STATE OF MADRAS versus MADURAI MILLS CO., LTD.

STA TE OF MADRAS

MADURAI Mll.LS CO., LTD.

October 4, 1966

(J.C. SHAH, V. RAMASWAMI AND V. BHARGAYA, JJ.J

Madras General Sales-taJC Act (9 of 1939), s. 12(4) (b)--Order of assuslng authority-When merges In thaJ of appel/att or revlsional autlw-rlty-Period of /lmitatiot>---Starting point.

For the asses.men! year 1950-51 the resl"?ndent submitted return of its net turnover to the Deputy Commercial Tax Officer who was the assessing authority. As he determined the net turnover at higher amount the respondent appealed to the Commercial Tax Officer, who allowed the appeal with respect to one item. On 28th November 1952, the assessing abthority mued revised assessment order as per the order of the Commercial 1'ax Officer. On 27th December 1952, the respon-dent presented revision petition before the Deputy Commissioner of Commercial Taxes raising the only objection, as new contention, that it should not have been assessed to tax on amounts collected by it by way of tax. On 21st August 1954, the Deputy Commissioner dismissed the petition on the ground that the respondent was not entitled to raise new contention for the first time. On 4th August I 958, the Board of Revenue issued notice to the respondent stating that it proposed to revise the assessment by including in the net turnover sum representing the value of cotton purchased by the respondent from outside the State and which was excluded by the assessing authority. After considering the respon-dent's objections the Board fi<ed the net ta<able rurnover by including that amount. The respondent's appeal to the High Court was allowed.

In appeal by the State,

HELD : The order of the Board of Revenue was invalid, because, under s. 12(4)(b) of the Madras General Sales-tax Act, 1939, the Board of Revonue could invoke its revisional jurisdiction only within four years from the dak on which the order of the assessing authority was commu-aicated to the assesseo. [734 G; 736 B-C] (i) The subject-matter of the revision proceedings before the Board of Revenue was only the revised assessment order of the assessing autho-rity dated 28th November 1952, and not the Deputy Commissioner's order dated 21st August 1954. (736 CJ

The objection taken by the Board was with regard to 'the question of e<emption allowed by the assessing authority on the value of conon purchased from outside, and that question was not raised in revision before the Deputy Commissioner of Commercial Taxes. (736 C-D) (ii) It cannot he said that the order of the Deputy Commissioner of Commercial Taxes, in revision, is the only operative decision in law on the basis that the order of the inferior Tribunal (the order of the assming authority dated 28th November 1952) merged in that of the superior Tribunal (order of the Deputy Commissioner of Commercial Taxes, dated 21st August 1954). (736 FJ

1be application of the doctrine of merger depends on tho nature of the appcUate or revfsional order in each case and the scope of the statu-

tory provisions conferring the appellate or revisional jurisdiction. Jn the circumstances of the present case it could not be said that there was merger of the order of assessment dated November 28, 1952 with tho order in revision dated 21st August 1954, because, the question of ex-clusion of the value of yarn purchased from outside the State was not the· subject-matter of revision before the Deputy Commissioner of Commercial Taxes. [737 A·B, F-HJ

Commissioner of lncome-twc, Bombay v. Amritlal Bhogilat cl Co. [1959) S.C.R. 713 and State of Uttar Pradesh v. Mohammed Nooh. [1958] S,C.R. 595, followed.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 539 of 1965.

Appeal by· special leave from the judgment and order dated September 13, 1961 of the Madras High Court in T.C. No. 162 of 1958.

Bishan Narain and A. V. Rangam, for the appellant.

A. K. Sen and D. N. Gupta, for the respondent.

The Judgment of the Court was delivered by

Ramaswami, J. This appeal is brought by special leave against the judgment of the Madras High Court dated the 13th September, 1961 in T.C. 162 of 1958.

The Madurai Mills Co., Ltd., (hereinafter called the respon-dent) is dealer in yarn, purchasing raw material like cotton staple-fibre, etc., manufacturing them into yarn and selling the yarn. Jn .. the assessment year 1950-51, the respondent showed return of Rs. 15,27,61,883-8-4 before the Deputy Commercial Tax Officer, Madurai who after scrutiny of the account books determined the net turnover at Rs. 15,44,09,109-3-11. The respondent preferred an appeal before the Commercial Tax Officer, Madurai South. It was contended on behalf of the respondent that sum of Rs. 1,44,294-14-4 was wrongly included by the first assessing authority in the purchase value of cotton purchased by it for production of yarn as that amount only represented the commission paid by it to Comorin Investment Trading Company Limited for the purchase. It was also contended that another sum of Rs. 81,546-0-1 whlch represented sale proceeds realised by sell-ing empty drums etc. was not realisation in the course of its business. The Commercial Tax Officer upheld the first conten-tion of the respondent and excluded the sum of Rs. 1,44,294-14-4 from the total turnover on the ground that the amount was com-mission paid by the respondent for the purchase of cotton, but rejected their second contention with regard. to the sum of Rs. 81,546-0-1. The Deputy Commercial Tax Officer thereafter issued revised assessment. The respondent presented revision peti-tion before the Deputy Commissioner of Commercial Taxes and

the only objection which the respondent raised was that it should not have been assessed to tax on amounts collected by it by way of tax amounting to Rs. 6,57,971-4-9. The respondent did not raise any other objection regarding the order of assessment of the Deputy Commercial Tax Officer or the Commercial Tax Officer. By his order, dated the 21st August, 1954, the Deputy Commis-sioner of Commercial Taxes dismissed the revision petition holding that the respondent was not entitled to raise the contention for the first time and that even otherwise the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, 1954, permitted the inclusion of tax in the taxable turnover. On the 4th August, 1958, the Board of Revenue issued notice to the respondent stating that it proposed to revise the assessment of the Deputy Commercial Tax Officer, Madurai, by including in the net turnover the sum of Rs. 7,74,62,706-1-6 as that amount was wrongly excluded by the assessing authority. The respondent objected to the proposed revision on the ground that the proceed-ing was barred by limitation under s. 12 of the Madras General Sales Tax Act. The respondent also submitted that there was no wrong exclusion of the sum of Rs. 7,74,62,706-1-6 by the Deputy Commercial Tax Officer in making the a~scssment. By its order, dated the 25th August, 1958, the Board of Revenue over-ruled both these contentions of the respondent and fixed the net taxable turnover as Rs. 23,17,15,948-15-2. The respondent preferred an appeal to the Madras High Court against the order of the Board of Revenue dated the 25th August, 1958. The High Court allowed the appeal holding that the Board of Revenue could not invoke its revisional jurisdiction after the expiry of the pP,riod of limita-tion under s. 12 (4)(b) of the Madras General Sales Tax Act. The order of the Board of Revenue, dated the 25th August, 1958 was accordingly set aside.The question of law to be determined in this appeal is :-whether the order of the Board of Revenue dated the 25th August, 1958 was illegal because there was contravention of the rule of limitation laid down by s. 12(4)(b) of the Madras General Sales Tax Act inasmuch as the order of the Board of Revenue was made after period of 4 years from the date on which the order of the Deputy Commercial Tax Officer was communicated to the assessee.

Section 12 of the Madras General Sales Tax Act, 1939 (Madras Act 9 of 1939) (hereinafter called the Act) provides :-

"(I) The Commercial Tax Officer may-

(i) suo nwtu, or

(ii') in cases in which an appeal does not lie to him under section 11, on application, call for and examine

the record of any order passed or proceeding recorded under the provisions of this 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 re-gularity of such proceeding, and may pass such order with respect thereto as he thinks fit.

(2) The Deputy Commissioner may -

(i) suo motu, or

(ii) in respect of any order passed or proceeding record-ed by the Commercial Tax Officer under sub-section (!) 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 record of any order passed or proceeding recorded under the provisions of this Act by any officer subordinate to him, for the pur-pose of satisfying himself as to the legality or pro-priety of such order, or as to the regularity of such proceeding, and may pass such order with respect thereto as he thinks fit.

(3) The Board of Revenue may-

(i) suo motu, or

(ii) .in respect of any order passed or proceeding recorded by the Deputy Commissioner under sub-section (2) or any other provision of this Act and against which no appeal has been pre-ferred to the Appellate Tribunal under s. 12-A, on application, call for and examine the record of any order passed or proceeding recorded under the provisions of this Act by any officer subordinate to it, for the purpose of satisfying itself as to the legality or propriety of such order, or as to the regularity of such proceed-ing, and may pass such order with respect there-to as it thinks fit.

( 4) In relation to an order of as8essment passed under this Act-

(a) Tue power of the Commercial Tax Officer under clause (i) of sub-section (!) shall be exercis-able only within period of three years from the date on which the order was communicated to the assessee;

(b) The power of the Deputy Commissioner under clause (i) of sub-section (2) and that of the

Board of Revenue under clause (i) of sub-section (3) shall be exercisable only within period of four years from the date on which the order was communicated to the assessce".

It was contended on behalf of the appellant that the order n . .-ised by the Board of Revenue was the revisional order of the Deputy Commissioner of Commercial Taxes dated the 21st August, 1954 and not the order of the Deputy Commercial Tax Officer and therefore the power of revision by the Board of Revenue was not exercised beyond the period of limitation provided bys. 12 (4) (b) of the Act. We are unable to accept this argument as cor-rect. The only subject-matter of the revision proceedings before the Board of Revenue was the revised assessment order of the Deputy Commercial Tax Officer, Madurai dated the 28th Novem-ber 1952. The objection taken by the Board of Revenue was with re!,·· .d to the question of exemption allowed on the value of the cotton purchased from outside the State of Madras. The exemp-tion was allowed by the Deputy Commercial Tax Officer in his order of assessment. The question was not raised before the Deputy Commissioner of Commercial Taxes and the only point raised before him was with regard to the inclusion of the amount of tax to !ne exte ·,. of Rs. 6,57,971-4-9 in the taxable turnover. It is manifest that the subject-matter of the revision proceedings before the Board of RevP.nue was the revised assessment order of the De-puty Commerciai : ax Officer, Madurai dated the 28th November, 1952. It follows that the order of the Board of Revenue was made beyond the limit of four years p1~scribed by s. 12(4)(b) of the Act and it is, therefore, invalid. On behalf of the appel-lant. the argument was put forward that if statutory appeal is provided again' m order passed by Tribunal, the decision of the appellate authority is the operative decision in law. It · ·-is said that if the appellate authority modifies or reverses the ~.der of the Tribunal, there was merger of the latter order with the appellate order ~nd it was the appellate order alone that is effective and can bt enforced. But if the appellate order affirms the order of the Tribunal, there is merger of the original order in •'•! appellate order and it is the appellate order alone which is operative and capable of enforcement. In support of this argument reliance was placed upon the c:,servation of Gajendra-gadkar, J., as he then was in Commissioner of Income-tax, Bombay v. Amritlal Bho{?ilal & Co. (') But the doctrine of merger is not doctrine of rigid and universal application .and it cannot be said that wherever there are two orders, one by th.e inferior Tribunal and the other by superior Tribunal, passed in an appeal on revision, there is fusion of merger of two orders .irrespective of the subject-matter of the appellate or revisional order and the (I) (19591 S.C.R. 713 : 34 l.T.R. 130 at 136.

scope of the appeal or revision contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction. For example in Amrit/al Bhogilal & Co's.([1]) case it was observed by this Court that the order of regis-B tration made by the Income-tax Officer did l).Ot merge in the appel-late order of the Appellate Commissioner, because the order of registration was not the subject-matter of appeal before the ap-pellate authority. It should be noticed that the order of assess-ment made by the Income,Tax Officer in that case was composite order viz., an order granting registration of the firm and making an assessment on the basis of the registration. The appeal was taken by the assessee to the Appellate Commissioner against the composite order of the Income-tax Officer. It was held by the High Court that the order of the Income-tax Officer granting regis-tration to the respondent must be deemed to be merged in the appellate order and that the revisional power of the Commissioner of Income-tax cannot, therefore, be exercised in respect of it. The view taken by the High Court was over-ruled by this Court for the reason that the order of the Income-tax Officer granting registraton cannot be deemed to have merged in the order of the Appellate Commissioner in an appeal taken against the composite order of assessment. Similarly, in The State"of Uttar Pradesh v. Mohammed Nooh(2), it was held by this Court that the principle of merger cannot apply in the case of an order of dismissal of public servant which was made by the departmental Tribunal on the 20th April, 1948 and against which the appeal was dismissed by the Appellate Authority on the 7th May, 1949, and the revi-sional application was rejected on the 22nd April, 1950. In the circumstances of the present case, it cannot be said that there was merger of the order of assessment made by the Deputy Com-F mercial Tax Officer dated the 28th November, 1952 with the order of the Deputy Commissioner of Commercial Taxes dated the 21st August, 1954 because the question of exemption on the value of yarn purchased from outside the State of Madras was not the subject-matter of revision before the Deputy Commissioner of Commercial Taxes. The only point that was urged before the Deputy Commissioner was that the sum of Rs. 6,57,971-4-9 collected by the respondent by way of tax should not be included in the tax-able turnover. This was the only point raised before the Deputy Commissioner and was rejected by him in the revision proceedings. On the contrary, the question before the Board of Revenue was whether the Deputy Commercial Tax Officer, Madu,rai was right in excluding from the net taxable turnover of the respondent the sum of Rs. 7,74,62,706-1-6 which was the value of cotton purchased by the respondent from outside the State of Madras. We are (I) [19S9] ll.C.R. 713 : 34 LT.R. : 130 at 136. (2) [19S8] 9.C.R. S9S.

therefore, of opinion that the doctrine of merget cannot be invoked in the circumstances of the present case.

For these reasons, we hold that the judgment of the High Court is right and this appeal must be dismissed with costs.

·' V.P.S.

Appeal dismissed.