LARSEN & TOUBRO LTD. vs. STATE OF JHARKHAND .

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 5390 OF 2007

No. 2630 of 2006 whereby the High Court dismissed the JUDGMENT petition filed by M/s Larsen & Toubro Ltd.-the appellant –Company while upholding the order dated 27.02.2006 passed by the Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur. 1 Page 1 2) Brief facts: (a) The appellant-Company, having its registered office at

manufacturing, trading, leasing and construction business throughout the country. At the relevant time, the appellant-Company was involved in the execution of civil work contracts for its client, viz., Tata Iron & Steel Company Ltd. (TISCO) and had been filing its returns under the Bihar Finance Act, 1981 (hereinafter referred to as ‘the State Act’) and also under the Central Sales Tax Act, 1956 (hereinafter referred to as ‘the Central Act’) in the Commercial Taxes Department, Urban Circle, Jamshedpur. JUDGMENT (b) For the Assessment Year (AY) 1991-92, the appellant-Company filed returns under the State Act. However, the assessment proceedings in relation to the above period, i.e., AY 1991-92 was completed in the year 1996 and an assessment order dated 24.01.1996 was passed by the assessing authority. 2 Page 2 (c) After the assessment proceedings, an audit team of the Auditor General, Bihar, audited the assessment order dated 24.01.1996 and found that the dealer was allowed exemption

the appellant-Company during the course of execution of works contract. The appellant-Company claimed that such goods were purchased on payment of tax but no declaration in Form IX-C along with other evidence was submitted whereas the production or declaration of Form IX-C was mandatory, hence, the claim was not allowable and the said fact was conveyed to the assessing authority. (d) On 28.09.2000, the office of Commissioner of Commercial Tax, Urban Circle, Jamshedpur, served a show JUDGMENT cause notice to the appellant-Company to state as to why tax should not be levied on it for the amount of Rs. 3,12,47,916/- which was wrongly exempted from being taxed under the provision of the State Act. (e) After affording an opportunity of hearing to the appellant-Company, a re-assessment order dated 27.02.2006 was passed by the Deputy Commissioner, Commercial Taxes, 3 Page 3 Urban Circle, Jamshedpur whereby an additional demand of Rs. 35,72,475/- was created against the appellant-Company. f) Being aggrieved by the re-assessment order dated

being W.P. (T) No. 2630 of 2006 before the High Court. A Division Bench of the High Court, vide order dated 17.11.2006, dismissed the petition filed by the appellant –Company while upholding the order dated 27.02.2006 passed by the Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur. (g) Aggrieved by the order dated 17.11.2006, the appellant-Company has preferred this appeal by way of special leave. JUDGMENT 3) Heard the arguments advanced by Mr. Pravin H. Parekh, learned senior counsel for the appellant-Company and Mr. Amarendra Saran and Mr. Ajit Kumar Sinha, learned senior counsel for the respondent-State and perused the records. Point for consideration: 4) The only point for consideration before this Court is whether on the information given by the audit team of the 4 Page 4 Auditor General, Bihar, the Assessing Authority was satisfied that reasonable ground exists to believe that a part of the turnover of the appellant-Company has escaped assessment

which the assessing officer can re-open the assessment? Rival contentions: 5) Learned senior counsel for the appellant-Company contended that an ‘audit objection’ cannot be construed as ‘information’ within the meaning of Section 19 of the State Act, based on which the assessing officer can change his opinion and re-open the assessment. The ‘audit objection’ relates to tax levied on turnover relating to ‘consumables’ wherein there is no sale/deemed sale involved. Consumables by its very JUDGMENT nature are goods used for own consumption. The assessment order dated 24.01.1996 rightly records the said fact. 6) Learned senior counsel further contended that the original assessment order specifically considered whether purchase tax is to be paid under the State Act on the disputed items and the same was decided in negative and hence taxing the items later on is a mere change of opinion by the Assessing 5 Page 5 Authority on the very same set of facts that were available on the date of passing the assessment order dated 24.01.1996. 7) Learned senior counsel further contended that non-filing

12 of the Bihar Sales Tax Rules, 1983 (hereinafter referred to as ‘the Rules’) does not attract the levy in the facts of the present case as the goods are used for ‘own consumption’ and there is no sale or ‘deemed sale’ of the said goods involving a transfer of property in the said goods to anybody. 8) It was further contended that Section 19 of the State Act read with Rule 20 and Form XIV of the Rules specifically requires the satisfaction of the Prescribed Authority regarding requirement of re-assessment before the issuance of the notice JUDGMENT in this regard. The initiation of the re-assessment proceedings and the subsequent re-assessment order dated 27.02.2006 are illegal as there was no satisfaction on the part of the Prescribed Authority about existence of reasonable grounds to believe that turnover has escaped assessment. Hence, the same are liable to be set aside. 6 Page 6 9) Learned senior counsel further contended that it is relevant to note the circumstances under which the appellant-Company was unable to produce the relevant

The assessment order in relation to the same was passed on 24.01.1996. The show cause notice proposing to re-open the assessment was served on the appellant-Company on 28.09.2000 which was replied in detail by the appellant-Company vide letter dated 13.11.2000. Thereafter, for a period of five years, there was no communication from the side of the respondents and the appellant-Company, under the bonafide belief that the letter dated 13.11.2000 had satisfied the requirements of show cause notice, forwarded all JUDGMENT the records to their dumping yards at Chennai. Learned senior counsel contended that owing to the above circumstances the failure of the appellant-Company to produce the aforesaid records was not at all willful. 10) Learned senior counsel finally contended that the order of re-assessment dated 27.02.2006 is illegal and the assessment proceedings cannot be re-opened on the basis of 7 Page 7 audit objection, as the same does not amount to ‘information’ as contemplated under Section 19 of the State Act. The impugned order amounts to change of opinion on the same set

passing the order of assessment. 11) In support of the above contentions, learned senior counsel has relied upon the following decisions, viz., M/s Indian & Eastern Newspaper Society, New Delhi vs. Commissioner of Income Tax, New Delhi (1979) 4 SCC 248, Bhimraj Madanlal vs. State of Bihar and Another (1984) 56 STC 273, Usha Sales (Pvt.) Ltd. vs. The State of Bihar (1985) 58 STC 217 and Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam vs. M/s JUDGMENT Thomas Stephen & Co. Ltd. Quilon (1988) 2 SCC 264. 12) Per contra , learned senior counsel for the respondent-State submitted that the assessing authority has not revised the assessment on the basis of the audit report only rather it had satisfied itself before revising and the same can be seen from the fact that it had rejected part of the audit 8 Page 8 opinion and applied its mind before passing the order impugned. 13) Learned senior counsel for the respondent-State further

‘information’ within the meaning of Section 19 of the State Act and the competent authority has rightly re-assessed the turnover and demanded legally payable valid tax which was escaped. He further submitted that the word ‘information’ used in the Section is of the widest amplitude and comprehends variety of factors including information from external sources of any kind including discovery of new facts or information available in the record of assessment not previously noticed or investigated. JUDGMENT 14) Learned senior counsel for the respondent-State submitted that if there is obvious mistake apparent on the face of the record of assessment, that record itself can be a source of information, if that information leads to a discovery or belief that there has been an escape of assessment. He finally submitted that there is no illegality in the re-assessment order dated 27.02.2006 as well as in the order 9 Page 9 dated 17.11.2006 passed by the High Court and the claim of the appellant-Company is liable to be rejected. 15) In support of his submissions, learned senior counsel

Income Tax vs. P.V.S. Beedies Pvt. Ltd. (1998) 9 SCC 272, Anandji Haridas and Co. (P) Ltd. vs. S.P. Kasture and Others AIR 1968 SC 565, Commissioner of Customs, Mumbai vs. Virgo Steels, Bombay and Another (2002) 4 SCC 316, Supreme Paper Mills Limited vs. Assistant Commissioner, Commercial Taxes, Calcutta and Others (2010) 11 SCC 593 and Chatturam & Ors. vs. CIT, Bihar AIR 1947 FC 32. Discussion: JUDGMENT 16) In the instant case, an audit team of the Auditor General, audited assessment order dated 24.01.1996 and found that the dealer was allowed an exemption of Rs. 3,12,47,916/- being the amount for goods consumed by the appellant-Company during the course of execution of works contract. It is the claim of the appellant-Company that those goods were purchased on payment of tax but no declaration in 10 Page 10 Form IX-C along with other evidence was submitted. The same fact was brought to the notice of the assessing authority which in furtherance thereof issued a show cause notice to the

be mandatory and the claim of the appellant-Company was disallowed and an order of re-assessment dated 27.02.2006 was passed by the competent authority for an additional amount of tax of Rs. 35,72,475/- after following the due procedure of law. 17) The point arises for consideration is as to whether an ‘audit objection’ can be construed as ‘information’ within the meaning of Section 19 of the State Act based on which the assessing officer was satisfied that reasonable grounds exist to JUDGMENT believe that any part of the turnover of the appellant-Company had escaped assessment under Section 19 of the State Act. 18) Learned senior counsel for the appellant-Company argued that it is mere a change of opinion which resulted in re-assessment order and is not information as contemplated under Section 19 of the State Act. Learned senior counsel for the respondent-State submitted that ‘audit objection’ in the 11 Page 11 present case is definitely ‘information’ within the meaning of Section 19 and the High Court has rightly uphold the re-assessment order dated 27.02.2006.

the Bihar Finance Act, 1981 which is as under:- “19. Turnover of registered dealer escaping assessment – (1) If upon information which has come into his possession, the prescribed authority is satisfied that reasonable grounds exist to believe that any turnover of a registered dealer or a dealer to whom grant of registration certificate has been refused under the third proviso to sub-section (2) of Section 14, in respect of any period has, for any reason, escaped assessment or any turnover of any such dealer or a dealer assessed under sub-section (5) of Section 17 has been under-assessed or assed at a rate lower than that which was correctly applicable or any deductions therefrom has been wrongly made, the prescribed authority may, subject to such rules may, be made by the State Government under this part, and – (a) Within eight years from the date of the order of the assessment or reassessment where the said authority has reasons to believe that the dealer has concealed, omitted or failed to disclose willfully the particulars of such turnover or has furnished incorrect particulars of such turnover and thereby returned figures below the reason amount, (b) Within eight years’ from the date of the order of the JUDGMENT assessment or reassessment in any other case. Serve on the dealer a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 17 and proceed to assess or reassess the amount of tax due from the dealer in respect of such turnover, and the provisions of this part shall, so far as may be, apply accordingly as if the notice under this sub-section was a notice under sub-section (2) of Section 17: Provided that the amount of tax shall be assessed or re-assessed after allowing such deductions as were permissible during the said period and at rates at which it 12 Page 12 would have been assessed had the turnover not escaped assessment or full assessment, as the case may be.

JUDGMENT Sub-Section (1) of Section 19 very clearly prescribes that the competent authority, upon information, if satisfied that reasonable ground exists to believe that any turnover of a registered dealer or a dealer to whom grant of registration certificate has been refused in respect of any period has, for any reason, escaped assessment or any turnover of any such 13 Page 13 dealer assessed under sub-Section (5) of Section 17 has been under-assessed or assessed at a rate lower than that which was correctly applicable, may, within eight years from the date

amount of tax in respect of such turnover. 20) For ready reference, the relevant portion of the assessment order dated 24.01.1996 is also extracted hereunder:- “The Company has used the following work under its Tender work on its level and if we separate the both, then it is like this. Camp equipments Rs. 227301.00 Electric goods for work site Rs. 773223.00 Electrode Welding Cable and Accessories Rs. 871294.00 Fuel & Lubricants Rs. 3189205.00 JUDGMENT General Consumables Rs. 2945086.00 (Handgloves) contenvest Oxygen & D.A. Gas Rs. 21223.00 Plywood for Shuttering Rs. 2826674.00 Safety Appliances Rs. 408392.00 Spares Rs. 8232442.00 Staging Materials Rs. 3888798.00 Shuttering & Walk-way (For Timber) Rs. 4191982.00 Tools and Tackles Rs. 3672296.00 _________________ Total Rs. 3,12,47,916.00” 14 Page 14 21) It is also pertinent to understand the meaning of the word ‘information’ in its true sense. According to the Oxford

term ‘information’ as the act or process of informing, communication or reception of knowledge. The expression ‘information’ means instruction or knowledge derived from an external source concerning facts or parties or as to law relating to and/or having a bearing on the assessment. We agree that a mere change of opinion or having second thought about it by the competent authority on the same set of facts and materials on the record does not constitute ‘information’ for the purposes of the State Act. But the word “information” JUDGMENT used in the aforesaid Section is of the widest amplitude and should not be construed narrowly. It comprehends not only variety of factors including information from external sources of any kind but also the discovery of new facts or information available in the record of assessment not previously noticed or investigated. Suppose a mistake in the original order of 15 Page 15 assessment is not discovered by the Assessing Officer, on further scrutiny, if it came to the notice of another assessor or even by a subordinate or a superior officer, it would be

If the mistake itself is not extraneous to the record and the informant gathered the information from the record, the immediate source of information to the Officer in such circumstances is in one sense extraneous to the record. It will be information in his possession within the meaning of Section 19 of the State Act. In such cases of obvious mistakes apparent on the face of the record of assessment, that record itself can be a source of information, if that information leads to a discovery or belief that there has been an escape of JUDGMENT assessment or under-assessment or wrong assessment. 22) There are a catena of judgments of this Court holding that assessment proceedings can be reopened if the audit objection points out the factual information already available in the records and that it was overlooked or not taken into consideration. Similarly, if audit points out some information 16 Page 16 or facts available outside the record or any arithmetical mistake, assessment can be re-opened. 23) In P.V.S. Beedies (supra) , this Court has held as under:-

( emphasis supplied ) JUDGMENT 24) Similarly, in Commissioner of Income Tax, U.P., Lucknow vs. M/s Gurbux Rai Harbux Rai (1971) 3 SCC 654, this Court has held as under:- “6. Section 15 of the Act provides that if in consequence of definite information which has come into the possession of the Excess Profits Tax Officer he discovers that profits of any chargeable accounting period have escaped assessment, etc., he may at any time serve a notice containing all or any of the requirements which may be included in a notice under 17 Page 17

JUDGMENT 18 Page 18

25) In M/s Phool Chand Bajrang Lal and Another vs. Income Tax Officer & Another (1993) 4 SCC 77 this Court has held as under:- “25….. He may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information…..” 26) The contention whether finding the information from the JUDGMENT very facts that were already available on record amounts to information for the purpose of Section 19 of the State Act, it would be sufficient to refer to a judgment of this Court in Anandjiharidas & Co. vs. S.P. Kasture AIR 1968 SC 565 wherein it was held that a fact which was already there in records doesn’t by its mere availability becomes an item of 19 Page 19 “information” till the time it has been brought to the notice of assessing authority. Hence, the audit objections were well within the parameters of being construed as ‘information’ for

27) The expression ‘information’ means instruction or knowledge derived from an external source concerning facts or parties or as to law relating to and/or after bearing on the assessment. We are of the clear view that on the basis of information received and if the assessing officer is satisfied that reasonable ground exists to believe, then in that case the power of the assessing authority extends to re-opening of assessment, if for any reason, the whole or any part of the turnover of the business of the dealer has escaped assessment JUDGMENT or has been under assessed and the assessment in such a case would be valid even if the materials, on the basis of which the earlier assessing authority passed the order and the successor assessing authority proceeded, were same. The question still is as to whether in the present case, the assessing authority was satisfied or not. 20 Page 20 28) At this stage, we deem it appropriate to reproduce the matter dealt with between the audit team and the assessing authority which led to the initiation of re-assessment

under:- “Part – II Section – ‘A’ Para 1. Non levy of purchase tax Rs. 24,19,385.31 Name of the dealer M/s Larsen & Toubro Ltd., ECC Construction Group, Jamshedpur Registration No. JU 848 ® Nature of Business Works Contract JUDGMENT Asstt. Year 1991-92 Date of Order 24.01.1996 G.T.O. Determined Rs. 17,57,01,372.00 Less: Sale of tax paid goods Rs. 1,31,75,779.63 ------------------------- Rs. 16,25,25,592.37 Less: Works done by sub-contractor Rs. 27,17,304.00 -------------------------- Rs. 15,98,08,208.37 Less: Labour charges and overhead charges Rs. 11,91,66,742.38 21 Page 21 ------------------------- Rs. 4,06,41,465.99 Tax was levied @ 4% on Rs. 17,48,096.90 Rs. 69,923.00 @ 8% on Rs. 1,96,71,099.14 Rs. 15,73,678.93 @ 9% on Rs. 1,45,34,488.10 Rs. 13,08,103.92 @ 10% on Rs. 2,048.00 Rs. 204.80 @ 11% on Rs. 4,82,125.70 Rs. 53,033.86 @ 12% on Rs. 42,03,608.15 Rs. 5,04,432.97 --------------------- Rs. 35,09,387.36 Add: Tax @ 1% on Rs. 5,55,08,612.25 Rs. 5,55,086.12 --------------------- Rs. 40,64,473.48 Surcharge @ 10% on Rs. 39,94,549.60 Rs. 3,99,454.00 --------------------- Rs. 44,63,928.44 Penalty U/S 16 (8) Rs. 920.00 --------------------- Rs. 44,64,848.44 JUDGMENT The Scrutiny of assessment order revealed that the dealer was allowed exemption of Rs. 11,91,66,742.38 on account of labour charges and overhead charges claimed as detailed below: 22 Page 22 Labour Charges Rs. 7,02,77,549.00 Overhead charges Rs. 1,87,15,545.00 Goods consumed in course of execution of work Rs. 3,12,47,916.00 ------------------------ Rs. 12,02,41,010.00 Out of the above claim, a sum of Rs. 10,74,267.62 to us disallowed as below: Tax paid claim disallowed Rs. 3,50,698.37 Recovery of cement taxable Rs. 2,20,972.50 Amount of plant hire charges Rs. 5,02,596.75 -------------------- Rs.10,74,267.62 The dealer had furnished the statement of material utilized in the contract work and goods consumed for own use. Scrutiny of assessment order revealed that the dealer was allowed exemption on Rs. 3,12,47,916.00 being the amount of goods consumed or used itself in course of execution of work, details of which were discussed in the assessment order. It had been stated by the assessing authority that such goods were purchased on payment of tax, but no declaration in form IX C along with other evidences were kept on record. Production of declaration form in IX C was mandatory one and hence the claim was not allowable. JUDGMENT The entire materials received from outside the State or purchased within the State without payment of tax was normally leviable to tax at specified rates under section 12 of B.F. Act 1981. Under section 4 of the Act ibid, every dealer liable to pay under section 3 of the Act, if otherwise disposes 23 Page 23

The case may please be re-examined in the light of above observation and levying of purchase tax amounting to Rs.24,19,385.31 (including additional tax and surcharge) as calculated below may be considered under intimation to audit. JUDGMENT S. Name of Goods Purchase value Rate Non-levy of No. of goods applicable purchase tax 1. Camp Equipment, general consumable, plywood for shuttering spares and staying material Rs. 1,81,20,301.00 8% Rs. 14,49,624.08 24 Page 24 2. Electrical Goods and Timber Rs. 49,65,205.00 12% Rs. 5,95,824.60 3. Tools & Tackles Rs. 36,72,296.00

29) From a perusal of the last paragraph of the JUDGMENT aforementioned report of the audit party, it is clear that the Assessing Officer was of the opinion that as the goods had not been transferred to appellant-Company but had been consumed, so it does not come under the purview of taxation. In other words, the Assessing Officer was not satisfied on the basis of information given by the audit party that any of the turnover of the appellant-Company had escaped assessment 25 Page 25 so as to invoke Section 19 of the State Act. From the above, it also appears that the assessing officer had to issue notice on the ground of direction issued by the audit party and not on

30) In view of the above discussion, we are of the considered view that the order dated 27.02.2006 passed by the Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur is without jurisdiction and the High Court was not right in dismissing the petition filed by the appellant-Company. We, therefore, allow the appeal and set aside the order dated 27.02.2006 passed by the Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur as well as the order dated 17.11.2006 passed by the Division Bench of the High Court of JUDGMENT Jharkhand. However, the parties shall bear their own costs. ...…………….………………………J. (MADAN B. LOKUR) . …....…………………………………J. (R.K. AGRAWAL) NEW DELHI; MARCH 21, 2017. 26 Page 26