TMI Blog1972 (3) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... s are couched it seems to us that a determinative issue arises in this case-the department taking the stand that the returns filed by the assessees are incorrect and incomplete, whereas the assessees contend that their returns are correct and that the accounts of the wholesale dealers which formed the basis of the information of the sales tax authorities were wrong and incorrect. - C.A. Nos. 572, To 575 of 1972, - - - Dated:- 15-3-1972 - BHAGWATI P.N., SARKARIA R.S. AND MURTAZA FAZAL ALI S. JJ. S.V. Gupte, Senior Advocate, (in C.A. No. 572 of 1972) (K.M.K. Nair and A.C. Pudissery, Advocates, with him), for the appellant. T.A. Ramachandran, amicus curiae, for the respondents. -------------------------------------------------- The judgment of BHAGWATI and SARKARIA, JJ., was delivered by BHAGWATI, J. FAZAL ALI, J., delivered a separate judgment. Page No: 480 BHAGWATI, J.- The facts giving rise to these appeals are set out in the judgment about to be delivered by our learned brother S. Murtaza Fazal Ali, J., and we do not think it necessary to reiterate them. So far as Civil Appeals Nos. 572-574 of 1972 are concerned, it would be sufficient to state br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x, West Bengal [1954] 26 I.T.R. 775 (S.C.); [1955] 1 S.C.R. 941., that a taxing officer "is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law", but that does not absolve him from the obligation to comply with the fundamental rules of justice which have come to be known in the jurisprudence of administrative law as principles of natural justice. It is, however, necessary to remember that the rules of natural justice are not a constant: they are not absolute and rigid rules having universal application. It was pointed out by this Court in Suresh Koshy George v. University of Kerala [1969] 1 S.C.R. 317. that "the rules of natural justice are not embodied rules" and in the same case this Court approved the following observations from the judgment of Tucker, L.J., in Russel v. Duke of Norfolk [1949] 1 All E.R. 109.: "There are, in my view, no words which are of universal application to every kind of inquiry and every kind of domestic tribunal. The requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into the statutory provision empowering the taxing authorities to assess the tax. Section 17, sub- section (3), under which the assessment to sales tax has been made on the assessee provides as follows: "If no return is submitted by the dealer under sub-section (1) within the prescribed period, or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority shall, after making such enquiry as it may consider necessary and after taking into account all relevant materials gathered by it, assess the dealer to the best of its judgment: Provided that before taking action under this sub-section the dealer shall be given a reasonable opportunity of being heard and, where a return has been submitted, to prove the correctness or completeness of such return." It is clear on a plain natural construction of the language of this provision that it empowers the Sales Tax Officer to make a best judgment assessment only where one of two conditions is satisfied: either no return is submitted by the assessee or the return submitted by him appears to the Sales Tax Officer to be incorrect or incomplete. It is only on the existence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale dealers on the basis of whose books of account the Sales Tax Officer disbelieved the account of the assessee and came to the finding that the returns submitted by the assessee were incorrect and incomplete. But it is not necessary for the purpose of the present appeals to decide this question since we find that in any event the assessee was entitled to this opportunity under the second part of the proviso. The second part of the proviso lays down that where a return has been submitted, the assessee should be given a reasonable opportunity to prove the correctness or completeness of such return. This requirement obviously applies at the first stage of the enquiry before the Sales Tax Officer comes to the conclusion that the return submitted by the assessee is incorrect or incomplete so as to warrant the making of a best judgment assessment. The question is what is the content of this provision which imposes an obligation on the Sales Tax Officer to give and confers a corresponding right on the assessee to be afforded a reasonable opportunity "to prove the correctness or completeness of such return". Now, obviously "to prove" means to establish the correctness or completeness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the right conferred on the assessee by the second part of the proviso and that vitiated the orders of assessment made against the assessee. We do not wish to refer to the decisions of various High Courts on this point since our learned brother has discussed them in his judgment. We are of the opinion that the view taken by the Orissa High Court in Muralimohan Prabhudayal v. State of Orissa [1970] 26 S.T.C. 22., and the Kerala High Court in M. Appukutty v. State of Kerala [1963] 14 S.T.C. 489., and the present cases represents the correct law on the subject. We accordingly dismiss the appeals with no order as to costs. FAZAL ALI, J.- These appeals by special leave involve an interesting question of law as to the interpretation of section 17(3) of the Kerala General Sales Tax Act, 1963-hereinafter referred to as "the Act"-and the proviso thereof read with rule 15 framed under the Act. The assessment years in question are 1965-66, 1966-67 and 1967-68 in the case of the respondent K.T. Shaduli in Civil Appeals Nos. 572-574 of 1972 and 1967- 68 in the case of Nallakandy Yusuff in Civil Appeal No. 575 of 1972. But both the cases involve an identical question of law. In this vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examination of which later on showed that the returns filed by the assessees were incorrect and incomplete. The High Court, on a consideration of section 17(3) and the Rules made under the Act came to the conclusion that the assessees were entitled to a fair hearing and the opportunity of being heard could not be said to be complete unless in the circumstances of these cases the assessees were allowed to cross-examine Haji P.K. Usmankutty and other wholesale dealers on whose accounts reliance was placed by the sales tax authorities. A provision of law authorising the taxing authorities to make a best judgment assessment in default of the assessee complying with the legal requirements is not a new one, but existed in section 23(4) of the Income- tax Act, 1922, as amended by the Indian Income-tax (Amendment) Act, 1939, the relevant part of which runs thus: "If any person fails to make the return required by any notice given under sub-section (2) of section 22 and has not made a return or a revised return under sub-section (3) of the same section or fails to comply with all the terms of a notice issued under sub-section (4) of the same section or, having made a return, fails to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where agreeing with a similar argument put forward by the Solicitor- General in that case, this Court observed thus: "As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of section 23 of the Act, the Income-tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under section 23(3)." There can be no doubt that the principle that as the tax proceedings are of quasi-judicial nature, the sales tax authorities are not strictly bound by the rules of evidence which means that what the authorities have to consider is merely the probative value of the materials produced before them. This is quite different from saying that even the rules of natural justice do not apply to such proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose to the assessee at all; and (4) in case he proposes to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information so proposed to be utilised to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and should further give him ample opportunity to meet it, if possible." It will thus be noticed that this Court clearly laid down that while the Income-tax Officer was not debarred from relying on any material against the assessee, justice and fair play demanded that the sources of information relied upon by the Income-tax Officer must be disclosed to the assessee so that he is in a position to rebut the same and an opportunity should be given to the assessee to meet the effect of the aforesaid information. We, however, find that so far as the present appeals are concerned, they are governed by the provisions of the Kerala General Sales Tax Act, the provisions of which are not quite identical with the provisions of the Income-tax Act, and the Kerala Act appears to have fully incorporated all the essential principles of natural justice in secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n if the assessee had committed default in not filing the return. Since the statute itself contemplates that the assessee should be given a reasonable opportunity of being heard, we are not in a position to agree with the contention of the learned counsel for the appellant that if such an opportunity is given, it will amount to condonation of default of the assessee. The tax proceedings are no doubt quasi-judicial proceedings and the sales tax authorities are not bound strictly by the rules of evidence, nevertheless the authorities must base their order on materials which are known to the assessee and after he is given a chance to rebut the same. This principle of natural justice which has been reiterated by this Court in the decisions cited above has been clearly incorporated in section 17(3) of the Act as mentioned above. The statute does not stop here, but the second part of the proviso confers express benefit on the assessee for giving him an opportunity not only of being heard but also of proving the correctness or completeness of such return. In view of this provision, it can hardly be argued with any show of force that if the assessee desires the wholesale dealers whose ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Jayantilal Thakordas v. State of Gujarat [1969] 23 S.T.C. 11. In the first place the Gujarat High Court in that case was concerned with the Bombay Sales Tax Act which did not contain any express provision like the one which is to be found in the second part of the proviso to section 17(3) of the Kerala General Sales Tax Act and, therefore, any decision given by the Gujarat High Court would have no application to the facts of the present appeals. In Jayantilal Thakordas's case(2), the court was merely called upon to interpret the impart of the words "reasonable opportunity of being heard" and the Judges held that as ample opportunity was given to the assessee concerned to show cause why the sales said to have been suppressed by him should not be included in his turnover, the rules of natural justice were duly complied with. The court further pointed out that the sales tax authorities were not strictly bound by the rules of evidence nor did the Act require the assessing authorities to do more than what they had done in that case. The Gujarat High Court seems to have dissented from the view taken by a single Judge of the Kerala High Court in M. Appukutty v. State of Kerala [1963] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot give jurisdiction to the assessing authority to use that information unless the assessee has been given an opportunity to cross-examine him effectively. As no such opportunity was given, the Court held that the proceedings stood vitiated. In our opinion, the decision of the Kerala High Court was substantially correct and in consonance with the language of section 17(3) and the proviso thereto. Other cases have also been cited before us, which, however, are based on the peculiar language of the statutes which the courts were construing and which are different from the language used in the Act. Finally, apart from the provisions of section 17(3) and the proviso thereto, the rules further reiterate what the proviso contemplates. Rule 15, which deals with provisional assessment where a return is incorrect and incomplete, runs thus: "If the return submitted by the dealer appears to the assessing authority to be incorrect or incomplete, the assessing authority shall, after issuing a notice to the dealer calling upon him to produce his accounts to prove the correctness or completeness of his return at a time and place to be specified in the notice and after scrutiny of the acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
