2025 (9) TMI 930 - HC - VAT / Sales Tax

Doctrine of merger applies; appeal on penalty merges whole assessment; Section 57(1)(a) bars revision by coequal officers

The Commissioner of Sales Tax, Mumbai Versus M/s. Mardia Steel Ltd.

The HC held that the doctrine of merger applied: where an appeal challenged only the penalty portion of a composite assessment, the entire assessment ... Doctrine of merger - entire assessment order has merged in the appeal order when the appeal involved only the penalty part of the composite order of assessment and penalty - interpretation of Section-57 of the B.S.T. Act, 1959 - levy of interst and penalty - HELD THAT:- The Assistant Commissioner of Sales Tax, upon completion of assessment, had ordered a refund of Rs. 48,000/- to the Assessee. However, the Assistant Commissioner also directed the Assessee to pay a penalty and interest of Rs. 14,334/-. Aggrieved by the levy of penalty and interest, the Assessee appealed to the Commissioner (Appeals). This Appeal was allowed by the Commissioner (Appeals), and the levy of penalty and interest was set aside. Clearly, therefore, there was a merger in the orders made by the Assistant Commissioner, and the Commissioner (Appeals) was concerned. Section 57(1)(a) clearly provides that revisional powers can be exercised in respect of orders made by any officer or person ‘subordinate to him’. This means that revisional powers can be exercised by an authority in relation to orders made by any officer or person who must be subordinate to him and not of coequal or coordinate rank. The Commissioner (Appeals) and the Commissioner (Administration) are the officers of coequal and coordinate rank. Therefore, based upon any alleged delegation, the statutory provisions in Section 57(1)(a) could not have been contravened. A delegate, in the exercise of delegated powers, cannot contravene any provisions of the parent Act. The exercise of delegation must be consistent with the requirements of the Parent Act. Section 62 of the Bombay Sales Tax Act, which empowers the Tribunal to rectify any mistake apparent from the record. In this case, the Tribunal, in its earlier order, had completely missed the point that Deputy Commissioner (Appeals) was not an officer or person subordinate to the Deputy Commissioner (Administration). Consequently, the Deputy Commissioner (Administration) could never have exercised revisional jurisdiction over the orders made by the Deputy Commissioner (Appeals). This was a glaring error. There were binding precedents which were also ignored by the Deputy Commissioner (Administration). Even considering that the very limited jurisdiction is vested in the authority exercising powers under Section 62, it is not that the Tribunal, in the facts of this case, has overstepped such limited powers. Accordingly, even the third question will have to be answered against the Revenue and in favour of the Assessee. The issue answered against the Revenue and in favour of the Assessee. There is no case made out to interfere with the Tribunal’s order - reference disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the appellate order that set aside the penalty portion of an assessment results in merger of the entire original assessment order where the appeal directly challenged only the penalty component. 2. Whether, under Section 57(1)(a) of the Bombay Sales Tax Act, a revisional order can be validly passed by an officer who is not subordinate to the officer whose order (including an order in appeal) is sought to be revised - specifically, whether a revisional exercise by an officer of coordinate rank (a Deputy Commissioner (Administration)) over an order of another Deputy Commissioner (Appeals) is permissible, including issues of delegation of the Commissioner's revisional power. 3. Whether the Tribunal properly exercised rectification powers under Section 62 to set aside a revisional order where the Tribunal had earlier failed to appreciate that the revisional authority lacked jurisdiction because the impugned appellate officer was not subordinate to the revising officer, and whether such error constituted a mistake apparent on the face of the record justifying rectification. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Merger of original assessment order into appellate order where appeal challenged only penalty component Legal framework: Principles of merger where an appellate authority passes an order altering or setting aside portions of an original assessment; effect of appellate order on the original assessment. Precedent treatment: The Tribunal's view that the entire assessment merged was questioned by the Court; the Court relied on the factual sequence rather than distinguishing multiple precedents. Interpretation and reasoning: The Assistant Commissioner's assessment had two operative consequences - a refund and simultaneously a levy of penalty/interest. The Commissioner (Appeals) set aside the penalty/interest upon appeal. The Court reasoned that because the appellate order directly concerned and altered the levy imposed in the assessment, the orders of the Assistant Commissioner and the Commissioner (Appeals) were in effect merged as to the subject-matter addressed by the appeal. Ratio vs. Obiter: Ratio - where an appellate authority quashes a component of an assessment (here, penalty/interest), that appellate order merges with and supersedes the corresponding part of the original assessment as to the matters adjudicated on appeal. Obiter - no extended doctrinal exposition beyond application to these facts. Conclusion: The Court answered the question in favour of the assessee, holding that there was a merger in the orders in respect of the matters decided by the appellate authority. Issue 2 - Revisional jurisdiction under Section 57(1)(a): subordinate vs coordinate officers and permissible delegation Legal framework: Section 57(1)(a) permits the Commissioner to call for and examine records of any order passed 'including an order passed in appeal' by any officer or person subordinate to him; provisos set limitation periods; rulemaking and delegation are subject to the parent Act. Precedent treatment: The Tribunal in an earlier order relied on precedents to hold that a Deputy Commissioner (Administration) could not exercise revision over a Commissioner (Appeals). The Court endorsed that view on statutory construction and the requirement of subordination; no precedents were overturned. Interpretation and reasoning: The Court emphasized that the statutory phrase 'officer or person subordinate to him' requires the revising authority to be superior to, or have subordination over, the officer whose order is revised. Officers of coequal/coordinate rank (Deputy Commissioner (Administration) and Deputy Commissioner (Appeals)) cannot be treated as subordinate to one another. Delegation by the Commissioner cannot effect a result that contravenes clear statutory limitations; a delegate cannot exercise power in a manner inconsistent with the parent Act. No delegation instrument was produced; and even assuming delegation, it could not validate exercise of revision by a coordinate officer where Section 57(1)(a) requires subordination. Ratio vs. Obiter: Ratio - Section 57(1)(a) does not permit an officer of coordinate rank to exercise revisional jurisdiction over an order of another officer of equal rank; delegation cannot be used to circumvent the statutory requirement of subordination. Obiter - discussion that courts prefer interpretations consistent with statutory scheme where two interpretations are possible. Conclusion: The Court answered this issue against the Revenue and in favour of the assessee, holding that the revisional exercise by the Deputy Commissioner (Administration) over the Deputy Commissioner (Appeals) was impermissible under Section 57(1)(a). Issue 3 - Validity of rectification under Section 62 where Tribunal earlier missed lack of jurisdiction of revisional authority Legal framework: Section 62 empowers the Tribunal to rectify mistakes apparent on the face of the record; the power is limited and confined to correcting patent errors, not to rehear or re-decide issues afresh. Precedent treatment: The Tribunal had initially failed to appreciate the jurisdictional defect and later, relying on a rectification application, set aside the revisional order; the Court evaluated whether that exercise exceeded the limited rectification jurisdiction and considered prior precedents relied upon by the Tribunal and by the revising authority. Interpretation and reasoning: The Court found that the Tribunal's earlier omission - failure to recognise that the revising officer lacked jurisdiction because the appellate officer was not subordinate - was a glaring error apparent on the face of the record. Given that the error was jurisdictional and that binding precedents had been overlooked, the Tribunal's subsequent exercise of Section 62 to set aside the revisional order fell within the narrow corrective power conferred by the provision. The Court also noted that limited rectification powers cannot be used to contravene statutory scheme; here the rectification restored conformity with statute and precedent. Ratio vs. Obiter: Ratio - where a tribunal's earlier order contains an error apparent on the face of the record that goes to jurisdiction (e.g., revisional officer lacked statutory competence because of non-subordination), the Tribunal may, under Section 62, correct that error by setting aside the invalid revisional order. Obiter - reaffirmation of the limited scope of Section 62 but recognition that jurisdictional defects qualify as mistakes apparent on the face of the record. Conclusion: The Court upheld the Tribunal's rectification under Section 62 and answered the issue against the Revenue and in favour of the assessee, holding that the Tribunal did not exceed its limited rectification powers in the facts of this case. Cross-reference and net outcome All three referred questions were answered against the Revenue and in favour of the assessee: (a) the appellate order merged with the original assessment insofar as the appealed component was concerned; (b) Section 57(1)(a) precludes revision by an officer of coordinate rank over an order of another officer of equal rank, and delegation cannot validate such an exercise; and (c) the Tribunal validly exercised its limited rectification power under Section 62 to correct a jurisdictional error apparent on the face of the record.