Dunlop India Ltd. And Anr. vs Assistant Commissioner Of Sales Tax And ...

1. The first petitioner is the Dunlop India Ltd., Kaloor, a public limited company, incorporated under the Companies Act, 1950. The second petitioner is a shareholder of the company. The petitioners seek to quash the assessment orders, exhibits P-4(a), P-4(b), P-4(c) and P-4(d) all dated January 31, 1984, assessing the company to sales tax for the years 1976-77, 1977-78, 1978-79 and 1979-80, respectively.

2. The first petitioner-company is engaged in the manufacture of tyres, tubes and other rubber products. It has two factories, one in West Bengal and another in Tamil Nadu. The company purchases natural rubber from Kerala and despatches the same to its factories in West Bengal and Tamil Nadu for use in its manufacturing process. According to the petitioner, the purchase turnover of rubber was subjected to tax under Section 5A(1)(c) of the Kerala General Sales Tax Act, 1963, and assessed as per the impugned orders of assessment. The petitioners in the original petition have challenged the validity of Section 5A(1)(c) of the Act as unconstitutional and beyond the competence of the State Legislature for the reason of entry 92 B of List I of the Seventh Schedule to the Constitution. Rubber cess, according to the petitioners, cannot form part of the taxable turnover of the assessee and, if assessable, the cess determined is arbitrary. The assessee had no opportunity to prove the actual amount of rubber cess paid, even if the same is to be included in the taxable turnover of the assessee.

3. Learned Senior Government Pleader, appearing on behalf of the Department, points out that the assessment in this case is not under Section 5A(1)(c), but under Section 5 in respect of rubber excluding synthetic rubber falling under entry 38 of the First Schedule to the Kerala General Sales Tax Act. According to learned Senior Government Pleader, rubber cess paid forms part of the purchase turnover of the assessee and its estimate by the assessing authority cannot be said to be arbitrary or in violation of the principles of natural justice as the petitioner-company was given a pre-assessment notice proposing the estimate.

4. In view of entry 38 of the First Schedule to the Kerala General Sales Tax Act, learned counsel for the petitioners does not press the plea of invalidity of Section 5A(1)(c) of the Act. A Division Bench of this court in the decision reported in Deputy CST v. Bata India Ltd. [1986] 62 STC 436, has held that rubber cess paid forms part of the price of rubber purchased and hence also forms part of the purchase turnover of the purchasing dealer. I, therefore, overrule the contention of learned counsel, Sri Pathrose Mathai, that rubber cess paid cannot be included in the purchase turnover of the assessee.

5. The only other contention raised by learned counsel for the assessee is against the arbitrary estimate of rubber cess paid as in violation of the principles of natural justice. The assessee has no objection to the taxable turnover determined except as regards rubber cess. Exhibits P-1(a), P-1(b), P-1(c) and P-1(d) are the pre-assessment notices proposing estimates of rubber cess as equal to the purchase value of rubber during the assessment years in question. These notices require the assessee to file objections to the pre-assessment notice within seven days from the date of receipt of the same. Exhibit P-1(a) is dated January 20, 1984, and the same was received by the assessee on January 24, 1984. Exhibits P-1(b) and P-1(c) are dated January 24, 1984, and were received the same day. Exhibit P-1(d) is dated January 25, 1984. It was apparently received within a short time thereafter. All these notices allow seven days' time to the assessee to file objections to the assessment proposed. The seven days' time allowed as per exhibits P-1 (a), P-1 (b) and P-1 (c) expires only on January 31, 1984, and the time allowed under exhibit P-1(d) expires on February 1, 1984, or thereafter. The assessment orders, exhibits P-4(a), P-4(b), P-4(c) and P-4(d), were passed on January 31,1984, even before the time granted for filing objection had expired. The assessee-company had, by exhibit P-2 dated January 31, 1984, inter alia, prayed for one month's time to furnish details of the rubber cess paid for the reason that payments were effected by the head office at Calcutta and that the details have to be gathered from the head office. Particulars relating to the rubber cess paid were, in fact, furnished as per exhibit P-3 dated February 13, 1984, but before that date, the assessing authority had already passed the assessment orders on January 31, 1984. On these facts, there cannot be any doubt that the assessment orders, exhibit P-4 series, are in violation of the principles of natural justice as the assessee had no opportunity to furnish the particulars relating to the rubber cess paid. The estimate of rubber cess proposed under exhibit P-1 series, pre-assessment notices, was equal to the purchase value of rubber. In exhibit P-3, the assessee has stated that the cess payable up to August 1975 was at the rate of Rs. 300 per ton and from September 1975, at the rate of Rs. 400 per ton. In paragraph II of the original petition, the petitioners have stated that the rate of cess payable under the Rubber Act is fixed by a notification issued by the Central Government and it was fixed initially at 30 paise per kilogram of rubber and was later enhanced to 40 paise per kilogram. The estimate of rubber cess as equal to the purchase value of rubber is, to say the least, arbitrary. The orders of assessment, exhibits P-4(a), P-4(b), P-4(c) and P-4(d), are, therefore, unsustainable in so far as they relate to the estimate of rubber cess, for the reason of its arbitrary nature and also for violation of the principles of natural justice.

6. Learned Senior Government Pleader, however, submits that these orders of assessment are not liable to be quashed for the reason of the alternative remedies provided under the Act. It is pointed out that the assessee has a right of appeal to the appellate authority under Section 34 of the Act, there is a right of second appeal to the Tribunal under Section 39 and a right of further revision to this court under Section 41 of the Act.

7. Since the Kerala General Sales Tax Act is a self-contained code providing for such alternative remedies, learned Government Pleader contends that it is not open to this court to issue a writ quashing the impugned orders of assessment. In Ponkunnam Traders v. Addl. ITO, Kottayam [1972] 83 ITR 508 (Ker), Mathew J., dealing with a case arising under the Income-tax Act, held that the failure to conform to the principles of natural justice would make a judicial or quasi-judicial order void, and such an order cannot be validated by the appellate or revisional orders. The decision in Ponkunnam Traders v. Addl. ITO [1972] 83 ITR 508 (Ker) was confirmed in appeal by a Division Bench of this court in Addl. ITO v. Ponkunnam Traders [1976] 102 ITR 366. The Supreme Court in Coffee Board v. Joint CTO [1970] 25 STC 528 states at page 535 :

"In Smt. Ujjam Bai's case [1963] 1 SCR 778, the question was whether assessment of sales tax under a valid Act was open to challenge under Article 32 on the ground of misconstruction of the Act or a notification under it. It was held that the answer was in the negative. That case has given some trouble in view of the different opinions expressed in it. It is, therefore, necessary to state simply the propositions which are settled by this court. The ruling recognises the existence of a right to move this court under Article 32 where the action is taken under an ultra vires statute, or where, although the statute is intra vires, the action is without jurisdiction or the principles of natural justice are violated. Errors of law or fact committed in the exercise of jurisdiction founded on a valid law do not entitle a person to have them corrected by way of petitions under Article 32, It is also pointed out that the proper way to correct them is to proceed under the provisions for appeal, etc., or by way of proceedings under Article 226 before the High Court."

8. In Titaghur Paper Mills Co. Ltd. v. State of Orissa [1983] 53 STC 315, the Supreme Court held that relief under Article 226 of the Constitution will be declined in cases where the assessment is arbitrary and unjust and capable of correction by resort to the statutory remedy of appeal except in cases where there is total lack of jurisdiction or the order impugned is in violation of the rules of natural justice. Distinguishing the decision in State of U. P. v. Mohammad Nooh [1958] SCR 595, the Supreme Court observed at page 320 :

"The decision in Mohammad Nooh's case [1958] SCR 595, is clearly distinguishable as in that case there was total lack of jurisdiction. There is no suggestion that the learned Sales Tax Officer had no jurisdiction to make an assessment. Nor can it be contended that he had acted in breach of rules of natural justice."

9. Breach of the rules of natural justice is thus placed on par with total lack of jurisdiction. In State of Kerala v. K.T. Shaduli Yusuff [1977] 39 STC 478 (at page 481) ; AIR 1977 SC 1627, the Supreme Court observed at page 1629 :

"Now, the law is well-settled that tax authorities entrusted with the power to make assessment of tax discharge quasi-judicial functions and they are bound to observe principles of natural justice in reaching their conclusions. It is true, as pointed out by this court in Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 ; [1955] 1 SCR 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,"

10. On the facts of the case, it is clear that even before the time granted for filing objections to the pre-assessment notices had expired, the assessing authority had passed the impugned orders of assessment rendering the same void as violative of the rules of natural justice. When the order is void for violation of natural justice, the alternative remedy provided under the statute cannot be urged as a bar against the issue of a writ of certiorari under Article 226 of the Constitution.

11. For the aforesaid reasons, I quash exhibits P-4(a), P-4(b), P-4(c) and P-4(d) orders of assessment in so far as they relate to the purchase turnover on rubber cess paid by the assessee, and direct the first respondent to pass fresh orders of assessment giving the assessee-company an opportunity to prove the actual amount of rubber cess paid during the relevant period. The assessing authority will pass fresh orders within three months from today.

12. The original petition is allowed as indicated above. There will be no order as to costs.