REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL  APPEAL NO.                   OF 2008 (Arising out of S.L.P. (C) No. 11004 of 2007)  

S/s Kanpur Edibles Pvt. Ltd.  ...Appellant

Versus

          Commissioner, Trade Tax, U.P. ...Respondent

WITH

Civil Appeal No.                /2008 @ SLP (C) No. 11281/2007 Civil Appeal No.                /2008 @ SLP (C) No. 11691/2007 Civil Appeal No.                /2008 @ SLP (C) No. 11811/2007

J U D G M E N T  

Dr. ARIJIT PASAYAT, J.

1. Leave granted.

2. These  four  appeals  involve  common  issues  and,  therefore,  are

disposed of by this common judgment.  

3. Challenge in each case is to the judgment of learned Single Judge of

Allahabad High Court  holding that the order passed by the Commissioner

of Trade Tax, U.P. under Section 10-B of the U.P. Sales Tax Act, 1948 (in

short the ‘Act’) (also described as U.P. Trade Tax Act, 1948) was within the

period  of  limitation  and  therefore  the  order  passed  by  the  Trade  Tax

Tribunal, Kanpur Bench-1 (in short the ‘Tribunal’) passed in four connected

Second Appeal Nos.1 to 4 of 2007 for the assessment years 1997-98 and

1998-99 in both the State Act and the Central Sales Tax Act, 1956 (in short

the ‘Central Act’) was contrary to law.  

4. The controversy lies within a very narrow compass relating to scope

and ambit of Section 10-B of the Act in the background of Section 21 of the

Act.  

5. A brief reference to the factual aspects would suffice.  

Orders of assessment were passed for the two assessment years 1997-

98  and  1998-99  on  27.2.1999  and 17.6.2000  respectively.  On 21.8.2001

notice for re-assessment in terms of Section 21 of the Act with authorization

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of the Additional Commissioner, Kanpur under Section 21(2) was issued. It

is to be noted that for the period during which such notice can be issued is

normally two years, but with the approval  of the Commissioner it can be

extended to 4 years from the end of the concerned assessment year.  The

order was passed on 29.5.2003 holding that the notice issued under Section

21 was cancelled. In other words,  holding that there was no need for any

variation in the assessment orders. On 31.1.2006 and 8.2.2006 notices under

Section 10-B of the Act for revision of the order dated 29.5.2003 in respect

of two assessment years were issued. Preliminary objections raised by the

appellant  relating  to  limitation  were  rejected  by  order  dated  23.12.2006.

Appeal was preferred before the Tribunal which by order dated 13.3.2007

reversed  the  Joint  Commissioner’s  order  and  held  that  the  notice  under

Section 10 was issued beyond the period of limitation. Department filed Tax

Revision cases before the High Court. As noted above, the High Court has

set aside the orders of the Tribunal.  

Learned  counsel  for  the  appellant  submitted  that  the  crucial

expression in Section 10-B (3)(c) is “the order in question”. In the instant

case  the  initiation  of  proceedings  for  revision  in  terms  of  Section  10-B

related to the order dated 29.5.2003. While purporting to revise that order,

in  reality  orders  of  assessment  have  been  passed  which  in  substance

substitutes  the earlier orders of assessment.   The notices dated 31.1.2006

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and 8.2.2006 cannot be related to the orders of assessment dated 27.2.1999

and 17.6.2000. It is submitted that even if under Section 10-B (1)  an order

is sought to be revised, the same should be relatable to the order which is

sought to be revised and cannot be extended to an order which has become

final and in respect of which no proceeding under Section 10B(1) has been

initiated.  

With  reference  to  the  conclusions  of  the  Joint  Commissioner  it  is

submitted that by merely stating that the order dated 29.5.2003 was revised,

the exemption granted previously has been withdrawn and it has been held

that the tax is recoverable.  

It is pointed out that the effect of an order dropping the proceedings

initiated for re-assessment  was considered by this Court in M/s Kundan Lal

Srikishan,  Mathura  (U.P.)  v.  Commissioner  of  Sales  Tax,  U.P.  and Anr.

(1987 (1) SCC 684). With the object of getting over the view expressed, an

amendment was made by U.P. Sales Tax (Amendment and Validation) Act,

1991 (in short the ‘Validation Act’) by adding Explanation III to Section 21

(1) w.e.f. 1.3.1973. It is pointed out that in  Kundan Lal’s case (supra) this

Court  with  reference  to  the  decision  in  The  Deputy  Commissioner  of

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Commercial Taxes v.  M/s H.R. Sri Ramulu (1977 (1) SCC 703) held that

once  a  notice  is  issued  for  the  purpose  of  making  re-assessment,  the

assessment  proceedings  become  re-opened  and  the  initial  order  of

assessment ceases to be operative.  

6. In response,  learned  counsel  for  the  respondent  submitted  that  the

High Court has correctly held that in a case where there was large scale of

manipulation of accounts, a purposive construction has to be made and the

revisional order does not suffer from any infirmity. Levy of tax has been

made after holding that the order dropping the proceedings was bad and,

therefore, consequentially the assessment of the escaped turnover has been

directed to be done.

7. A few provisions which have relevance need to be noted. They are

Sections 7, 10-B, 21 and 22 which read as follows:  

Section 7. Determination of turnover and assessment of tax.

(1) Every deader who is liable to pay tax under this Act shall submit such return or returns of his turnover at such intervals within such period, in such from and verified in such manner, as  may  be  prescribed;  but  assessing  authority  may  in  its discretion, for reasons to be recorded, extend the date for the submission of the return by any person or class of persons.

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(2) If the assessing authority, after such enquiry as he considers necessary  is  satisfied  that  any  returns  submitted  under  sub section (1) are correct, complete, he shall assess the tax on the basis thereof.

(3) If no return is submitted by the dealer under sub section (1), within the periods prescribed in that behalf or if the return submitted  by  him  appears  to  the  assessing  authority  to  be incorrect  or  incomplete,  the  assessing  authority  shall,  after making such enquiry as he considers necessary, determine the turnover of the dealer  to the best of his judgment and assess the tax on the basis thereof:

Provided that before taking action under this Section the dealer shall be given a reasonable opportunity of proving the correctness and completeness of any return submitted by him.  

Explanation -- In this section and in sections 7-A, 7- B, 7-C, 7-D, 7-E, 8-A, 14, 15-A, 18, 21 and 24-D

the  expression,  `turnover'  means  the  turnover  of  sales  or  of purchases or both, as the case may be.

xxx xxx xxx xxx xxx

Section 10-B: Revision by Commissioner  

(1)   The Commissioner  or  such other  officer  not   below the rank of  Deputy Commissioner  as  may be authorized   in  this behalf by the State Government by notification may call for and examine the record relating to any order (other than an order mentioned in section 10 -A) passed by any officer subordinate to him, for the purpose of satisfying himself as to the legality or propriety of such order and may pass such order with respect thereof as he thinks fit.  

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(2) No order under sub-section (1) affecting the interest of a party  adversely  shall  be  passed  unless  he  has  been  given  a reasonable opportunity of being heard.   (3) No order under sub-section (1) shall be passed- (a) to revise an order, which is or has been the subject matter of  an  appeal  under  Section  9,  or  an  order  passed  by  the Appellate Authority under that section:

Explanation - Where the appeal against any order is withdrawn or is dismissed for non-payment of fee payable under Section 32 or for non-compliance of sub section (1) of Section 9, the order shall not be deemed to have been the subject-matter of an appeal under section 9;  

(b) before the expiration of sixty days from the date of the order in question;

(c) after the expiration of four years from the date of the order in question or after the expiration of two years from the date of commencement  of  section  19  of  the  U.P.  Sales  Tax (Amendment & Validation) Act, 1978, whichever is latter.

xxx xxx xxx xxx

Section 21. Assessment of tax on the turnover not assessed during the year:

(1)  If  the  assessing  authority  has  reason  to  believe  that  the whole  or  any  part  of  the  turnover  of  the  dealer,  for  any assessment year or part thereof, has escaped assessment to tax or has been under assessed or has been assessed to tax at a rate lower than that at which it is assessable under this Act, or any deductions  or  exemptions  have  been  wrongly  allowed  in respect thereof, the assessing authority may, after issuing notice to  the  dealer  and  making  such  inquiry  as  it  may  consider necessary, assess or reassess the dealer or tax according to law:

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Provided that the tax shall be charged at the rate at which it  would  have  been  charged  had  the  turnover  not  except assessment, or full assessment as the case may be:

Explanation I:

Nothing  in  this  sub-section  shall  be  deemed  to  prevent  the assessing authority from making an assessment to the best of its judgment.

Explanation II:

For  the  purposes  of  this  Section  and  section  22,  "assessing authority" means the officer or authority who passed the earlier assessment order, if any, and includes the officer or authority having jurisdiction for the time being to assess the dealer.

Explanation III:

Notwithstanding the issuance of notice under this sub-section, where an order of assessment or re-assessment is in existence before  the  issuance  of  such  notice,  it  shall  continue  to  be effective  as  such,  until  varied  by an  order  of  assessment  or reassessment  made  under  this  section  in  pursuance  of  such notice.

(2) Except as otherwise provided in this  section, no order  of assessment or reassessment under any provision of this Act for any assessment year shall be made after the expiration of two years from the end of such year or March 31, 194, whichever is later:

Provided that if the Commissioner on his own or on the basis of reasons recorded by the assessing authority, is satisfied that it  is just and expedient so to do authorizes the assessing authority in that behalf, such assessment or reassessment may be made after  the  expiration  of  the  period  aforesaid  but  not after  the expiration of four  years, from the end of such year notwithstanding  that  such  assessment  or  reassessment  may involve a change of opinion:

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Section 22: Rectification of mistakes.

(1) Any  officer  or  authority,  or  the  Tribunal  or  the  High Court may, on its own motion or on the application of dealer or any other  interested  person  rectify  any mistake  in  any order passed  by  him or  it  under  this  Act,  apparent  on  the  record within  three  years  from the  date  of  the  order  sought  to  be rectified:

Provided  that  where  an  application  under  this  sub- section has been made within such period of three years, it may be disposed of even beyond such period:

Provided  further  that  no  such  rectification  as  has  the effect of enhancing the assessment, penalty, fees or other dues shall be made unless reasonable opportunity of being heard has been given to the dealer or other person likely to be affected by such enhancement.

(2)  Where  such rectification  has  the  effect  of  enhancing  the assessment,  the  assessing  authority  concerned  shall  serve  on the dealer a revised notice of demand in the prescribed form and  therefrom  all  the  provisions  of  the  Act,  and  the  rules framed thereunder shall apply as if such notice had been served in the first instance.

8.  It is to be noted that in  Kundan Lal’s case (supra) it was observed

that  on initiation  of  the re-assessment  proceedings   the  original  order  of

assessment becomes inoperative. But Explanation III to sub-Section (1) of

Section 21 makes the position clear that where an order of assessment or re-

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assessment  is  in  existence  before  the  issuance  of  the  notice  under  sub-

section (1) it continues to be effective as such until varied by an order of

assessment  or  re-assessment  made under Section 21 in  pursuance of  that

notice. In other words, an order of assessment or re-assessment which was

in  existence  at  the  point  of  time the  notice  was  issued,  continues  to  be

effective unless it is varied.  If it is not varied it goes without saying that it

continues to be operative and effective.   The period for making assessment

or re-assessment is provided in sub-section (2) of Section 21. The period

fixed for making assessment or re-assessment under any provision of the

Act  for  any assessment year is  two years from the end of the concerned

assessment  year.  However,  this  period  can  be  extended  in  terms  of  the

proviso to sub-section (2) if the Commissioner on his own or on the basis of

reasons  recorded  by  the  assessing  officer  is  satisfied  that  it  is  just  and

expedient to do so to make the assessment or the re-assessment after the

expiration of the period provided in sub-section (2) but  in any event  not

after the expiration of 4 years from the end of such year notwithstanding

that such assessment or re-assessment may involve a change of opinion. In

other words, the maximum period available for making assessment or re-

assessment is 4 years from the end of the assessment year in question. That

is no exception to this position because sub-section (2) of section 21 itself

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provides  that  such  assessment  or  re-assessment  may be  made  under  any

provision of the Act which includes Section 10-B. The power of revision by

the  Commissioner  or  such  officer  not  below  the  rank  of  Deputy

Commissioner as may be authorized in this behalf by the State Government

by  the  notification,  can  be  exercised  by  calling  for  and  examining  the

records relating to any order other than an order mentioned in Section 10A

passed  by  any  officer  subordinate  to  him  for  the  purpose  of  satisfying

himself as to the legality or propriety of such order.  The Commissioner or

the authorized officer is empowered to pass such order with respect thereof

as  he  thinks  fit.  The  crucial  expressions  in  Section  10B(1)  are  “for  the

purpose of satisfying himself as to the legality or propriety of such order”

and “with respect thereof”.  In the present case what the revisional authority

was empowered to test was the legality or propriety of the order cancelling

the notices issued under Section 21(1) by order dated 29.5.2003. Such an

exercise cannot encompass an order of assessment. It is of significance to

note that the original orders have not been varied and could not have been

varied  after  the  period  of  limitation.  What  could  not  have  been  directly

achieved  has  been  attempted  to  be  done  in  an  indirect  manner.  If  the

revisional authority was of the view that the order dated 29.5.2003 was not

legal,  then  that  order  would  have  been varied  if  it  was  found  that  order

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lacked legality or propriety.  The expression “with respect thereof” makes

the position clear that for testing the legality or propriety of the order (in the

instant case the order dated 29.5.2003) if any order was to be passed that

had to be passed with respect thereof. Such an order does not empower the

revisional authority to make an order of assessment. As noted above, what

the  revisional  authority  has  done  is  to  substitute  the  original  orders  of

assessment in the garb of testing the legality and/or propriety of the order

cancelling the notices. Such a course is not countenanced and has no legal

basis.  Therefore,  the High Court was not  justified in interfering with the

order of the Tribunal. The impugned orders of the High Court are set aside

and the appeals are allowed but without any order as to costs.     

………………………………….J. (Dr. ARIJIT PASAYAT)

………………………………….J. (Dr. MUKUNDAKAM SHARMA)

New Delhi, October 24, 2008

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