1960 (10) TMI 65 - SC - VAT and Sales Tax

Supreme Court Upholds Flat Rate Assessment for Manufacturer and Dealer of Non-Edible Oils

Commissioner of Sales Tax, UP. Versus Modi Sugar Mills Ltd.  

The Supreme Court held that the assessee, a manufacturer and dealer of non-edible oils, was liable to be assessed at a flat rate of 3 pies per rupee on ... Whether the assessee, who is a manufacturer and a dealer of non- edible oils and who elected the previous year as the basis of his assessment in the assessment year 1948-49, is liable to be assessed at the flat rate of 3 pies per rupee on the whole of the turnover of the previous year, or whether he is liable to be assessed at the rate of 3 pies per rupee and 6 pies per rupee on the turnover of the previous year in pro portion to the two periods from 1st April to 8th June, 1948, and from 9th June, 1948, to the 31st March, 1949? Held that:- Appeal dismissed. The turn over of the previous year is fictionally made the turnover of the year of assessment: it is not the actual or the real turnover of the year of assessment. By the imposition of a different tariff in the course of the year, the incidence of tax liability may competently be altered by the Legislature, but for effectuating that alteration, the Legislature must devise machinery for enforcing it against the taxpayer and if the Legislature has failed to do so, the Court cannot resort to a fiction which is not prescribed by the Legislature and seek to effectuate that alteration by devising machinery not found in the statute. We are therefore of the view that the conclusion of the High Court is correct. Issues Involved:1. Liability to be assessed at a flat rate versus a variable rate for different periods.2. Retrospective application of tax rates.3. Interpretation of statutory provisions and notifications.4. Machinery for reassessment and refund.5. Legal fiction and its implications on tax liability.Issue-wise Detailed Analysis:1. Liability to be assessed at a flat rate versus a variable rate for different periods:The primary issue was whether the assessee, a manufacturer and dealer of non-edible oils, should be assessed at a flat rate of 3 pies per rupee on the whole turnover of the previous year or at different rates (3 pies per rupee and 6 pies per rupee) for different periods within the assessment year 1948-49.The High Court had ruled that the assessee was liable to pay tax at a flat rate of 3 pies per rupee, rejecting the application of different rates for different periods. The Supreme Court, however, had to determine if the alteration in rates during the year should be retrospectively applied to the turnover of the previous year.2. Retrospective application of tax rates:The Supreme Court examined whether the notification dated June 8, 1948, which altered the tax rate to 6 pies per rupee effective from June 9, 1948, could be applied retrospectively to the turnover of the previous year. The Court noted that the Act did not provide explicit provisions for such retrospective application and highlighted the absence of any machinery for dividing the turnover of the previous year into periods for applying different rates.3. Interpretation of statutory provisions and notifications:The Court analyzed the relevant sections of the United Provinces Sales Tax Act (XV of 1948) and the subsequent amendments. Section 3 and Section 3-A were identified as the charging sections, establishing the liability to pay sales tax based on the total turnover. The Court emphasized that the tax is levied in respect of the assessment year, not the previous year, and the rate applicable is the rate in force during the assessment year.4. Machinery for reassessment and refund:The Court underscored the lack of provisions in the Act for reassessment or refund in cases where the tax rate was altered during the assessment year. The absence of any method for submitting supplementary returns or making retrospective modifications to assessments once made was highlighted, making it challenging to apply different rates to the turnover of the previous year.5. Legal fiction and its implications on tax liability:The Court discussed the legal fiction created by the Act, which allows the turnover of the previous year to be treated as the taxable turnover for the assessment year. However, the Court noted that this fiction should be limited to its intended purpose and not extended beyond its legitimate field. The Court concluded that projecting the division of the assessment year into the previous year for applying different rates was unworkable without explicit legislative provisions.Conclusion:The majority opinion, delivered by Shah, J., held that the High Court's conclusion was correct. The appeal was dismissed, and it was determined that the assessee was liable to be assessed at the flat rate of 3 pies per rupee on the whole turnover of the previous year. The Court emphasized that equitable considerations and assumptions could not be used to interpret taxing statutes, and any changes in tax liability must be clearly expressed by the Legislature.Dissenting Opinion:Rajagopala Ayyangar, J., disagreed with the majority opinion. He argued that the notification under Section 3-A should apply to determine the rate of tax payable by the assessee on the turnover of the previous year. He emphasized that the Act did not differentiate between the basis of tax liability for 'previous-year-turnover' and 'assessment-year-turnover' assessees and that the tax liability should be determined based on the law prevailing throughout the assessment year.