Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7
CASE NO.:
Appeal (civil) 2407 of 2007
PETITIONER:
M/s. Master Cables Pvt. Ltd
RESPONDENT:
State of Kerala
DATE OF JUDGMENT: 09/05/2007
BENCH:
S.B. Sinha & Markandey Katju
JUDGMENT:
J U D G M E N T
CIVIL APPEAL NO. 2407 OF 2007
[Arising out of SLP (Civil) No. 111 of 2007]
S.B. SINHA, J :
1. Leave granted.
2. Legality of a notice issued by the Deputy Commissioner of
Commercial Taxes, Kollam vis-‘-vis the provisions of the Kar Vivad
Samadhan Scheme, 1998 (for short "the Scheme") framed under the Finance
Act, 1998 is in question in this appeal which arises out of a judgment and
order dated 3.08.2006 passed by a Division Bench of the Kerala High Court.
3. Appellant is engaged in business of manufacture and sale of
insulated electrical cable. It is registered under the Kerala General Sales Tax
Act, 1963 (for short "the Act"). Assessment proceedings in respect of the
assessment years 1995-96 and 1996-97 were completed relying upon or on
the basis of the books of accounts maintained by it. An inspection, however,
was carried out in the premises of the appellant. Certain amount of
unaccounted production and sale of goods was found.
4. Appellant admittedly took recourse to the provisions of the said
Scheme. Declaration made by it thereunder was accepted.
By an order dated 14.01.2003, the earlier assessment order was set
aside. Appellant filed an appeal before the Kerala Sales Tax Appellate
Tribunal. The matter was remitted to the Deputy Commissioner for its re-
examination. By an order dated 20.05.2003, the assessment in respect of the
Assessment Year 1996-97 was set aside. The said authority directed re-
assessment for the year 1995-96 by an order dated 7.11.2003. Questioning
the said orders, appeals were filed by the appellant before the Tribunal
which by reason of a common judgment dated 21.12.2005 were dismissed.
Two Sales Tax revisions wee filed thereagainst before the High Court,
which by reason of the impugned judgment have been dismissed.
5. Before we embark upon the contentions raised by the appellant,
we may notice that by an order dated 15.01.2007, this Court observed:
"The question which inter alia arises for
consideration in this petition is as to whether by
reason of sub-section (3) of Section 90 of the Kar
Vivadh Samadhan Scheme, 1998, as contained in
the Finance Act, 1998, the State legislation relating
to the imposition of the sales tax by re-opening an
assessment under the State Sales Tax laws shall be
affected or not, having regard to Article 246 of the
Constitution of India. With a view to pronounce
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7
an authoritative judgment on the said issue, we are
of the opinion that the Union of India should also
be impleaded as a party."
Pursuant thereto Union of India was impleaded as a party herein. It
has filed a counter-affidavit.
6. Mr. Huzefa Ahmadi, learned counsel appearing for the
appellant, in support of this appeal, submitted:
(i) Having regard to the provisions of Sub-section (3) of Section 90 of
the Scheme, the term "any other law for the time being in force"
must be given a wide meaning so as to cover not only the direct tax
or indirect tax envisaged thereunder but also the Sales Tax laws of
the State in the light of the provisions of Clause (3) of Article 286
of the Constitution of India and Sub-clauses (c) and (d) of Clause
(29A) of Article 366 thereof.
(ii) In any event, the purported exercise of suo motu revisional power
by the Deputy Commissioner must be held to be wholly without
jurisdiction.
7. The Scheme was enacted with a view to achieve the purposes
mentioned therein, viz., recovery of tax arrears by way of settlement. It
applies provided the conditions precedent therefor are satisfied. Sub-section
(3) of Section 90 of the Scheme, whereupon reliance has been placed, reads
as under:
"(3) Every order passed under sub-section (1),
determining the sum payable under this Scheme,
shall be conclusive as to the matters stated therein
and no matter covered by such order shall be
reopened in any other proceeding under the direct
tax enactment or indirect tax enactment or under
any other law for the time being in force."
8. "Immunity", however, is provided under Section 91 of the
Scheme, which reads as under:
"91. Immunity from prosecution and imposition of
penalty in certain cases.
The designated authority shall, subject to the
conditions provided in section 90, grant immunity
from instituting any proceeding for prosecution for
any offence under any direct tax enactment or
indirect tax enactment, or from the imposition of
penalty under any of such enactments, in respect of
matters covered in the declaration under section
88."
9. What is conclusive is the order passed under Sub-section (1) of
Section 90 of the Scheme determining the sum payable under the Scheme.
The terms "direct tax enactment" or "indirect tax enactment" or "any other
law for the time being in force" refer only to those statutes under which the
order had been passed. Immunity, as noticed hereinbefore, is in respect of
institution of any proceeding for prosecution of any offence under direct tax
enactment or indirect tax enactment or from imposition of penalty under any
of such enactments. The terms "direct tax enactment" and "indirect tax
enactment" have been defined under Sections 87(h) and 87(j) of the Scheme,
which read as under:
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7
"(h) "direct tax enactment" means the Wealth-tax
Act, 1957 (27 of 1957) or the Gift-tax Act, 1958
(18 of 1958) or the Income-tax Act, 1961 (43 of
1961) or the Interest-tax Act, 1974 (45 of 1974) or
the Expenditure \026 tax Act, 1987 (35 of 1987);
(j) "indirect tax enactment" means the Customs
Act, 1962 (52 of 1962) or the Central Excise Act,
1944 (1 of 1944) or the Customs Tariff Act, 1975
(51 of 1975) or the Central Excise Tariff Act, 1985
(5 of 1986) or the relevant Act and includes the
rules or regulations made under such enactment;"
10. Admittedly, the case of the appellant does not come within the
purview thereof. Amplitude of the provisions of the Scheme having been
extended only to the enactments made by the Parliament, having regard to
the constitutional Scheme contained in Article 246 of the Constitution of
India, in our opinion, the same cannot be extended to assessment of sales tax
under a State legislature. The legislative field to enact a law relating to sales
tax is within the exclusive domain of a State Legislature in terms of Entry
54, List II of the Seventh Schedule of the Constitution of India. The power
and jurisdiction of the assessing authorities as also other authorities is
required to be exercised in terms of the provisions of the said Act. Power to
tax, it is well-settled, carries with it power to do all things which are
necessary and ancillary therefor including taking preventive measures in
regard to evasion of tax.
11. Once it is found that a statutory authority had the jurisdiction to
reopen a proceeding or set aside the order of the assessing authority, only the
higher authorities can interfere therewith. Only because the appellant had
taken recourse to the Scheme, the same, in our opinion, would not attract
either Sub-section (3) of Section 90 of the Scheme or Section 91 thereof so
as to cover a subject which is within the exclusive domain of the State
Legislature. In that sense, the said Scheme must be read as limited to those
laws which the Parliament has the legislative competence to enact and not
which falls within the exclusive legislative field of a State, save and except
where expressly so stated or inferred by necessary implication. A
Legislature is presumed to enact a law only within its domain of field of
legislation. If the contention that the provisions of the Scheme would also
apply to tax laws created by the State is accepted, it being beyond the
legislative competence, would amount to colourable piece of legislation.
12. Reliance placed on Clause (3) of Article 286 of the Constitution
of India, in our opinion, is misplaced. The said provision reads, thus:
"(3) Any law of a State shall, in so far as it
imposes, or authorises the imposition of,--
(a) a tax on the sale or purchase of goods declared
by Parliament by law to be of special importance
in inter-State trade or commerce; or
(b) a tax on the sale or purchase of goods, being a
tax of the nature referred to in sub-clause (b), sub-
clause (c) or sub-clause (d) of clause (29A) of
article 366, be subject to such restrictions and
conditions in regard to the system of levy, rates
and other incidents of the tax as Parliament may by
law specify."
The said provision had to be enacted in view of the decision of this
Court in Bengal Immunity Company Limited v. State of Bihar and Others
[(1955) 2 SCR 603].
Indisputably in exercise of the said power, the Parliament has the
requisite legislative competence but therefor a specific law is required to be
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7
enacted. The Act in question neither is referable to Clause (3) of Article 286
of the Constitution of India nor Sub-clauses (c) and (d) of Clause (29A) of
Article 366 thereof. It provides only for tax on the sale or purchase of
goods.
13. Strong reliance has been placed by Mr. Ahmadi on Sushila Rani
(Smt) v. Commissioner of Income Tax and Another [(2002) 2 SCC 697] and
Hira Lal Hari Lal Bhagwati v. CBI, New Delhi [(2003) 5 SCC 257].
In Sushila Rani (supra), a question arose as to whether the authority
had a power to correct clerical or arithmetical error. It was held:
"10. The appellant in the course of the declarations
filed specifically stated that any adjustment of
refunds towards tax arrears of the appellant by the
Department in the earlier years without following
the mandatory procedure of Section 245 of the Act
would still remain as tax arrears for the purpose of
KVSS and it is on that basis the declarations were
accepted by the Department. Having accepted the
claim of the appellant on that basis, it will not be
permissible for the respondents now to turn around
and take a different stand.
11. Even assuming that the authorities under
KVSS have inherent powers to correct an error of
clerical or arithmetical nature, the same should be
so obvious, apparent or patent as not to admit of
any debate or discussion. In this case, the
respondents have to establish adjustment of refund,
which had been made against arrears after due
notice to the appellant and which is denied by her,
and hence admits of investigation of facts and
serious debate on the question. Such an error
cannot be stated to be an inadvertent error of
clerical or arithmetical nature, so plain as to be
rectified without much ado."
Sushila Rani (supra) has been followed in Hira Lal Hari Lal Bhagwati
(supra) wherein it has been stated:
"18. The present case comes under the tax arrears
payable under the indirect tax enactment. Section
89 of the Kar Vivad Samadhan Scheme, 1998
deals with particulars to be furnished in declaration
and Section 90 of the Scheme deals with the time
and manner of payment of tax arrears. Sub-section
(2) of Section 90 provides that the declarant shall
pay the sum determined by the Designated
Authority within thirty days of the passing of an
order by the Designated Authority and intimate the
fact of such payment to the Designated Authority
along with proof thereof and the Designated
Authority shall thereupon issue the certificate to
the declarant. Sub-section (3) of Section 90 of the
said Scheme provides that every order passed
under sub-section (1), determining the sum
payable under this Scheme shall be conclusive as
to the matters stated therein and no matter covered
by such order shall be reopened in any other
proceeding under the direct tax enactment or
indirect tax enactment or under any other law for
the time being in force . Sub-section (4) of Section
90 of the said Scheme provides that where the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7
declarant has filed an appeal or reference or a reply
to the show-cause notice against any order or
notice giving rise to the tax arrear before any
authority or tribunal or court, then,
notwithstanding anything contained in any other
provisions of any law for the time being in force,
such appeal or reference or reply shall be deemed
to have been withdrawn on the day on which the
order referred to in sub-section (2) is passed.
27. On a reading of the judgment in the case of
Sushila Rani 1 , it is clear to us that if an assessee
takes the option under this Scheme, he obtains
immediate immunity under any proceeding under
any and all laws in force. As such the present
proceedings initiated under Section 120-B read
with Section 420 of the Indian Penal Code are bad
and ought to have been quashed with immediate
effect."
We need not go into the correctness or otherwise of the said decisions.
14. We may, however, notice that in State, CBI v. Sashi
Balasubramanian & Anr. [2006 (10) SCALE 541], Hira Lal Hari Lal
Bhagwati (supra) was distinguished by this Court inter alia opining that the
prosecution was launched after a declaration was made.
In Sashi Balasubramanian (supra), this Court held:
"In any view of the matter, an immunity is
granted only in respect of offences purported to
have been committed under direct tax enactment or
indirect tax enactment, but by no stretch of
imagination, the same would be granted in respect
of offences under the Prevention of Corruption
Act. A person may commit several offences under
different Acts; immunity granted in relation to one
Act would not mean that immunity granted would
automatically extend to others. By way of
example , we may notice that a person may be
prosecuted for commission of an offence in
relation to property under the Indian Penal Code
as also under another Act, say for example, the
Prevention of Corruption Act. Whereas charges
under the Prevention of Corruption Act may fail,
no sanction having been accorded therefor, the
charges under the Penal Code would not."
15. The question came up for consideration yet again before this
Court in Alpesh Navinchandra Shah v. State of Maharashtra and Others
[(2007) 2 SCC 777] wherein Hira Lal Hari Lal Bhagwati (supra) was
distinguished by this Court stating:
"At the time of hearing, learned Counsel for the
petitioner relied upon the case of Hiralal Harilal
Bhagwati v. C.B.I (supra). According to learned
Counsel for the respondent the said relied upon
case was a case of duty evasion and appellant
therein was booked by customs authority and
therefore, customs duty was paid under KVSS and
further in the criminal proceedings under Section
120B and 420 IPC initiated by CBI was quashed
by this Court. Therefore, it is admitted that the
above cited case is different from the present case
as in the case in hand the detention order was
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7
issued under the COFEPOSA Act against the
petitioner with objective to prevent to the nefarious
activities in future. Therefore, the immunity
granted by the Settlement Commission from fine,
penalty and prosecution under the provisions of the
Customs Act and IPC have no bearing on the order
of detention passed under the COFEPOSA Act.
Therefore, it is contended that the detention order
issued by the Detaining Authority is very much
legal and the same needs to be upheld.
The Settlement Commission was constituted with
the aim and objective of settling the tax evasion
issues and by virtue of disclosure by tax offender;
they gain immunity from fine/penalty which is
otherwise mandatory under the provisions of tax
laws. But, such opportunity is only extended to one
tax offender but not available to habitual
smugglers. For the persons involved in smuggling
activities, other than the provisions made for the
prosecution under the Customs Act, 1962, an equal
deterrent is emphasized under the provisions of the
COFEPOSA Act, 1974 i.e. provisions for
preventive detention. Such preventive detention
prohibits smugglers from indulging in further
smuggling activities. In the present case the
investigation reveals the consistent involvement of
the petitioner -detenue and his brother Kamlesh
Navinchandra Shah in smuggling activities,
therefore, the Detaining Authority on the basis of
evidence placed before him felt it necessary to
issue the detention orders in respect of both the
detenues in order to prevent them from pre-judicial
activities in future. Accordingly the impugned
order is justifiable in the eyes of law and present
Writ Petition deserves to be dismissed."
For the reasons aforementioned, the said decisions cannot be said to
have any application so far as the first contention of Mr. Ahmadi is
concerned.
16. The second contention of Mr. Ahmadi, in our opinion, is also
without merit. Appellant can raise all contentions before the authorities.
The purported finding was arrived at for the purpose of resorting to the
provisions of Section 35 of the Act which reads as under:
"35. Powers of revision of the Deputy
Commissioner suo motu \026 (1) The Deputy
Commissioner may, of his own motion, call for
and examine any order passed or proceedings
recorded under this Act by any officer or authority
subordinate to him other than an Appellate
Assistant Commissioner which in its opinion is
prejudicial to revenue and may make such enquiry
or cause such enquiry to be made and, subject to
the provisions of this Act, may pass such order
thereon as he thinks fit.
(2) The Deputy Commissioner shall not pass any
order under sub-section (1) if,
(a) the time for appeal against the order has not
expired;
(b) the order has been made the subject of an
appeal to the Appellate Assistant Commissioner or
the Appellate Tribunal or of a revision in the High
Court; or
(c) more than four years have expired after the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7
passing of the order referred to therein.
2A. Notwithstanding anything contained in sub-
section (2), the Deputy Commissioner may pass an
order under sub-section (1) on any point which has
not been decided in an appeal or revision referred
to in clause (b) of sub-section (2), before the
expiry of a period of one year from the date of the
order in such appeal or revision or before the
expiry of the period of four years referred to in
clause (c) of that sub-section whichever is later.
(3) No order under this Section adversely affecting
a person shall be passed unless that person has had
a reasonable opportunity of being heard."
17. We do not see any reason as to why the observations contained
therein shall not be treated to be prima facie ones and, thus, all contentions
of the parties shall remain open.
18. We have no doubt, in our mind, that the appropriate authority
would consider the matter with an open mind irrespective of any
observations made for the purpose of invocation of power under Section 35
of the Act. The Tribunal has also noticed that the entire matter has been left
open to the assessing authority. It would, thus, not only be open to the
appellant to raise all contentions, they would also be at liberty to produce all
relevant materials before the assessing authority to show that the orders of
assessment passed earlier were legal and no deviation therefrom is
warranted.
19. This appeal, thus, being devoid of any merit, is dismissed with
the aforementioned observations. In the facts and circumstances of this case,
however, there shall be no order as to costs.