Commissioner Of Commercial Taxes, Bangalore v. A. Vaikuntappa Setty And Company And Others (this Case Has Been Referred To In [1999]

In this group of appeals the short question which arises for consideration is whether action purported to have been taken under section22-A of the Karnataka Sales Tax Act, 1957 (hereinafter called "the Act") could be said to have been taken within the period of limitation prescribed thereunder. In order to appreciate the issue it would be advantageous to extract section 22-A in its entirety.

"22-A. Revision by the Commissioner (or Joint Commissioner) of orders prejudicial to revenue. - (1) The Commissioner (or Joint Commissioner) may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by any officer subordinate to him is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

(2) The power under sub-section (1) shall be exercisable only within a period of four years from the date of the order sought to be revised was passed.

Explanation. - In computing the period of limitation for the purposes of sub-section (2), any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded." *

2. The factual matrix may be briefly noticed with reference to one of the appellants. For the assessment year 1970-71 the purchase turnover of paddy effected by the appellant amounting to Rs. 12, 69, 286.25 and Rs. 29, 93, 521.26 was brought to tax by the Commercial Tax Officer under assessment orders dated September 29, 1973 and April 30, 1974 respectively. The appellant preferred appeals to the Deputy Commissioner of Commercial Taxes (Appeals) contending that the paddy converted into rice could not be said to have undergone a manufacturing process and hence his turnovers were not exigible to tax under section6 of the Act. The Deputy Commissioner following a Division Bench judgment in State v. B. Raghurama Shetty (Kar) allowed the appeals by his order dated March 14, 1975. The matter was brought to this Court and on March 24, 1981 this Court allowed the States appeal from the Division Bench judgment on which the decision of the Deputy Commissioner had been based. [vide State of Karnataka v. B. Raghurama Shetty (SC)].

3. While the proceedings were pending in this Court in respect of the Division Bench judgment, on March 18, 1977 the Deputy Commissioner forwarded the records of his office to the Commissioner of Commercial Taxes, Karnataka, for needful action. The records were received by the Commissioner on March 23, 1977. The office of the Commissioner thereupon prepared a note, paragraph 3 of which read as under :

"The above cases may lie over till the Supreme Courts decision in B. R. Shettys case is received as we cannot initiate action under section 22-A for the present." *

4. On the basis of this note the Commissioner approved the suggestion in paragraph 3 on July 8, 1977. This Court rendered its decision on March 24, 1981 and it was thereafter that the Commissioner issued show cause notice on May 27, 1981 purporting to exercise power under section22-A of the Act. The assessee contends that the exercise of this power is delayed beyond the period of limitation which had expired and, therefore, notices were issued by the Commissioner illegally and are liable to be quashed. However, the contention of the Revenue was that since the files were placed before the Commissioner and the Commissioner took a decision in paragraph 3 of the note extracted above, he could be said to have initiated action in exercise of the power conferred upon him by that section and, therefore, the notices were not barred by limitation. In the show cause notice issued by the Commissioner it is averred that the notice is not barred by limitation for the reason "in your case the records have been received for examination in this office on March 23, 1977 which date is well within the period of limitation and, therefore, action under section 22-A in your case is not barred by limitation". The question is whether this approach of the Commissioner is correct We think not.

5. It is clear from the plain language of sub-section (2) of section 22-A that the power conferred on the Commissioner could be exercised within a period of four years from the date of the order sought to be revised. There is no dispute that this stage had long expired when the show cause notice was issued to the assessee. There was no order of stay or injunction issued in that behalf to extend the period of limitation as provided by the explanation to that section. The stand of the department extracted earlier is that since the records were examined on March 23, 1977 the action was initiated within the period of limitation since the limitation whether of 4 years had not then expired; in the case of appellant No. 6, the order of the Deputy Commissioner was of November 4, 1974 and the period of limitation would expire only on November 3, 1978. In other cases also it would expire much later.

6. This stand of the Revenue is not correct for the simple reason that the note extracted earlier clearly suggests that no action was initiated under section 22-A as the judgment of this Court was awaited in B. R. Shettys case which was pending in this Court. Hence it was not possible to initiate any action under section 22-A for the present. The words "we cannot initiate action under section 22-A for the present" leave no room for doubt that no action was initiated and, therefore, it was not correct to state in the show cause notice that since the records had been received for examination on March 23, 1977 the action under section 22-A must be taken to have been initiated on that date. It is also pertinent to note that the facts clearly show that it was the Deputy Commissioner who forwarded the records to the Commissioner on March 18, 1977 and the records were received by the Commissioner on March 23, 1977. Thereafter, the Commissioner had to make up his mind whether or not he considered it necessary to initiate action under section22-A of the Act. In this behalf he accepted the suggestion in paragraph 3 of the departmental note extracted earlier and agreed that he could not initiate action under section 22-A since this Courts decision in B. R. Shettys case was awaited. Whether he was right in doing so or not is not relevant but it is obvious that he did not initiate any action even after the receipt of the records for the reason mentioned in paragraph 3 of the departmental note. We have, therefore, no hesitation in coming to the conclusion that the reason trotted out in the show cause notice for saving the action from being barred by limitation has no basis and cannot stand judicial scrutiny. We are, therefore, of the opinion that the conclusion reached by the High Court in the impugned decision in this behalf is clearly erroneous.

7. In the result, we allow these appeals, set aside the order of the High Court and hold that the show cause notices issued were beyond the period of limitation and cannot be acted upon. There will be no order as to costs.

Appeals allowed.