TaxTMI 
TaxTMI 
1960 (10) TMI 65
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....r as the basis of his assess ment 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." The High Court answered the question as follows: "The applicant company is liable to pay tax for the assessment year 1948-1949 on the turnover of the previous year in respect of sales of non- edible oils at the flat rate of 3 pies per rupee." Against the order of the High Court recording its answer, this appeal with special leave is preferred. The facts which give rise to the appeal are briefly these: The Modi Food Products Co., Ltd., hereinafter referred to as "the assessee", manufactures oils, edible and non-edible, in its factory at Modinagar, District Meerut, State of Uttar Pradesh. The assessee is registered as a "dealer" under the United Provinces Sales Tax Act (XV of 1948). The assessee's year of account co....
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.... manner as may be prescribed. By the proviso, the Government was authorised to prescribe that any dealer or class of dealers may submit in lieu of the return or returns specified in that section, a return or re turns of his turnover of the assessment year at such intervals as may be prescribed. Provision was made by the Act for appeals against the order of assessment and revision against the order of the appellate authority. By section 11, the High Court of Judicature at Allahabad was authorised to decide questions of law raised in any case in the course of assessment and referred to it on a statement of the case drawn up by the Revising Authority. By section 24, the Provincial Government was invested with power to make rules to carry out the purposes of the Act and in particular in respect of certain specified matters. In exercise of the powers conferred by section 24 of the Act, the Government of U.P. framed rules. Rule 39 of the U.P. Sales Tax Rules gave to every dealer an option to submit his return of the turn over of the assessment year in lieu of the return of the turnover of the previous year. A dealer who did not carry on business during the whole of the previous....
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....of this notification, non-edible oils became liable to a single point tax as from June 9, 1948, at the time of sale by an importer or manufacturer in the United Provinces. The assessee submitted its return for the assessment year 1948-49 on its taxable turnover of the previous year ending on May 31, 1947, to the Sales Tax Officer, Meerut Range. On the assessee's return, the Sales Tax Officer assessed the tax at Rs. 1,16,238-12-0, holding that sales of non-edible oils for the first 69 days out of the year of the turnover were to be taxed at the rate of 3 pies, and sales for the remaining 296 days were to be taxed at the rate of 6 pies per rupee. Against the order passed by the Sales Tax Officer, Meerut Range, an appeal was preferred to the Judge (Appeals), Sales Tax, under section 9 of the Act. The appellate authority modified the order and directed the assessee to pay tax on non-edible oils on the turnover of the previous year at the flat rate of 3 pies per rupee and reduced the tax liability to Rs. 1,08,477-0-3. This order of the Judge (Appeals) was set aside by the revising authority and the order of the Sales Tax Officer was restored. On a direction made by the High Co....
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....or making adjustments in the liability to tax on ascertainment of the actual turnover at the end of the year of assessment. The Government of the United Provinces had by notification dated June 8, 1948, altered the rate of tax in the matter of various commodities including nonedible oils with effect from June 9, 1948. The Sales Tax Officer was right in his view that the levy of tax at the altered rate was not to operate on sales effected before June 9, 1948. Initially, when the liability of the assessee to pay tax on edible oils for the assessment year arose, the rate was undoubtedly 3 pies per rupee on the turnover, and the question which falls to be determined is whether by reason of the alteration of the rate and its incidence in the course of the year, the assessee became liable to pay tax at the higher rate on a part of the turnover of the previous year and if so, on what basis. A tax payer who adopted the previous year's turnover had under section 7 and rule 40 to submit his return within sixty days of the commencement of the assessment year, and no provision for submission of any supplementary returns in the case of alteration of rates in the course of the year was....
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....one year the date on which the alteration is made in the rate or incidence will be manifestly inappropriate. The method of division of the turnover proportionate to the period of the assessment year before the alteration of the rate and after such alteration though prospective, must be deemed to have been made retrospectively in the previous year, and on a day which is removed from the commencement of the year of account by the number of days by which the date of alteration of rate is removed from the commencement of the year of assessment. But the adoption of the turnover of the previous year as the taxable turnover for the year of assessment is itself based on a fiction and in the absence of any express provision either in the Act or the rules or even in the notification setting out machinery for such a division of the year, we are unable to hold that this scheme of a fictional division may be projected into the previous year to make an artificial division of the turnover for imprinting there on the altered rate of assessment as from the date of the division. Counsel for the State of Uttar Pradesh submitted several hypothetical cases suggesting that by refusing to adopt this meth....
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....in cases not governed by that provision, no alteration in the liability was permissible when the taxable turnover was based on the previous year's turnover. It is not provided that in giving effect to the alteration of the rate during the course of the year of assessment an artificial division of the turnover of the previous year should, in applying the altered rate be made. The Legislature having failed to provide machinery for working out the liability, the attempted projection becomes unworkable. A legal fiction must be limited to the purposes for which it has been created and cannot be extended beyond its legitimate field, 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....
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....hall not be included in the turnover of any dealer except at such single point in the series of sales by successive dealers as may be prescribed. (2) If the Provincial Government makes a declaration under sub- section (1) of this section, it may further declare that the turnover of the dealer, in whose turnover the sale of such goods is included, shall, in respect of such sale, be taxed at such rate as may be specified not exceeding one anna per rupee if the sale relates to goods specified below. (A list of goods was then set out) and nine pies per rupee if it relates to any other goods." Non-edible oil which is the commodity with the sale of which the assessment in the present appeal is concerned is not in the list of goods set out in section 3-A and would therefore be covered by the residuary clause of the section. The U.P. Government issued the following notification dated June 8, 1948, under section 3-A of the Act: "In exercise of the powers conferred by section 3-A of the United Provinces Sales Tax Act, 1948, as amended by the United Provinces Sales Tax (Amendment) Act, 1948, the Governor is hereby pleased to declare that with effect from June 9, 1948, the ....
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....ssee exercised the option of being assessed on the basis of the turnover of the previous year under section 7(1) of the Act and in respect of the first assessment year after the Act came to force-assessment year 1948-49-it filed a return in respect of the turnover of its previous year June 1, 1946, to May 31, 1947. The total turnover of the assessee during this period was Rs. 63,02,849-7-7. The Sales Tax Officer by his order dated March 12, 1949, assessed the turnover in respect of edible oil at 3 pies per rupee. As regards the sale of non-edible oil, the Sales Tax Officer held that since the notification set out above under section 3-A had come into force as and from June 9 of the assessment year, the assessee was liable to be assessed at 3 pies per rupee on the turnover during the first 69 days of the year and at 6 pies per rupee in respect of the remaining days of the year and he computed the tax accordingly. The assessee preferred an appeal to the Judge (Appeals), Meerut Range, Meerut, against the order of the Sales Tax Officer. This officer allowed the appeal of the assessee and held that the entire turnover was liable to be taxed only at a flat rate of 3 pies per ru....
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....ssee could not be charged at the rates prescribed by the notification unless the new rates operated retrospectively; (2) that section 3-A which was introduced into the parent Act (Act XV of 1948) by the Amending Act XXV of 1948 was not enacted with retrospective effect. Though the charge imposed by section 3(1) of the Act read with section 7(1) imposed tax retrospectively as and from April 1, 1948, section 3-A did not on its terms so operate as and from that date. Hence the liability of the assessees which had become fixed under Act XV of 1948, as it originally stood, could not be and was not varied by section 3-A and would not therefore be affected by any notification issued under the last mentioned provision; (3) that a notification under section 3-A could not have retrospective effect since section 3-A itself did not operate of its own force and merely empowered the Government, by a notification, to effect changes in the law and hence such changes when notified could not operate as from any date prior to the date of the notification, (4) section 3-A which used the words "in respect of such sales" contemplated particular sales taking place after the notification i....
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....licable to those assessees who had opted for the previous-year-turnover basis, necessary adjustments could not be made in their assessment for lack of specific machinery to achieve the same. From this he argued that the scheme of the Act was that in the case of the previous-year-turnover assessees, to use a convenient phrase, the tax liability had to be determined on the state of the law as it prevailed on the 1st day of the assessment year and that it got fixed and crystallised on that date and remained unaffected by any changes in the law effected during the course of the assessment year. In view of these additional submissions, we consider that it would be convenient to examine the entire argument of learned counsel for the respondent under three heads into which they naturally fall: (1) Does the Act, read in conjunction with the rules framed to give effect to its provisions, contemplate any difference being drawn between the basis of the tax liability (as distinct from the quantum of the turnover) of those assessees who have opted for the "previous-year- turnover" and "the assessment-year-turnover" assessees. (2) Is there any sound basis for the co....
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....e of assessment, it enacts by section 7(1), we have extracted earlier, a provision providing an option to dealers who have been in business in the year previous to the taxing enactment, to be assessed either on the turnover of the previous year, when owing to the absence of the Act their sales were not subject to tax or on the turnover of the current year. But whichever be the turnover adopted, the rate of tax or the determination of the particular sale proceeds whose total constitutes the taxable turnover, i.e., after the exclusion of the sale proceeds of the commodities listed in section 4, does not vary. In other words, though the figure of turnover might vary between those who have opted for the one or the other mode of assessment due to the volume of the sales, no difference is maintained in the Act as regards the incidence of the tax, i.e., either in the principle underlying the computation of the total turnover or in the rate or rates applicable to the sales of particular goods or on the total turnover. This can only be on the premise or implicit assumption that the sales of the previous year are treated by the Act for the purpose of computing tax liability as the sales of t....
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....for reassessment or refunds in the event of any change in the law effected after the commencement of the financial year, it had necessarily to be held that the liability of the "previous- year-turnover" assessee got crystallised as on the 1st of April of the assessment year and that the Act did not contemplate this being disturbed by any subsequent changes in the substantive law relating to assessment during the assessment year. It was said that the tax liability of the dealer who had opted for the "previous year" basis had to be determined on foot of two factors and only two: (1) the turnover of the sales of the previous year which is a definite and known figure by the 31st of March of the previous year, and (2) the rate of tax on the turnover as it prevailed on the 1st of April of the assessment year when it was said that there was a "crystallisation" of the liability to tax. It was pointed out that it was possible for an assessee to submit his return on the basis of the "previous-year-turnover" even on the 1st of April of the assessment year and there being no legal impediment in the way of the figures returned by the dealer being accepted the assessment might con- ceivabl....
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....he power to effect reductions only pros- pectively as distinguished from reductions having retrospective effect. If a reduction were effected say in January or February of the year, having effect as and from the 1st April preceding, on the very argument advanced, counsel for the respondent would have to concede, that the reduced rate would govern the liability of even those dealers who were assessed on the basis of their turnover of the previous year. Let us first take a case where such a reduction in the rate is notified to be effective before an assessee submits his return. In such a case, the benefit in the reduction of the rate could not be withheld from the previous-year-turnover dealers even on the theory of "crystallisation" just now referred to. Let us next take the case of a dealer who has submitted his return of the turnover of the previous year on a date anterior to the notification regarding the alteration of the rate. It might be mentioned that in the return submitted by dealers which has to be in Form IV of Appendix F to the rules, only the total of the sale proceeds of the sales of the classified items of goods have to be set out, but the return does not co....
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....uch cases. Even apart from this, under section 10(2) of the Act the dealer or the department as the case may be may apply to the revising authority for revision of the assessment on the ground that the same is not legal, proper or regular. This section enacts: "The Revising Authority may in its discretion at any time suo motu or on being moved by the Commissioner of Sales Tax or on the application of any person aggrieved, call for and examine the record of any order or proceedings recorded by any appellate or assessing authority under this Act for the purpose of satisfying itself as to the legality or propriety of such order or as to the regularity of such proceedings and may pass such order as he thinks fit." The orders which the Revising Authority could pass might either be by way of enhancement or reduction, and the subsequent sub-sections provide: "10. (4) The Revising Authority shall not pass any order under sub- section (3) adversely affecting any person unless an opportunity has been given to such person to be heard. (5) If the amount of assessment is reduced by the Revising Authority under sub-section (3) it shall order the excess ....
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....act that the returns of the previous-year-turnover dealers are required to or are submitted within the early part of the year, or the contention based on the absence of specific machinery for reassessment or refund are an insufficient basis for holding that a change in the law affecting the basis of tax liability would not affect the previous-year- turnover assessees and that the machinery provided by sections 10 and 22 are adequate to meet the contingencies arising out of the changes being retrospectively effected after the assessments were completed. We shall next proceed to consider whether the change in the law either as regards the computation of the taxable turnover or as regards the rate of tax becoming operative sometime after the year has commenced makes any difference. In the case of the "assessment-year- turnover" dealers, there is no problem because the sales effected during the course of the year would be governed by the law applicable from time to time. The entire basis or theory of the tax being levied on foot of the previous year's turnover is that notwithstanding that factually the sales took place in the previous year they are to be deemed by fiction to have taken....
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....e. The phraseology employed merely means that in the, case of the "assessment-year-turnover" dealers only the sale proceeds of sales effected after the specified date would be governed by the new rates. In the case of the "previous-year-turnover" dealers, the change operates to determine the amount of tax during their assessment year-just in the same manner as the original charge under the Act, of a flat rate of three pies determined the tax payable notwithstanding that none of the sales whose proceeds were included in their turnover were effected during the assessment year. We have already pointed out that the basic idea underlying the provision contained in section 7(1) of the Act is that it projects the turnover of the previous year into the assessment year. Admittedly the Act itself is not retrospective, or designed to levy the charge under section 3(1), on sales effected before April 1, 1948. If sales of the previous year are brought within the taxing pro- vision, it is not because the sales when they took place were subject to tax, but because either (a) the previous year's sales are deemed in law- when the assessee so opts-as the sales of the current year or (b) the previous....
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.... sales of the previous year being attributed to the corresponding dates of the current year. There is no doubt that this mode of computing the proportion, viz., to treat the sales which were effected on various dates of the previous year, as if they were sales on the corresponding dates of the current year and thus to compute the two totals of turnover which would be subject to different rates of duty would not be proper. The impropriety would arise from the fact that the fiction enacted by section 7(1) is not that each day's sale in the previous year is deemed to be a sale on the corresponding date in the current year, but only that the total taxable turnover of the previous year is deemed to be that of the current year. The method to which objection is taken is however not the manner in which the Sales Tax Officer computed the proportion which was affirmed by the judge (Revision). If the total of the sale proceeds of the previous year is deemed to be the total of the current year, there is no illogicality or impropriety in dividing that total in accordance with the number of days in the year in which the different rates prevailed and that is precisely what the Sales Tax Officer d....