-tax Acts, under the Madras General Sales Tax Act the B revisional jurisdiction and appellate jurisdiction are conferred by the Act, but the power of the appropriate authority in the exercise of· the jurisdiction when it appears to the appellate or revising authority that the correct amount of tax payable by the dealer has not been paid to make a further inquiry as the authority con- e siders necessary is conferred by the rules. But that is no ground for regarding the conferment of power to travel outside the record ot the subordinate taxing authorities as unauthorised. Investment of powers to make such inquiry as the appellate or the revising authority cons.iders necessary can manifestly be invested by els. (k) and (I) of s. 19 sub-s. (2) and if such power is invested the rule D authorising the making of inquiry is not ultra vires. · The Madras High Court in the State of Madras v. The Madura Knitting Company Ltd.(') has held that the powers given to the revising authority under s. 12 ( 2) are not confined to errors patent on the face of tile record, but would extend to probing further into the records like calling for despatch registers and other E evidence. But this is not sufficient to dispose of the appeal before us. The objection that rule 14-A was ultra vires was raised for th~ first time before the High Court. The Tribunal had merely held that rule 14-A must be so read as to deal with "the arithmetical F aspect rather than on the aspect of the merits of an assessment." There is, however, no such restriction in either rule 14-A or in s. 12 ( 2) of the Act. The power to hold an enquiry to take addi­ tional evidence is a procedural power in aip of the exercise of the revisional jurisdiction and if the revisional jurisdiction is not restricted only to cases of arithmetical errors or as the Tribunal G calle<I it "arithmetical aspect", there is no reason to assume that the power under rule 14-A to make such enquiry as the appella~ or the revising authority considers it just to order or t(/ make would be so restricted. But the power ·conferred by rule 14-A by the use of the expression "making such enquiry as such appellate or revising authority· considers necessary" must be read &ubject to H the scheme of the Act. It would not invest the revising authority with power to launch upon enquiric::s ~t large so as either to ttCD,eh (I) (1959) 10 S.T.C. 155. '. A upon the powers which are expressly reserved by the Act or by the Rules to other authorities or to ignore ihe limitations inherent in the exercise of those powers. For instance, the power to re­ assess escaped turn-over is primarily vested by rule 17 in the assessing officer and is to be exercised· subject. to certain limita­ tions, :ind the revising authority will not be competent to make an enquiry for re-assessing a tax-payer. Similarly the power to B . make a best judgment assessment is vested bys. 9(2)(b) in the -assessing authority and has to be exercised in the manner provided. It would not be·· open to the revising authority to assume that power. .The revisional power has to be exercised for ascertaining whether the order passed is illegal or improper or the proceeding , recorded is irregular and it is in aid of that power that such orders may be passed as the authority may think fit. One of the inquiries in considering the legality or propriety_ of the orders passed by the subordinate officer which the revising or the appellate authority may make is about the correctness of the tax levied and if after perusing the record the authority is prima fade satisfied about D the illegality or impropriety of the order or about the irregularity of the proceeding, it may in passing its order direct an additional enqui\)'. Neither s. 12 nor· rule 14-A authoris~ the revising authority to enter generally upon enquiries which may properly be made by the assessing authorities and to re-open .assessments. We are at this stage not. called upon to express any opinion about the correctness of the order passed by the Deputy Commis- sioner on the merits. · · The High Court has not investigated that <Jl!estion; and we have· no materials before us which would justify us in launching upon an enquiry into this unexplored field. We j have, however, thought it necessary to explain the restrictions F inherent in the exercise of power under s.' 12(2) read with· Rule 14-A, because counsel for the respondents has urged before us • that the enquiry made by the Deputy Commissioner is inconsistent with the scheme of the Act, in violation of the rules of natural justice, and in circumvention of the restrictions on the po-.ver to re-assess. That is a matter which will demand investigation before I.he High Court. We desire only to impress that the view taken by us that rule 14-A is not ultra vires is not sufficient to dispose of the revision application filed before the High Court. The High Court will have to make enquiry whether in the circumstances of the case the Deputy Commissioner, Coimbatore Division. was com­ petent to proceed in the manner he has done and to pass the 0rder which was impugned· before the Sales Tax Appellate Tribunal. The order passed by the High Court declaring rule 14-A to be ------;._-o_---:o::..==-=- . - -------- ------ __________ -:-:-:;::--o;-~- -----==-:::_ =----- ---=---- - ________ -::-::-~-----==---=--- -------0:==-==---=-:-:==---=-=---- --------- =:c---===----=--==------ ________::__---=-=-- -- --__ ====:.,____-----::--- II '' STATE V. K.M.C. ABDULLAH & CO. (Shah J.) 613 A ultra vires is set aside, and the proceedings are remanded to the High Court to be dealt with according to law. There will be no order as to costs. ORDER BY COURT In accordance with the opinion of the majority, the order of the High Court declaring rule 14-A to be ultra vires is set aside and the proceedings are remanded to the High Court to be dealt with according tr1 law. There will be no order as to costs. Appeal allowed and proceedings remanded.