Full Judgment Text
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PETITIONER:
STATE OF MADHYA PRADESH & ORS.
Vs.
RESPONDENT:
SHYAMA CHARAN SHUKLA
DATE OF JUDGMENT22/09/1971
BENCH:
ACT:
States Reorganisation Act,, 1956, ss. 78, 91-"Arrears",
meaning- Amount due by way of tax need not be quantified.
HEADNOTE:
The respondent was, assessed to sales tax under the Madhya
Pradesh General Sales Tax Act, 1958, for the period October
1, 1953 to December 26, 1958 in respect of sales of
manganese ore including the sales from the mines in two
districts in the erstwhile State of Madhya Pradesh which
were transferred to the State of Maharashtra on 1st November
1956 under the States Reorganisation Act, 1956. The
respondent challenged the order of assessment on the ground,
among others, that by virtue of s. 78 of the States
Reorganisation Act, 1956, the State of M.P. had no
jurisdiction to recover the amount of tax in respect of
sales made in the two districts after November 1, 1956. The
High Court, without deciding the other points, which bad
been raised in the writ petition, quashed the assessment by
referring to s. 78 of the States Reorganisation Act which,
inter alia, provided : "The right to recover arrears of any
tax or duty on property including arrears of land revenue
shall belong to the successor State in which the property is
situated and the right to recover any other tax or duty
shall belong to the successor State, in whose territories
the place of assessment for that tax or duty is included".
The High Court held that before the assessment proceedings
were completed and the final amount due was determined, it
could not be said that any particular amount was due against
the assessee and so long as there was. no determination and
no demand for payment of tax was raised the assessee could
not be said to be in "arrears" of any tax within the meaning
of s. 78.
Allowing the appeal and remanding the case to the High
Court,
HELD : (1) The word "arrears" in section 78 must be held to
have been used in the sense of dues or what has become due
by way of tax and that does not depend upon proceedings for
quantification of the amount. The word "arrears" cannot be
given a narrow meaning in the manner done by the High Court.
If the view of the High Court is accepted, arrears of tax
can refer to only that amount of tax which has been quan-
tified after proper assessment. This would lead to the
result that where there has been no quantification or
assessment order, the position would be wholly uncertain and
it would not be possible to say which State would be
entitled to realise those taxes or duty-, in other words,
until the tax liability had been determined and quantified,
there would be no arrears of tax and s. 78 would be
inapplicable. The word "arrears" should be given its proper
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meaning as understood in the ordinary sense of the word. It
is a part of the general scheme of sales tax laws that taxes
become due the moment a dealer makes either purchases or
sales which are subject to tax and the obligation to pay tax
arises. Although the tax liability which comes into
existence cannot be enforced till the quantification is
effected by assessment proceedings, the liability for
payment of tax is independent of the assessment. [865 F-866
D]
862
(2)Section 78 deals with arrears and s. 83 deals with
refund of taxes. Both the sections indicate that when the
question is of any tax or duty other than that on property,
the right has been conferred and the liability imposed on
the successor State in whose territories the place of
assessment of that tax or duty is included. Further the
amounts due by way of tax are not covered by the residuary
provisions as mentioned in s. 91 of the Act. [865 B-D]
Kedarnath Jute Mfg. co. Ltd. v. C.I.T., Central Calcutta,
[1972] 1 S.C.R. 277 referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2272 of
1968.
Appeal from the judgment and order dated September 12, 1967
of the Madhya Pradesh High Court in Misc. Petition No. 178
of 1966.
I. N. Shroff and R. P. Kapur, for the appellants.
M. N. Phadke, U. N. Bachawat, K. L. Hathi and P. C. Kapur,
for the respondent.
The Judgment of the Court was delivered by
Grover, J. This is an appeal by certificate from a judgment
of the Madhya Pradesh High Court in a writ petition filed by
the respondent challenging certain orders relating to
assessment of sales tax.
The respondent held mineral concessions for extracting man-
ganese ore in respect of mining areas in the districts of
Balaghat, Chhindwara, Bhandara and Nagpur in the erstwhile
State of Madhya Pradesh i.e. before the reorganisation of
the State. Under S. 4 of the Central Provinces & Berar
Sales Tax Act 1947, hereinafter called the "Act of 1947"
which was then applicable a dealer was liable to pay tax on
all the sales if the gross turnover exceeded the limit
specified in S. 4 (5) of the Act of 1947 and he was required
under S. 8 to get himself registered as a dealer. The
material period, in the present case, is from October 1,
1953 to December 26, 1958. This may be split up into two
periods; (1) October 1, 1953 to October 31, 19S6 (till that
date Nagpur and Bhandara districts formed part of the State
of Madhya Pradesh) and (2) November 1, 1956 to December 26,
1958 (from November 1, 1956 the aforesaid two districts came
to be included in the new, State of Maharashtra). According
to the appellant the respondent effected sales of manganese
ore from the mines during the aforesaid periods without
registering himself as a dealer in spite of the fact that
the turnover exceeded the prescribed limit. A number of
notices were issued by the Sales Tax Officer, Chhindwara
calling upon the respondent to get himself registered and to
show cause why he should not be assessed under S. 1 1 (5) of
the
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Act of 1947 which was subsequently ’repealed and was
replaced by the Madhya Pradesh General Sales Tax, 1958,
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hereinafter called the- "Act of 1958". Towards the end at
the- year 1958 the- respondent applied for registration to
the Sales’Tax Officer, Chhindwara Circle exercising
jurisdiction over the Balaghat and Chhindwara districts. On
December 27, 1958 a registration certificate was granted to
him. Thereafter the Sales Tax Officer issued a notice to
the respondent under ss. 17, 18 & 19 of the Act of 1958. He
proceeded to assess the respondent for the period October 1,
1953 to December 26, 1958. The amount assessed came to Rs.
31,580.42 and a penalty of Rs. 5,000 was imposed. The
respondent filed an appeal to the Appellate Assistant
Commissioner of Sales Tax. As he did not deposit the past
dues of the tax and the penalty demanded of him the appeal
was not admitted in view of s. 38(3) of the Act of 1958 or
s. 22 of the Act of 1947. On January 23, 1961 the
respondent ’preferred an appeal to the Board of Revenue
without depositing the amount of tax required to be
deposited under the law. That appeal was also not admitted.
On March 28, 1966 the respondent filed a petition under Art.
226 of the Constitution challenging the order of assessment
dated April 23, 1960 passed by the Sales tax Officer as also
the orders of the appellate authorities. In the writ
petition a number’ of points were raised by the respondent
some of which may be noticed. (1) The Sales tax Officer
Balaghat or Chhindwara had no jurisdiction to assess the
writ petitioner to tax in respect of sales which took place
from the districts of Bhandara and Nagpur which were part of
the State of Maharashtra. As the order of assessment
included sales of ore from those districts also it was void.
(2) The Sales tax Officer had no jurisdiction to include the
sales in respect of manganese in the taxable turnover when
those sales were for export outside India (3) The Sales tax
Officer had no power to assess the writ petitioner under s.
18(6) of the Act of 1958 when the liability arose for the
period prior to April 1, 1959 when the provisions of the Act
of 1947 were in force. (4) That the assessments were barred
by time. (5) By virtue of s. 78 of the States Reorganisation
Act 1956, the State of Madhya Pradesh had no jurisdiction to
recover the amount of tax in respect of sales prior to
November 1, 1956 which had been completed at Nagpur which
was included in the State of Maharashtra with effect from
November 1, 1956 and (6) the Appellate Assistant
Commissioner and the Board of Revenue were in error in not
entertaining the appeals on the ground that the amount of
tax assessed had not been deposited.
The State contested the writ petition and controverted the
points raised therein by the writ petitioner. It also
raised certain objections and contentions. The High Court
held that the
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notices that were issued by the sales tax authorities were
within limitation. But without deciding the other points
which had been raised in the writ petition the High Court
disposed of the whole matter by referring to S. 78 of the
States Reorganisation Act 1956. That section is in the
following terms :-
"The right to recover arrears of any tax or
duty on property, including arrears of land
revenue shall belong to the successor State in
which the property is situated and the right
to recover arrears of any other tax or duty
shall belong to the successor State in whose
territories the place of assessment of that
tax or duty is included".
It was urged on behalf of the assessee before the High Court
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that after the reorganisation of States, the Sales tax
Officer, Balaghat, had no jurisdiction to assess the sales
tax in respect of the sales from the mines in the Nagpur and
Bhandara districts which no longer formed part of the State
of Madhya Pradesh and as no separate turnover was determined
for the different areas the order of assessment in its
entirety was liable to be quashed. On behalf of the State
the argument raised was that the expression right to recover
arrears of any tax or duty" covered not only tax which had
already been assessed but also all those taxes which became
due but remained to be assessed. This argument was not
accepted by the High Court and was disposed of in the fol-
lowing manner
"Before the assessment proceedings are
completed and the final amount due is
determined it cannot be said that any
particular amount of tax is due against the
assessee. So long as there is no such
determination and no demand for payment of the
tax is raised, it cannot be said that the
assessee is in arrears of any taxes. This is
so even where the assessee is required to pay
the tax amount as per his own determination
along with the returns submitted by him".
In the opinion of the High Court under s. 78 the place of
assessment of the tax must be the place which was included
in the territories of the successor State. So long as the
assessee was not registered as a dealer with reference to
any particular place of business it could not be said that
Katangjhiri in Balaghat district was the place of business
with respect to the ore extracted from the mines in Nagpur
and Bhandara districts. Registration certificate granted to
the assessee in 1958 after the reorganisation of the States
in which the place of business was shown at Katanjhiri could
not be made use of as that certificate could have no
relation to Nagpur and Bhandara districts which were no
longer
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within the State of Madhya Pradesh on that date. Therefore
the Sales tax Officer, Balaghat, had no jurisdiction to
assess the: tax with respect to sales effected from the
mines in Nagpur and Bhandara districts. As the assessment
order was a composite order it was liable to be quashed as a
whole.
Part VII of the States Reorganisation Act 1956 relates to-
apportionment of assets and liabilities of certain Part A
and-Part B States. Section 76 deals with land and goods, s.
77 with treasury and bank balances and s. 78 with arrears of
taxes. It is unnecessary to refer to other sections in the
Chapter except ss. 83 and 91. Section 83 provides, inter
alia, that the liability of an existing State to refund any
tax or duty other than that on property........ collected in
excess shall be the liability of the successor State in
whose territories the place of assessment of that tax or
duty is included. Section 91 is the residuary provision.
According to it the burden or benefit of assets and liabili-
ties of an existing State not dealt within the foregoing
provisions of Part VII has to pass in the manner indicated
in clauses (a) and (b). Thus so far as taxes are concerned
ss. 78 and 83 indicate that when the question is of any tax
or duty other than that on property the right has been
conferred and the liability imposed, in case of refund, on
the successor State in whose territories the place of
assessment of that tax or duty is included. Part VII in the
States Reorganisation Act was intended to effectuate
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apportionment of assets and liabilities between the existing
State and the successor State. ’.’Existing State" was
defined by s. 2 (g) to mean a State specified in the first
schedule to the Constitution at the commencement of the Act
of 1956. A "successor State" was defined by s. 2(o) to mean
in relation to an existing State that State to which the
whole or any part of the territories of that existing State
was transferred by the provisions of Part II. It is
difficult to give a narrow meaning to the word "arrears" in
s. 78 in the manner done by the High Court. If’ the view of
the High Court is to be accepted arrears of tax can refer to
only that amount of tax which has been quantified after a
proper assessment. This would lead to the result that where
there has been no quantification or assessment order the
position would be wholly uncertain and it would not be
possible to say which State would be entitled to realise
those taxes or duties. In other words, in the present case
since the tax liability had not been determined or
quantified there would be no arrears of tax and s. 78 will
be inapplicable. In our judgment arrears should be given
their proper meaning as understood in the ordinary sense of
that word. According to the Webster’s New International
Dictionary "arrears" means among other things "that which is
behind in payment or which remains unpaid though due". The-
866
example given is of arrears of rent, wages or taxes. In
Stroud’s Judicial Dictionary, third edition, it has been
stated that the word "arrears" presupposes a time fixed for
payment of a sum of money and the lapse of time thereafter
without payment". It is a part of the general scheme of all
sales tax laws that taxes become due the moment a dealer
makes either purchases or sales which are subject to
taxation and the obligation to pay the tax arises. Although
the tax liability which comes into existence cannot be
enforced till the quantification is effected by assessment
proceedings the liability for payment of tax is independent
of the assessment : (See Kedarnath Jute Mfg. Co. Ltd. v.
Commissioner of Income tax, Central Calcutta)(1). We have
no doubt that the word "arrears" in respect of tax has been
used in the sense of dues or what has become ’ due by way of
tax and that does not depend on assessment proceedings or
quantification of the amount. We do not consider that the
amounts due by way of tax are covered by the residuary
provisions i.e. S. 91 of the Act of 1956.
The High Court has disposed of the mater mainly on the
interpretation of s. 78 of the Act of 1956 with which we are
unable to agree. For these reasons the judgment of the High
Court is set aside and the matter is remanded to it to
redecide the same and while doing so all the material
points that arise for determination will also have to be
decided by it.
The appeal is allowed accordingly but there will be no order
as to costs.
S.N. Appeal allowed.
(1) [1972] 1 S.C.R. 277.
867