V. P. GINDRONIYA

STATE OF MADHYA PRADESH & ORS.

January 29, 1970

(M. HIDAYATULLAH,, C.J.,

J. C. SHAH,

K. S, HEGDE,

A. N. GROVER, A. N. RAY AND J. D. DUA, JJ.)

Public Servant-Ai/aster and Servant-Master's right to suspend ser- •vant pending enquiry--No such right expressly provided in contract or -statutoril, v-Ef}ect of order of suspension.

On May 7, 1964, the respondent-State ordered a departmental enquiry C against the appellant who was a temporary public servant in its service and placed him Under suspension pending the enquiry. On June 6, 1964 the appellant gave a notice to the respondent !resigning from service. On August I, 1964 the appellant was , asked to file a reply to the charges against him.

The appellant tiled a writ petition in the High Court to -quash the proceedings on the ground that, as he was no longer in the respondent's service, the respondent could not take any departmental D action against him. r;-ie petition was dismiS3ed.

In appeal to this C'.ourt,

HELD : (I) The general principle is that if the master bas a power to suspend his -.servant pending an enquiry into his misConduct, either in the contract of service -or in the statute or the rules framed thereunder _, governing the service, an order of suspemion passed by the master has E the effect. of temporarily suspending the relationship of master and servant with the consequence that the servant is not bound to render service and 1he master iS' not bound to pay any wages during the period of suspenSiOn.

Such a power to suspend the contract of service cannot be implied and

therefore, if in the absence of such a power in the contract, statute or rules, an order of. suspension is passed by the master it only forbids the servant to work without affecting the relationship of master and servant,

and the master will have to pay the servant's wages. [451 EJ F

In the present case, the Madhya Pradesh Government Servants (Temporary and quasi-Permanent Service) Rules, 1960, do not provide for suspension dufing the pendency of an enquiry.

Therefore, the order of stispetision could not be considered as an order suspending the contract of service.

It follows that when the appellant issued his notice on June 6, 1964, the contract of service was in force and it was open to him to G put an end to it. [452. GJ

(2) In his notice, the appellant unequivocally informed the respondent that he has terminated his service with the respondent.

He also intimated that any amounts due from him to the respondent under the provisos to r. 12(a) '!lay be deducted , from the salary .due to him duri.ng the period of suspension.

Therefore, the notice was tn accordance with the requirements of r. 12. It follows that ever since th.e espondnt re~ H ceived the notice on June 9, 1964 the appe11ant was not in its service and therefore, it was not open to the respondent to take any disciplinary pro-- ceedings against him.

[454 CJ

The Management of Hotel Imperial, New Delhi and Ors. v. Hotef Workers' Union, [1960) I S.C.R. 476, T. Cajee v. U. Jormanik Siem and Anr., [1961] I S.C.R. 750, R. P. Kapur v. Union of India, [1964] 5 S.C.R. 431and Balvantray Ratilal Patel v. State of Maharashtra, [1964] 2 S.C.R. 577, followed.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 990 of 1967.

Appeal from the judgment and order dated November 3, 1966of the Madhya Pradesh High Court in Misc. Petition No. 514 of 1964.

G. L. Sanghi, P. N. Tiwari, J. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the appellant.

I. N. Shroff, for the respondents.

The Judgment of the Court was delivered by

Hegde, J.

The appellant was a probationary Naib Tehsildar.

He had been appointed tc:mporarily.

While he was working at Bilaigarh in 1961, the Commissioner of Raipur Division directed an enquiry against him on as many as 13 charges.

By his order dated August 3, 1961, the Commissioner placed him under suspension pending enquiry. Sometime later, the State Government taking the view that the enquiry ordered by the Commissioner may not be legal, revoked his orders viz. the order directing a departmental enquiry against the appellant as well as the order placing him under suspension.

But on the same day, it ordered a departmental enquiry against him and at the same time it placed him under suspension pending that enquiry.

In this connection a show cause notice was issued to the appellant on August 1, 1964.

But even before that show cause notice was issued, on June 6, 1964, the appellant gave a notice to the Government terminating his services.

After the issue of the afore-mentioned show cause notice, he moved the High Court of Madhya Pradesh to quash the orders passed by the State Government on the ground that as he was no more in the service of the Go-vemment, the Government cannot take any departmental action against him.

The State Government resisted that application on two grounds viz. ( 1 ) the order of the State Government suspending the appellant during the pendency of the departmental enquiry amounted to a suspension of the contract of service and hence the appellant could not have unilaterally terminated his services and (2) the notice given by him on June 6, 1964 was invalid as it did not conform to the rules.

The High Court accepted the aforesaid contentions of the State Government and dismissed the writ petition. Hence this appeal by special leave.

Mr. Sanghi, learned Counsel for the appellant pressed for our acceptance the two contentions advanced on behalf of the appellant before the High Court. He urged that the view taken by the High Court both as to the effect of the order of suspension made on May 7, 1964 as well as to the validity of the notice issued by the appellant on June 6, 1964 are erroneous in law.

According to him the impugned order of suspension merely forbade the appellant from renC:.::ring service and it did not amount to a suspe.nsion of the contract o.f service. As regards the notice issued by the appellant he urged that it was in accordance with rule 12 of the Madhya Pradesh Government Servants (Temporary and Quasi- Permanent Service) Rules, 1960 (in short 'Rules').

The parties are agreed that the appellant was a temporary public servant at the relevant time. His service was neither made permanent nor quasi-permanent. It is also admitted that the c_onditions of his service are exclusively governed by the 'Rules'.

Therefore to find out the true effect of the order of suspension made on May 7, 1964, we must look to those 'Rules'.

Three kinds of suspension are known to law.

A public servant may be suspended as a mode of punishment or he may be suspended during the pendency of an enquiry against him if the order appointing him or statutory provisions governing his service provide for such suspensions.

Lastly he may merely be forbidden from discharging his duties during the pendency of an enquiry against him, wliich act is also called suspension.

The right to suspend as a measure of punishment as well as the right to suspend the contract of service during the pendency of an enquiry are both reguhited by the contract of employment or the provisions regulating the conditions of service.

But the last category of suspension referred to earlier is the right of the mastec to forbid his servant , from doing the work which he had to do under the terms of the contract of service or the provisions governing his conditions of service. at the same time keeping in force the maMer's obligations under the contcact.

Jn other words the master may ask his servant to rdrain from rendering his service but he must fulfil his part of the contract.

The legal position as regards a master's right to place hisservants under suspension is now well settled by the decisions of this Court.

In The Management of Hotel Inweria/, New Delhi and ors. v. Hotel Workers' Union('), the question whether a master could suspend his servant during the pendency of an enquiry came

(!) 11960] 1 S.C.R. 476.

up for consideration by this Court. Therein this Court observed that it was well. settled that under the ordinary law of master and servant the power to suspend the servant without pay could not be implied as a term in an ordinary contract of service between the master and the servant but must arise either from an express term in the contract itself or a statutory provision governing such contract.

It was further observed therein that ordinarily in the absence of such a power either in express terms in the contract or under the rules framed under some statute would mean that the master would have no power to suspend a workman and even if he does so in the sense that he forbids the employee to work be will have to pay the wages during the so called period of suspension.

Where, however, there is power to suspend either in the ccntract of employment or in the statute or the rules framed thereunder, the suspension has the effect of temporarily suspending the relationship of master a.I1d the servant with the consequence that the servant is not bound to render service and the master is not bound to pay.

The same view was reiterated by this Court in T. Cajee v. U.

Jormanik Siem and anr. ('). The rule laid dO\\lll in the above decisions was followed by this Court in R. P. Kapur v. Union of India('). The Jaw on the subject was exhaustively reviewed in Balvantray Ratilal Patel v. State of Maharashtra(•). Therein the legal position was stated thus : The general principle is that an employer can suspend an employee of his pendinll an enquiry into his misconduct and the only question that can anse in such a suspension will relate to the payment of his wages during the period of such suspension.

It is now well settled that the power to suspend, in the sense of a right to forbid a employee to work, is not an implied term in an ordinary contract between master and servant, and that such a power can only be the creature either of a statute.governing the contract, or of an express term in the contract itself. Ordinarily, therefore, the absence of such a power either as an express term in the contract or in the rules framed under some statute would mean that an employer would have no power to suspend an employee of his and even if he does so in the sense that he forbids the employee to work, be will have to pay the mp!oyee's wages during the period of suspension.

Where, however, there is power to suspend either in the contract of employment or in the statute or the rules framed thereunder, the order of suspension bas the effect of temporarily suspending the relationship of master and servant with the consequence that the servant is tiot bound to render service and the master .is not bound to pay. It is equally well settled that an order of interim suspension can be passed

(I I [1961] 1 S.CR. 750.

(2) (1964] S S.C.R. 431.

(1) (1968] 2 S.C.R. 577.

against the employee while an enquiry is pending into his conduct even though then: is no such term in the contract of employment or in the rules, but in such a case the employee would be entitled to his remuneration for the period of suspension if there is no statute or rule under which, it could be withheld. The distinction between suspending the contract of a service of a servant and suspending him from performing the duties of his office on the basis that the contract is subsisting is important.

The suspension in the latter case. is always an implied term in every contract of service.

When an employee is suspended in this sense, it means that the employer merely issues a direction to him that he should not do the service required of him during a particular period. In other words the employer is regarded as issuing an order to the employee wi1ich because the contract is subsisting, the employee must obey.

In support of the decision of the High Court, the learned Counsel for the Respondent relied on the decisions of this Court in the State of West Be11ga/ v. Nipe11dra Nath Bagchi(1) and The State of Punjab v. Khemt' Ram('). He did not rely on the other decisions referred to :in the judgment of the High Court. Hence it is not necessary to e~:amine them.

In Bagchi's casf:('), one of the questions that arose for decision was whether on the strength of rule 75 (a) of the West Bengal Service Rules, an officer may be retained in service even after his superannuation for the purpose of holding a departmental enquiry against him.

This Court held that the rule in question was not designed to be used for the purpose of retaining a person in service for enquiry. against him but to keep in employment persons with a meritorious record of service who although superannuated can render some more service and whose retention in service is considered necessary on puhlic grounds. This ecision does not bear on the point unde.r consideration.

In Khemi Ram's ease(') the impu[lned suspension order was made on the strength of statutory rules governing the conditions o.f service.

Hence this Court came to the conclusion that the order of suspension in that case amounted to suspending the contract of service.

In the present case, the 'Rules' do not provide for suspension during the pendency of an enquiry.

Therefore the impugned order of suspension cannot be considered as an order suspending the contract of service. From that conclusion it follows that when the appellant issued the notice terminating his services on June 6. 1964, the contract of service was in force and it was open to him to put

(I) (19611 I S.C.R. 771.

(2) Civil Appeal No. 1217 /66 decided on 6.10.1969.

an end to the same. For the reasons mentioned above, we hold that the High Court erred in opining that. the true effect of the order of suspension made by the State Government on May 7, 1964 was to suspend the contract of service.

This takes us to the legality of the notice served by the appellant on June 6, 1964. That notice was evidently issued under rule 12 of the 'Rules'.

That rule reads:

"12. (a) Subject to any provision contained in the order of appointment or in any agreement between the Government and the temporary Government servant, the service of a temporary Government servant who is not in quasi-permanent service shall be liable to termination at any time by notice in writing given either by the Government servant to the appointing authority or by the appointing authority to the Government servant :

Provided that the services of any such Government servant may be terminated forthwith by payment to him of a sum equivalent to the amount of his pay plus allowances for the period of the notice; or as the case may be, for the period by which such notice falls short of one month or any agreed longer period :

Provided further that the payment of allowance; shall be subject to the conditions under which such allowances are admissible.

( b) The period of such notic~ , hall be one month unless otherwise agreed between the Government and the Government servant."

There is hardly any room for dispute that the notice contemplated by the main cl. (a) of rule 12 can be given either by the Government or its temporaP• servant. The rule in question specifically says so. It is not necessary for us in the present case to decide whether the two provisos to that rule or cl. (b) thereof apply to a notice given by a government servant.

The appellant has assumed that those provisions also apply to a notice given under that rule.

We shall for the purpose of this case proceed on the basis of that assumption and see whether the appellant has satisfied that part of the rule also.

The material portion o.f the notice given by the appellant on June 6, 1964 reads thus :

"Whereas the undersigned holds no charge this day and is not on duty and intends to bring the termination of his employment with the Government of M.P. forthwith on receipt of this writing and US•Jp Cl (NP)170-1

SUPREME COURT REPORTS [1970) 3 S.c.lt.

Whereas as required by the service rules the undersigned do hereby forfeit and relinquish his claim for one month's pay or allowance whichever is necessary, Now therefore this notice is hereby served. as required under the rules on receipt whereof the relationship of employer and emp1oye10 now existing between the Government of Madhya Pradesh and the under-signed shall cease to exist and consequently all rights, duties and obligations arising from and under the aforesaid refationshlp shall hereafter

absolutely cease."

This notice waB received by the Government on June 9, 1964.

In that notice, the appellant has unequivocally infonneJ the Government that he has terminated his services with the Government.

This part of the notice satisfies the requirements of the_ main part of rule 12(a). In that very notice he has also intimated that any amount payable by him to the government under the provisos to rule 12 (a) may be forfeited from the amounts due to him from the government.

It may be noted that considerable amount must have been due to him towards his salary during the period of his suspension.

By his notice he intimated to the government thai the amounts due from him to the government under the provisos to rule 12(a) may be deducted from that.amount. We fail to see how this notice is not in accordance with the requirements of rule

12. In our opi, nion the High Court was wrong in holding that the notice in question did not comply with the requirements of the said rule.

No other ground was urged on behalf of the respondent in support of the order of the High Court.

From the above findings, it follows that ever since June 9, 1964, the appellant was not in the service of the Government. Therefore P it was not open to the government to take any disciplinary proceedings against him.

Hence the impugned orders are liable to be quashed.

We accordingly allow this appeal and quash those orders.

No order as to costs.

Y.P.

Appeal allowed.

V. P. GINDRONIYA

STATE OF MADHYA PRADESH & ORS

January 29, 1970

M. HIDAYATULLAH,, C.J.

C. SHAH

HEGDE

A. N. GROVER

A. N. RAY

D. DUA, JJ.

August I, 1964

June 6, 1964

June 9, 1964

[1964] 5 S.C.R. 431

[1964] 2 S.C.R. 577

CIVIL APPELLATE JURISDICTION

G. L. Sanghi

P. N. Tiwari

B. Dadachanji

0. C. Mathur

Ravinder Narain

I. N. Shroff

Hegde

Bilaigarh

Raipur Division

August 1, 1964

High Court of Madhya Pradesh

Sanghi

May 7, 1964

1960] 1 S.C.R. 476

[1961] 1 S.CR. 750

(1968] 2 S.C.R. 577

Bagchi

Khemi Ram

June 6. 1964


ASHOKA MARKETING LTD.

STATE OF BIHAR AND ANR.

January 30, 1970

[M. HIDAYATULLAH, C.J.,

J. C. SHAH,

K. S. HEGDE,

A. N. GROVER, A. N. RAY AND I. D. DUA, JI.]

Constitution of India Sch•dule VI/, Entry 54, List LI Entries 6, 7 and 13, Lisi Ill-Scope of. Bihar Sales Tax A.ct 1959' section 20-A (3), (4) and (5)-VaUdity of. '

In determining the Appellant's . turnover for assessment to sales tax for the year 1956-57, the Superintendent of Sales Tax included an amount representing Railway freight in the Appellant's sales of Cement. 1bo ApP, ellate authority set aside the orders directing the inclusion of the Railway freight in the turnover.

After the introduction of section 20-A in the Bihar Sales Tax Act 19 of 1959 by Act 20 of 1962, the Assistant Commissioner issued a notic~ to the AppeHant uner section 20-A (3) of the Act requiring the Appellant to show cause why an amount representing Sales tax on the Railway freight which became refundable under the orders of assessment, be not forfeited.

The Appellant's contention that section 20-A was ultra vires the State Legislature was rejected bv the Assistant Commissioner, and by the High Court in a writ petition under Article 226 of the Constitution.

On appeal to this Court,

HELD : The appeal must be allowed and the petition of the assessee must be granted.

Sub sections (3), (4) and (5) of section 20A are ultra vires the State Legislature.

As a coro1tary the'reto, sub sections 6 and 7 must also be deemed invalid.

Sub-section (8) of s. 20A does not alter the true nature of the demand or appropriation which can be made under sub-ss. (3), (4) and (5) of s. 20-A.

The intention underlying sub-ss. (3), (4) and (5) is to enable the State to collect from the dealer tax which the State is not entitled to levy and to appropriate it to itself except in the very rare cases in which the purchasor may approach the State and be able to satisfy it that be has a claim, that the claim is in order, and that it is within limitation.

Notwithstanding tl•e addition of sub-s. (8), the amount received by the State or appropriated bv the State continues to have th~ character of a tax collected which the State is not entitled to collect.

A provision which enables the dealer to pass on the liability for payment of tax is incidental to legislation for sales-tax.

But it cannot be held that a provision under which a dealer is called ui:; on to pay to t'.1c State an amount which has been collected by him Oil a representation-express or implied-that an equal amount i~. pay-able by him under the Bihar Sales Tax Act is a provision incidntal to the oower to levy "tax on sale or purchase of goods" within the meaning of Entry 64, List II, of the Seventh Schedule.

In effect the provision is one for levying an amount as tax which the State is incompetent to levy. .A ere device annot be P:"rm!tted to defet the provi•ion• of the Constttuhon by clthmg the claim .m the form of a demand for deoositing the money with the State which the dealer has collected, but which he was not entitled to collect. (464 F, 463 E, H]

The power to legislate in respect of sub-ss. ( 3), ( 4) and ( 5) of s. 20A doe3 not fall under Entries 6, 7 and 13. of List III expressly, nor is it necessarily incidental to the power contained in Entries 6, 7 and 13 of List Ill. [465 E-F]

The Orient Paper Mills Ltd, v. The State of Orissa and Ors. (1962] I S.C.R. 549 distinguished.

R. Abdul Qade.- & Co. v.

Sales Tax Officer, Hyderabad (1964] 6 S.C.R. 867 followed.

State of Bombay v. United Motors (India) Ltd.

[1953] S.C.R. 1069 referred to.

CIVIL AP PELLA TE JURISDICTION : Civil Appeal No. 2004 of 1966.

Appeal by special leave from the order dated March 14, 1966 of the Patna High Court in C.W.J.C. No. 143 of 1966.

S. V. Gupte, H. K. Puri for K. K. Jain, for the appellant.

Lal Narain Sinha, Advocate-General for the State of Bihar and U. P. Singh, for the respondents.

The Judgmemt of the Court was delivered by

Shah, J.

Ashoka Marketing Ltd.-hereinafter called 'the assessee'-returned for the year 1956-57 under the Bihar Sales

Tax Act, 1947, an amount of Rs. 2,46,67,517-1-6 as its turnover from sale of cement and other commodities. The Superintendent E o.f Sales Tax brought to tax an additional amount of Rs. 7,67,702-

13-0 being the railway freight paid in respect of the goods supplied by the assessee.

By order dated April 2, 1961 the Appellate Authority set aside the order directing inclusion of the railway freight in the turnover, and ordered that the assessment be revised.

In the meantime the Bihar Sales Tax Act, 194 7, was repealed and was replaced by the Bihar Sales Tax Act, 19 of 1959. By Act 20 of 1962 f:. 20A was introduced in the Bihar Sales Tax Act 19 of 1959. The relevant provisions of s. 20A were :

" ( 1 ) No person who is not a registered dealer shall collect from any person any amount, by whatever name or description it may be called, towards or purporting to be tax on sale of goods.

( 2) No registered dealer shall collect from any person any such amount, .except in a case in which and to the extent to which such dealer is liable to pay tax under this Act.

( 3) (a) Notwithstanding anything to the contrary contained in any law or contract or any judgment,

ASHOKA MARKl!TJNG V. BUIAR (Shah,/.) 457

decree or order of any Tribunal, Court or authority, if the prscribed authority has reason to believe that llnY dealer has or had, at any time, whether before or after the commencement of this Act, collected any such amount, in a case in which or to an extent to which the said dealer was or k not liable to pay such amount, it shall serve on such dealer a notice in the prescribed

manner req'.Jiring him on a date and at a time and place to be specified therein either to attend in person or through authorised repreentative to show cause why he should not deposit into the Government treasury the amount so collected by him.

(b) On the day specified in the notice under clause

(a) or as soon thereafter as may be, the prescribed authority may, after giving the dealer or his authorised representative a reasonable opportunity of being heard and examining such accounts and other evidence a> ; nay be produced by or on behalf of the dealer and making such further enquiry &s it may deem necessary, order that the dealer shall deposit forthwith into the Government treasury, the amount found to have been so collected by the dealer and not refunded prior to the receipt of the notice , aforesaid to the person from whom it had been collected.

( 4) Where any amount so collected by the dealer and deposited by him into the Government treasury has already been refunded fo the dealer in pursuance of or as a result of any judgment, decree or order of any Tribunal, Court or authoritv, but the dealer has not refunded the amoun• to the person from whom he had collected it, the prescribed au:hority shall, notwithstanding such refund to the dealer, proceed to take action in accordance with the provisions of sub-section ( 3) for securing deposit of such amount.

( 5) Where any such amount has not been refunded to the dealer before the commencement of this Act but a refund has been directed by a Court, Tribunal or authority, the amount shall, notwithstanding such direction, be deemed 'to be a deposit made in pursuance of an order under sub-section ( 3). (6)

( 7) Notwithstanding anything to the contrary in any law or contract, when any amount is deposited by a dealer in comµlianoe \\lith an order under sub-section ( 3) or sub-section ( 4) or is deemed, under sub-section

( 5), to have been so deposited, such deposit shall constitute a good and complete discharge of the liability of the dealer in respect of such amount to the person from whom it was collected.

( 8) The. person from whom the dealer has collected the amount deposited in pursuance of an order under sub-section ( 3) or suh-section ( 4) or deemed, under sub-si:ction ( 5), to have been so deposited shall be entitled to apply to the prescribed authority in the prescribed manner for refund of the amount to him and the said authority shall allow the refund if it is satisfied that the clairrt is in order :

Provided that no such refund shall be allowed unless the application is made before the expiry of the period within which the applicant could have claimed the amount from the dealer by a civil suit had his liability not been di.charged in accordance with the provisions of sub-section (7) :

Provided further that no claim for such refund shall be rejected without giving the applicant a reasonable opportunity of being heard.

On July 31, 1963, the Assistant Commissioner of Commercial Truces, Shahabad Circle, issued a notice under s. 20A ( 3) of the Bihar Sales Tax Act, 1959, requiring the assessee to show cause why an amount of Rs. 23,990-11-0 being the sales-tax on the railway freight which had become refundable under the order of assessment be not forfeited.

The assessee in reply contended, iltter alia, that s. 20A of the Bihar Sales Tax Act was ultra vires the State Legislature and that in any case it had no application to his case.

The Assistant Commissioner of Commercial Taxes rejected the contention and passed an order directing that the amount of Rs. 23,990-11-0 do stand forfeited to. the Government and further directe<l that the amount be deposited in the Government treasury.

The assessee then move4 a pet1t1on before the High Court of Patna under A1t. 226 of the Constitution for a writ quashing the order of the Assistant Commissioner of Commercial Truces and for consequential orders restraining recovery of the amount.

The High Court of Patna, relying upon the judgment of this Court in The O.rient Paper Mills Ltd. v. The State of Orissa

ASHOKA MARKETING v. Bll!AR (Shah./.) 459

and Ors. (1') rejected the petition. With special leave, this appeal llas been preferred.

Two questions fall to be determined in this appeal :-

( 1) Whether s. 20A of the Bihar Sales Tax Act, 1959 is within the competence of the State Legislature; and

(2) Whether an order may be made under s. 20A

for depositing with the State Government an amount collected by a registered dealer from his constituent to recoup himself for payment of sales-tax under the Bihar Sales Tax Act, 194 7 which amount, according to law then in force, the constituent was not liable to pay.

Counsel for the assessee, relying upon the judgment in R. Abdul Quader & Co. v. Soles Tax Officer, Hyderabad('), contended that an Act passed by a State Legislature authorising the State Government to recover an amount collected under a sale, by a registered dealer from the purchaser, 'to recoup himself for payment of salestax, which was not liable to tax, is beyond the competence of the State Legislature.

In Abd•,/ Quader's case(') the Court was dealing with the interpretation of s. 11 (2) of the Hyderabad General Sales Tax Act 14 of 1950. By s. 11 (2) it was provided:.

"Notwithstanding anything to the contrary contained in any order of an officer or tribunal or judgment, decree or order of a Court, every person who has collected or collects on or before the 1st May, 1950,

any amount by way of tax otherwise than in accordance with the provisions of this Act shall pay over to the Government within such time and in such manner as may be prescribed the amount so collected by him, and in default of such payment the said amount shall be recovered from him as if it were arrears of land revenue."

This Court held that s. 11 (2) of the Hyderabad General Sales Tax Act provided for recovery of an amount collected by way of tax, as arrears of land revenue though the amount was not due as tax under the Act. In rejecting the. contention that the provi- Bion fell within Entry 54 List II, the Court observed at (p. 872) :

"The provision however is attempted to be justified on the ground that though it may not be open to a State Legislature to make provision for the recovery of an

(I) ['!%2] I S.C.R. 549.

(2) [19641 6 S.C.R. 867.

460 SUPREME COURT 1.El'ORTS

(1970] 3 S.C.R.

amount which is not a tax under Entry 54 of List II in a law made for that purpose, it would still be open to the legislature to provide for paying over all the amounts collected by way of ta'!. bj person~. even though they really are not exigible as tax, as part of the incidental and ancillary power to make provision for the levy and collection of such tax.

But where the .legislation under the relevant entry proceeds on the basis that the amount concerned is not a tax exigible under the law made under that entry, but even so lays down that though it is not exigible under the law, it shall be paid over to Government, merely because some dealers .by mistake or otherwise have collected it as tax, it is difficult to see how such provision can be ancillary or incidental to the collection of tax legitimately due undcl\ a law made under the relevant taxing -entry."

An. attempt to sustain the validity of the provision as one imposing a penalty was also negatived, and the Court held that s. 11 (2) of the Hyderabad General Sales Tax Act was not within the competence of the State Legislature.

In Abdul Quader's , asc(') this Court hold that in exercise of the power under Entry 54 List II, the State Legislature is incompetent to enact a law authorising the State Goveqament to call upon a dealer to pay an amount which he has collected from the purchaser cf goods under a sa]e, to recoup himself for payment of tax which he i!: not liable to pay in respecc of that transaction, for uch a law authories a levy of tax which the State Legislature is incompetent to levy.

The learned Advocate General for the Stae of Bihar, however. contended that the legislation impugned in this case is in truth not for levy or collection of an amount as tax which the State is not competent to levy or collect, but for compelling a registered dealer to pay over the amount collected on behalf of the State as tax so that it may be made available to a person from whom it was unlawfully recovered. He contends that the legislation which is not of the nature which this Court was called upon / to interpret in Abrlul Quader's case(') falls within Entry 54 List II and that in any event it falls within Entries 6, 7 and 13 of List Ill.

Counsel strongly relied upon the judg; nent of this Court in The Orient Paper Mill's case('). But the principle of that case,

(I) [1964] 6 S.C.R. 867.

(2) [t962) 1 S.C.R .. 549.

- A

ASHOKA MARKET11'G v. BIHAR (Shah, /.) 461

in our judgment, has no bearing on the question whether the State by statute was competent to enact s. 20A of the Bihar Sales Tax Act in exercise of the power under Entry 54 List II of the Seventh Schedule.

In that case a registered dealer had collected, in respect of sales-tax, from the purchasers amounts for recoupment of tax which he would have to pay to the State Government under the Orissa Sales Tax Act, 194 7, in the belief that the tax was payable. The dealer was assessed to and paid tax on the turnover which included inter-State sales.

After the decision of this Court ','l State of Bombay v. United Motors (India) Ltd.(') the dealer applied under s. 14 of the Act for refund of tax paid on the plea that the turnover from inter-State sales was not taxable. The High Court of Orissa issued writs directing the amount of tax collec:ted by the State to be refunded. Thereafter by an amendment of the Act, the State Legislature incorporated s. 14A prnviding that refund of tax may be claimed only by the person from whom the dealer had realhed the amount by way of sales tax or otherwise.

At the hearing of the petition, the tax-payer challenged the levy on the ground that it infringed his fundamental right under Art. 19 ( 1 )( f) and did not press the contention that the State Legislature was incompetent to enact s. 14A of the Orissa Sales Tax Act.

This Court observed that the power to legislate with respect to a tax comprehends the power to impose the tax. to prescribe machinery for collecting the tax, to designate the officers by whom the liability may be enforced and to prescribe the authority, obligution an'.i indemnity of those officers. It was then observed:

"The Legislature of the Orissa State was therefore competent to exercise power in respect of the subsidiary or ancillary matter of granting refund of tax improperly or illegallv collected. and the competence of the Legislature in \his behalf is not canvassed by counsel for the assessees. If comoetence to legislate for granting refund of sales-tax imoro'lerlv collected be granted, is there any reason to exclude the power to declare that refund shall be claimable only bv the person from whom the dealer has actually realised the amounts by way of sales-tax or otherwise? We see none."

The Court then rejected the contention that s. 14A was invalid. because it imoaired the fundamental right under Art. 19 ( 1) ( f) of the Ccnstitution. That case does not suoJJ<>rt the plea that the State Lgislature is comoetent. to legislate for demanding Payment of or retaining amounts recovered by a rey:istered dealer but which are not due as sales-tax to the State.

(!) [1953J S.C.R. 106°.

The learned Advocate-General contended that in any event the impugned provision is not of the nature which this Court was concerned to inbrpret in Abdul Quader's case('). He said, that whereas in Abdul Quader's case(') the Court dealing with a case in which the State Legislature enacted a law authorising the State to recover and appropriate to itself amounts collected by a dealer on the representation that he-the dealer-was entitled to recoup himself for payment of sales-tax which he was not liable to pay, in the present case the amount either collected or retained by the State from the dealer is to be held for the benefit of the person from whom it has been improperly collected. On that account, the Advocate-General contended, the Legislature exercised its power for setting up machinery for compelling refund of amounts collected by the dealer under the authority of the Legislature which he could not in law collect.

Counsel argued that Entry 54 List II authorises the State Legislature to legislate for collection of an amount which has been improperly collected by a registered dealer as tax on behalf of the State and for refunding the amount to the pers® from whom it has been improperly collected.

This argume:nt proceeds upon two assumptions : ( 1) that under the Bihar Sales Tax Act the purchaser of goods is liable to pay sales-tax to the State, and the registered dealer collects 1he tax from the purchaser as an agent of the State; and ( 2) that the amount recovered from the registered dealer under s. 20A is intended only to be refunded to the person from whom it has been collected by the registered dealer, and the State is merely an agency for enforcing the obligation of the dealer.

The first assumption is plainly contrary to the scheme of the Bihar Sales Tax Act, 1959. Bys. 3 charge of tax lies upon every dealer whose gross turnover during a period not exceeding twelve months immediately preceding exceeds the specified amount. The expression "gros!; turnover" is defined in s. 2(k) as meaning "the aggregate of the: amounts of sale-prices received and receivable by a dealer, during any given period, in respect of sale of goods (. . . ) ", and the expression "sale-price" is defined in s. 2(q) as meaning "the amount payable to a dealer as valuable consideration in respect of the sale of goods". By sub-s. (2) of s. 3 tax is made payable by a dealer on sales made inside the State, and when the dealer sells goods, the price received by him for sale of goods forms a component of the gross turnover and the dealer is liable to pay tax on the turnover.

The Act does not impose liability to pay tax upon the purchaser either directly or indirectly .. Under s. 7, it is true, the taxable.turnover of a dealer is determined to be that part of the gross turnover which remains

(I) ]1964] 6 S.C.R 867.

A -

,._

ASHOKA MARKETING v. BIHAR (Shah, /,) 463

after deducting several items including the amount of sales-tax actuaJ!y "collected as such", along with the sale-price received or receivable in respect of sale of goods. It is implicit that the dealer may recover from the purchaser in addition to the value of the goods a certain amount which he will have to pay as tax on that value.

The price payable by the purchaser on that account is the value of the goods and the amount paid for recouping the dealer for payment of tax.

The Act enables the dealer to pass on the liability of sales-tax to the purchaser and if by invoice or otherwise the dealer charges in respect of the goods sold by him the value of the goods and the tax which he may have to pay on the value, sales-tax will be computed on the value of the goods and not on the .total amount paid by the purchaser. 'the amount payable by the purchaser is however the consideration paid by him for purchasing the goods.

The dealer may apportion the value of the goods and the sales-tax payable by him on the sale to the State. 1f he does so, he is liable to pay sales-tax onl, y on the value and not on the amount of tax collected by him which he is payaple as sales-ta; x to the State. If he does not apportion the value and the tax, , he is liable to pay sales-tax on the total amount received by him, calcnlated at the appropriate rate.

In either case the liability to pay tax under the Act lies upon the dealer : he does not collect any tax for and on behalf of the Government.

The dealer may recover from the purchaser the tax payable by him as part of the price, but on that account the purchaser is not the person liable to pay tax on the sale to the.State.

A provision which enables the dealer to pass on the liability for payment of tax is incidental to legislation for sales-tax. Hut we are unable to hold that a provision under which a dealer is called upon to pay to, the State an amount which has been collected by him on a representation-express or implied-that an equal amount is payable by him under the Bihar Sales Tax Act, is a provision incidental to the power to levy "tax on sale or purchase of goods" within the meaning of Entry '54 List II of the Seventh Schedule.

Entry 54 List II, of the Seventh Schedule, comprehends the power to impose tax, to prescribe machinery for collecting the tax, to designate officers by whom the liability may be imposed and to prescribe the authority, obligation and indemnity of the officers.

The State Legislature may under Entry 54 List II be competent to enact a law in respect of matters necessarily incidental to "tax on, the Sale and purchase ' of goods".

But a provision compelling a dealer who has deliberately or erroneously recovered an amount from the purchaser on a representation that he is entitled to recover it to recoup himself for payment of tax, to pay over that amount to the State cannot, in our judgment, be rel!llrded as necessarily incidental to Entry 54 List II. In effect the provision is one for levying an amount as tax

SL'PREME COURT REPORTS

(1970) 3 S.C.R.

which the State is incompetent to levy. A mere device cannot be permitted to defeat the provisions of the Constitution by clothing . the claim in the form of a demand for depositing the money with the State which the dealer has collected, but which he was not entitled to collect.

The learned Advocate General contended that sub-s. ( 8) of s. 20A authorises the person from whom the dealer has collected the amount deposited in pursuance of an order under sub-ss, (3), ( 4) , or deemed to have been so deposited under sub-s, ( 5 ) , to apply to the prescribed authority for refund of the amount to him and the authority is obliged, if satisfied about the claim, to make that refund. The power to demand an amount collected by the dealer applies to transactions governed by the Bihar Sales Tax Act, 1959, as well as to the pre-existing Acts. There is no period of limitation prcsc:ribed within wl>ich the demand for payment of amounts collected by !he dealer may be made.

But an application for refund is to be made before the expiry of the period within which the purchaser could have claimed the amount from the dealer by a civil suit.

In the light of the scheme of the Act and the various provi!; ions made, it would be futile to expect that a purchaser would normally be able to enforce the liability of the State to pay the amount collected by the dealer and which is deposited or deemed to be deposited with the Government. The period of limitation does not commence to run from the date on which the money is deposited or deemed to be deposited into the Government treasury but from the date on which the purchaser may be entitled to file a suit against tl1e dealer in a civil court.

The State is in law under no obligation to hold the amount as trustee for the purchaser. The amount to be recovered or approwiated remains part of the Consolidated Fund of the State and becomes the property of the State.

Sub-section (8) of s. 20A. in our judgment, does not alter the true nature of the demand or appropriation which can be made under sub-ss. ( 3), ( 4) & ( 5) of s. 20A.

The intention underlying sub-ss. (3), 1 (4) & (5) is to enable the State to collect from the dealer tax which the State is not entitled to levy and lo appropriate it to itself except in the very rare cases in which. the purchaser may approach the State and be able to satisfy that be has a claim that the c:laim is in order. and that it is within limitation.

Notwithstanding the addition of sub-s. ( 8), in our judgment, the amount received by the State or appropriated by the State con- ' , tinues to have the character of a tax collected which the State is not entitled to wllect.

The learned Advocate-General contended that assuming !hat the first proviso of sub-s. ( 8) of s. 20A which prescribes the period of limitation is indicative of the nature of the claim, that proviso

ASHOKA MARKETING v. BIHAR (Shah, /.) 465

alone may be declared ultra vires, and the remaining provisions declared valid. But the first proviso to sub-s. ( 8) does not invest the recovery with the character of tax : the provisions of sub-ss. ( 3), ( 4) and ( 5) iittvesr the recovery with the nature of a levy of tax which the State is not entitled to collect, and sub-s. ( 8) is me•ely an attempt to disguise the true nature of the claim. We are, therefore, unable to accede to the contention of the learned Advocate-General.

It was then contended !hat the power to legislate in respect of recovery of the amount collected by a dealer which in law he is not entitled to collect, falls within Entries 6, 7 and 13 of List III.

These entries are in the Concurrent List and provide :

"6. Transfer of property oilier than agricultural land; registration of deeds and documents.

7. Contracts, including partnership, agency, contracts of carriage, and other special forms of ontracts, but not including contracts relating to agricultural land.

13. Civil Procedure, including all matters included in the Code of Ci vii Procedure at the commencement of this Constitution, limitation and arbitration."

We fail to. appreciate how power to legislate in respect of Entries 6, 7 and 13 would authorise the State Legislature to legislate in respect of recovery from the dealer o! an amount which the dealer was in law not entitled to collect, but which he has collected. The power to legislate in respect of sub-ss. ( 3), ( 4) and ( 5) of s. 20A does not fall under Entries 6, 7 and 13 of List III expressly, nor can it be said that the power to legislate is necessarily incidental to the power cqntained in Entries 6, 7 and 13 List Ill. As already pointed,

out, this Court in the judgment in Abdul Quade r's ca5e ( 1 ) has clearly held that the State has no power to legislate for recovering amount which is collected by-the tax-payer in order to recoup himself for payment of tax which under the law he is not bound to pay. Even though the competence of the State to legislate was not sought to be supported under Entries 6, 7 and 13 of List III, the decision of the Court plainly implies that the State has no such power under any Entry in the third List.

On the view we have expressed, we do not deem it necessary to express any opinion on the second ques\ion. We may observe that validty of sub-ss. (1 ) and ( 2) of s. 20A has not been challenged.

H We are, of the view that the appeal must be allowed, and the petition of the assessee must be granted. It is declared that sub-

SUPREME COURT REPORTS (1970] 3 S.C.lt.

ss. ( 3), ( 4) and ( 5) of s. 20A are ultra vires the State Legislature.

As a corcifiary thereto sub-ss. ( 6) and ( 8) shall be ed invalid . . The assessce will. be entitled to its costs fo. this Court and th•

High Court. There will be one hearing fee in C.As. 2004 and 2005 of 1966.

R.K.P.S.

Appeal allowed.

ASHOKA MARKETING LTD

STATE OF BIHAR AND ANR

M. HIDAYATULLAH, C.J.

C. SHAH

K. S. HEGDE

A. N. GROVER

A. N. RAY

I. D. DUA

Constitution of India

section 20

section 20

section 20

section 20

Article 226

section 20A

sections 6 and 7

s. 20A

s. 20

Seventh Schedule

s. 20A

(1964] 6 S.C.R. 867

S. V. Gupte

H. K. Puri

K. K. Jain

Lal Narain Sinha

U. P. Singh

Shah

Ashoka Marketing Ltd.-hereinafter

Tax Act, 1947

April 2, 1961

s. 20A

July 31, 1963

Shahabad Circle

s. 20A

Bihar Sales Tax Act, 1959

s. 20A

High Court of Patna

s. 20A

Bihar Sales Tax Act, 1959

s. 20A

s. 11

s. 11

1st May, 1950

s. 11

s. 11

Abdul Quader

Bihar

Abrlul Quader

Orient Paper Mill

[1964] 6 S.C.R. 867

s. 20A

Seventh Schedule

s. 14

High Court of Orissa

s. 14A

Art. 19

s. 14A

s. 14A

Art. 19

s. 20A

s. 2(k)

s. 2(q)

s. 3

s. 7

1964] 6 S.C.R 867

Seventh Schedule

Seventh Schedule

s. 20A

s. 20A

s. 20A

s. 20A

s. 20A

Abdul Quade

s. 20A

s. 20A


CHAMPA KUMARI SINGm & ORS.

~· THE MEMBER BOARD OF REVENUE, WEST BENGAi,

AND OTHERS February 2, 1970 (M .. HiDKYATULLAH, C.J.,

J. C. SHAH,

K. S. HEGDE, A. N. G, ROVER, A. N. RAY AND I. D. DuA, JJ.] ' .

Indian Income.Tax Act (ll of 1922), ss. 46 and 47-Liability agreed to be .id by instclments, and in default of single instalment entire balanc:e. exigible-Asressment orders in terms. of agreement-Demand noticesissu£'d-Default in instahnent-Recovery proceeding after more than one year of the default but before the last instalment due-Whether claint bcrred.

An agreement was signed between the Revenue and the assessees fix ... ing the assessees' income-tax liability for several past years, and fixing instalments for its payment.

The last instalment was payable on March 31, 1957. It was also stipulated that on the breach of a single instalment the whole amount would become exigible. The Income-tax Officer made the assessment orders in acco'rdance with the agreement.

These orders and demand notices to pay the amount by March 31, 1953 were sent to the assessees in September 1952 with letters stating that if there was no default in payment of the instalment due on March 31, 1953, further extension of time for paying the balance will be granted.

The assessees filed revisions under s. 23-A of the Income-tax Act, 1922 against the orders of assessment.

The Commissioner held the assessments were properly made as they were made in accordance with the settlement after the assessees' disclosure.

Later the earlier agreement for payment by instalments was varied. The main variation in the second agreement was that the penalty was reduced and smaller instalments were fixed. In March 1956 certificate's under s. 46(2) of the Act were issued and notices under the Bengal Public Demands Recovery Act, 1913 were served.

On the question whether the certificates were barred by limitation under s. 4 7 (I) Indian Income-tax Act, 1922 this Court,

HELD : (Per Hidayatullah, C. J., Shah, Grover, Ray and Dua, JI.) The certificates were not barred by time.

The assessment order reproduced the agreement as part of it and the agreement therefore became the assessment order.

Under the assss ment order a notice of demand was sent to pay the money of the first ms-- talment by March 31, 1953.

On breach of it the whole, amount was said to be exigible and the demand in respect of that was also made. The assessees, therefore, became defaulters on the failure to pay the first instalment.

S:nce instalments were 2ranted, cl. (iY) Of the proviso to S. 47(7) applied.

That clause does not mention about the exigibility of the whole amount or exigibility of any particular instalment.

It only says that if instalments are granted time of one year ending w.ith the end of the financial year is to be calculated from .the date on wh.ich the last instalment is payable.

The language of cl. (1v) of the proy1~0 was unfortunate in expressing this intent and has now been C<?_rrectet; I. tn th~ new tnco1ne-tax Act but the intention was always obvious.

Even tn. !he second agreement which replaced the agreement the same cond1llon

468 SUPREME COURT REPORlS

(1970) 3 S.C.R.

obtained.

There was a concession 3hown in the matter of penalty and A smaller instalments ,.vere fixed.

But the revenue had stipulated even then that the concession mentioned above would only be -available if the revised scheme of payment was strictly followed.

Jn other words. p, ayment was to be made by instalments and this , concession therefore~ attracted the provisions of cl. (iv). The Government copld always ac'Cept any instalment even if paid late without having to worry about the period of limitation of one year from the date of den1and. since cl. (iv J of the B first provisogave them an option to wait till the last instalment was payable. The scherr1e of instalments took the maller out of the main p;;1rt of sub-s. (7) and brought it within the proviso to clause (iv). [476 G-

477 DJ

(Per Hegde, J. dissenting)- ;--,.]f an assessee fails to comply with the demand made in aC'.cordance with the provision in s. 45 within the time mentioned therein then he is 'defaulter' within the meaning of the Act.

Unless the assessee is a defaulter, no action can be taken again.st him C under s. 46.

Non-fulfilment of the terms of the agreement does not amount to a defauh under s. 45.

Sub-section (7) of s. 46, clearly says that no proceedings for recovery of any sum payable under the Act can be commenced after the expiration of one year from the last day of the financial year in "'hich any demand is made under the Act.

Under sub

cl. (iv) of the prmiso to s. 47(7) where the sum payable is allowed to be paid in instalments, the one year prescribed in s. 46(7) will be com- D puted from the date;~ on which the last of such instalments was due. The expression "was due" can only mean "is due" under the Act.

The expression does not appear to be grammatically correct; this correction has been made in the new Act, but that correction is immaterial for the present purpose.

For finding out "'hen the sum claimed 'was due', one must go to s. 45. and cannot fall back on the agreement.

Chapter V of the Act has nothing to do 'With the agreement between the assessees and the re venue.

The expression "was due" in s. 46(7) has reference to the tax B which is due in acc:ordance with the provisions in ss. 45 and 46.

In view of the demand_ notices issued in September 1952 .the sum became due when lhc assessees became dcfaultc:rs, and therefore the re convey proceedings under the Act should have been initiated he'fore March

1954. The same having not been initiated before that date, the proceed ings in question mw; t be held to have been barred. [478 A-G; 479 F-H]

CIVIL APPELJCATE JURISDICTION : Civil Appeals Nos. 564 to r 571 of 1968.

Appeals by special )eave ; from the judgments and orders dated December 10, 1963 and November 24, 1964 of the Calcutta High Court, in appeals from Original Orders Nos. 139 to 142 of

1~~ G

M. C. Chagla, P. N. Tiwari, I. B. Dadachanji. 0. C. Mathur and Ravinder Narain, for the appellants (in all the appeals).

Jagadish Swarup, Solicitor-General, R. Gopalakrishnan and R. N. Sachthey, for the respondents (in all the appeals).

The Judgment of M. HIDAYATULLAH, C.J., J. c. SHAH, A. N.

GROVER, A. N. RAY and I. D. DUA, JJ. was delivered by HIDAYA- TULLAH, C.J., K. S. HEGDE, J. gave a dissenting opinion.

CHAMPA v. RE'IFNUE BOARD (Hidaya1ullah, CJ.) 469

Hidayalullah, C.J.-This judgment shall dis~ of Civil Appeals 564-571 of ! 968. Of these, four are against the common judgmem and order of a Division llench of the Calcutta High Court, December 10, 1963, dismissing 4 appeals (139-142 of

1959) from the order of a lc.1rned single Jud11e, April 23, 1959 in Writ Petitions 159-162 of 1958. The remaining four appeals are against the order, November 24, 1964, refusing to certify the case as Iii for appeal to this Court under Art. 133(1) of the Constitution.

The facts are as follows : One Dalchand Singhi held a prospecting license in the erstwhile Koree State (now in Madhya

Pradesh).

His son Bahadur Singh Singhi took a mining lease and started a colliery known as Jhagrakhand Colliery. In 1942 a private limited Company called the Jhagrakhand Collieries Ltd. was started with an authorised capital of Rs. 24 lakhs (2400 shares of Rs. 1.000 each).

Bahadur Singh divided equaily the 2400 shares bdwecn himself and his 3 sons Rajendra Singh Sin)!, hi, Nafln.lrn Singh Sing.hi ana Birendra Singh Singhi.

In 1943 the colliery business and its asseN were transferred by the joint family to the Company. In 1944 the father and his 3 sons separated and partitioned the property.

Bahadur Singh Singhi died on July 7, 1944 leaving a will-Letters of Administration with the will annexed were granted in 1945.

The register of Jhagrakhand Collieries Ltd. was reetified and showed thereafter 900 shares in the name of Narendra Singh Singhi and Rajendra Singh Singhi and 6600 shares in the mime of Birendra Singh Singhi. Birendra Singh Singhi died on December 12, 1950 leaving a widow Smt. Champa Kumari and two minor sons Ashok Kumar Singhi, Chandn1 Kumar Singhi and also a minor daughter.

These minors have now attained majority.

Under what is known as the 'Tyagi Scheme' announced on May 19, 1951 a voluntary disclosure was made by the Jhagrakhand Collieries Ltd. and the shareholders. The time limit for such disclosure was August J I, 1951.

Before this the Incometax Officer had filed a complaint for certain offences and under - a search warrant seized the books of account of the company from 1945 to 1950.

This was on July 3, 1951.

The shareholders and the company then disclosed on July 31, 1951 a concealed income ol Rs. 42.52.50 I during the years 1945 to 1948.

On November 28, 1951 the Commissioner of Income-tax offered to withdraw prosecutions if the Company and the shareholders agreed to pay taxes due on a total income of Rs. 90,00,000 to be distributed over the years 1945-1950 (both inclusive) together with a penalty of 20% and interest at 3% p.a. on unpaid tax.

There were certain other cotnditions with which we need not concern ourselves. Certain representations followed and L 7 S:1p. Cl (NP)/70-ll

finally on Decc111ber 26, 1951 it was agreed that the parties A jointly and severally pay Rs. 67,48,841/11. It was also agreed that a sum of Rs. 55,.99,832/6 would be accepted in full satisfaction upon the parties paying the amount in the following instalments :

(a) By December 31, 1951 ..

lb) By March JI, 1952

(c) By March 3L 1953

(r/) By March 31, 1954

(e) By March 31, 1955 (() Bv March 31, 1956

Rs. 7,50,000 Rs. 5,00,000

Rs. 9,50,000

. .

Rs. 9,50,000 . . Rs. 9,50,000

. . Rs. 9,50,000

(g) Bv March 3J, 1951 . . the hala11ce

On the faill!re of any of the instalments the whole sum of Rs. 67,48,34l/l l tog.ether with interest would become due. A deed of Agreement, Guarantee and Equiiable Mortgage showing the total income and total net tax liability of each share holder were shown.

They were · -

1947/48 t•> 1951/52

Smt. Champa Kumarj's hut-and ..

Rajendra Singh Singhi Narendra Singh Singhi Jhagrakhand Collieries Ltd.

f"olt1/ lax

Rs. 5,28,817-11

Rs. 9,30,498-03

Rs. 9,93,816-15

Rs. 43,99,712-11

The Company paid th.e followmg sums by way of tax : E

Feruary I, Jq,52 Aprill, 1952 ..

April 2'.!, 1952

Rs. 1.50,000

Rs. 90,000

Rs. 1,22,000

Narendra Singh Singhi paid the following sums by way of tax :

February I, 1952 April I, 1952

. .

Rs. 1,50,000

. .

Rs. 60.000 April 22, 1952 . .

Rs. 48,000

Smt. Champa Kumari paid the following sums by way of tax :

April 1, 1952 . .

Rs. 1,00,000

April I, 1952 . . . .

Rs. 40,000 April 22, 1952 Rs. 32,000

Rajendra Singh Singhi paid the following sums by way of tax :

April 1, 1952 April I, 1952 Rs. f,5J,000

Rs. 60,000 April 22, 1951 Rs. 48,000

On April 22, 1952 they signeJ the agreement. By that date the position in the payment of instalments had reached item ( c) above showing Rs. 9,50,000 lll> due on March 31, 1953.

CHAMPA V. REVE1'UE BOAiD (Hidaya1:,;;,./1, C.J.) 471

On August 29, 1952 the Income-Tax Officer made several assessment orders in respect of the asscssrnen• yean; 1947-48 to 1951-52. Each.such order included the following:

"In accordance with <he tcnns of the Agreement dated 22nd April 1952, executed in connection with the petitions dated 18th July, 1951 filed by the assessce and others under .:onccssional scheme for the settlement of disclosures am, ounced by the Government of India, the assessment is made as under ; "

and then follows the computation of total income, the computation of tax and the total amount demanded.

On September 22, 1952 the Income-tax Officer (Companies District I), Calcutta sent the following Jetter to each asses see.

The one sent to Smt Champa Kumari Singhi may alone be quoted here as an example :

"'From:

Sri V. Satyamurti, M.A., B.L..

Income Tax Officer, Companies District L Calcutta.

Smt. Champa Kumari Singhi, 49 Garishat Road, Calcutta.

E Madam,

I am sendin~ today by separate post ( Regd. with AID) copies of Assessment orders.

Penalty Orders Demand notices and challans etc. in regard to the amount of taxes. and penalties payable by you in accordance with the tenns of the Agreement dated 22nd April, 1952 between you and the Government drawn up in connection with the disposal of the disclosure petition filed by you under the concessional scheme.

In the Demand notices and cha1la11S, demands have been shown to be payable on or before the 31st March 1953 when the next instalment of payment under this Agreement falls due.

Needless to say, if there is no default in the matter of payment of that instalment

(viz., Rs. 9,50,000 with all inrest due thereon by 31st March, 1953) further extension of time for payment of the balance will be granted by me.

Yours faithfully, Sd/- Illegible Income Tax Officer." Dt. 22-9-52. l 7SupCl(NP)7G-6

With this Jetter were forwarded the assessment orders and notices of demand under s. 29 of the Income-tax Act,

1922. These notices of demand reached the several appellants on 24 September

1952. Similar notices of demand for excess Profits Act and Business Profits Tax were also served calling upon the assessee to pay the dues on or before March 31, 1953.

On March 25, 1953 the appellants filed applications for revision under s. 33-A of the Income Tax Act against the orders of assessment and application of s. 23-A of the Income-tax Act.

The Commissioner held the assessments to be proper as they were made in accordance with the settlement after the appellants' disclosures.

The appellants next a:sked that Rs. 1,00,000 be accepted instead of Rs. 9,50,000 payable on March 31, 1953 and they be not treated as defaulters. The amount was appropriat ed towards the current liability for the current financial year.

In February 1954, the Commissioner after hearing the appel !ants, promised reference to the Board of Revenue for a variation of the agreemenit of April 22, 1952. The main variation was to be that the penalty would be reduced to half and the appellants would have to pay Rs. 5,60,000 on March 31, 1954, and similar instalments each year for six years. The aJ!reement was revised on December 27. 1954. The company sent a cheque for Rs. 5.60,000 on March 31. 1954 earmarking it as the said payment but it was appropriated towards the demand on the company for 1947-48.

On March 14. 1956 certificates under s. 46(2) o( the Indiain Income-tax Act. 1922 were issued and notices under s. 7 of the Bengal Public Demands Recovery Act, 1913 were served on the appellants in May. 1956. Jn June 1956 the appellants filed several petitions under s. 9 of the Recovery Act contending inter a/ia that the proceedings were barred by limitation. This

obj, ction was overruled on January 5, 1957.

The appellants appealed to the Commissioner under s. 51 of the Recovery Act and the ob.iection that the certificates were barred by limitation under s. 46(7) of the Indian Income-tax Act, 1922 was accepted and the certificates were cancelled. The G Union of India thereupon filed several revisions before the Board of Revenue under s. 53 of the Public Demands Recovery Act. against the order of the Commissioner. They were allowed lzy a common order dated June 27. 1958. The appellants were again called upon to pay the amount on pain of distress warrants.

The above facts were necessary to understand the background of the dispute from which the petitions under Art. 226 of the Constitution arose.

The appellants filed Writ Petitions

CHAMPA v. REVENUE BOARD (Hidayatullah, CJ.) 473

159-162 of 1958 asking for a writ of certiorari to quash the orders of the Board of Revenue and prohibiting the certificate Officer from enforcing the recovery certificates.

The writ petitions were beard by Sinha J, and were dismissed on April 23, 1959. The recovery proceedings were held not barred by limitation.

The awellants then filed appeals in the High Court against the judgment and order of Sinha, J. (Nos. 139-142 of 1959). These appeals were heard by Mookerji and Sen, JJ who, by the common judgment now under appeal in four of tbes.: appeals, dismissed them.

The applications for certificate under Art. 133(1) of the Constitution were also rejected and have given rise to the other four appeals before us:

Mr. Cbagla who argued these appeals submitted the question of Iimitatiltn at the forefront and then attempted to argue the merits such as the interpretation of the agreements and the re liance placed on them in the High Court and distribution pro rata of the amounts paid on March 31, 1954. These points were not allowed to be raised by us. These questions were not raised before Sinha, J.

The Divisional Bench also did not allow these poinJs to be raised.

The short question, therefore, in one of limitation applicable in this case. We are concerned in answering this question with s. 46 of the Indian Income Tax Act, 1922. We are not re quired to consider the entire section but only sub-ss. 1 and 7 which are reh:vant. They read :

"46. Mode and time of recovery.-

( 1) When an asessee is in default in making a payment of income-ta~. the Income-tax Officer niay in his discretion direct that in addition to the amount of the arrears, a sum not exceeding that amount shall be recovered from the assessee by way of penalty."

"(7) Save in accordaru:e with the provisions of sub-section ( 1) of section 42, or to the proviso to section 45, no proceedings for the recovery of any sum payable under this Aci

shall be commenced after the expiration of one year from the last day of the financial year in which any demand is made under this Act:

SIJPREME COURT REPORTS

[1970) 3 S.C.R.

Provided that the period of one year herein referred to shall- A

(iv) where the sum payable is allowed to be 8 paid by instalments, from the date on which the last of such instalments was due: Provided further that nothing in the foregoing proviso shall have the effect of reducing the period within which proc:<:edings for recovery can be commenced, namely, aftt:r the expiration of one year from tile last day of the financial year in which the demand is made.

Exp/anation.-A preceding for the recovery of any sum shall be deemed to have commenced within. the meaning of this section, if some action is taken to to recover the whole or any part of the sum within the period hercinbefore referred to, apd for the removal of doubts fr is hereby declared that the several modes of recovery specified in this section are neither mutually exclusive, nor affect in any way any other law for the time being in force relating to the recovery of debts due 10 Government. and it shall be lawful for the Incometax Officer, if for any special reasons to be recorded he so thinks fit, to have recourse to any such mode of recovery notwithstanding that the tax due is being re-.

ovcred from an assessee by any other mode."

The contention of the appellants is that we have to find out when 1hey could be treated as defaulters within the first sub-section and whether under the main part of sub-s. (7) the proceedings for 1he recovery of the tax with penalty could be commenced. after

the expiration of one year from the last day of the financial year in which the demand was made.

The argument of the Department is 1hat the matter is covered by clause (iv) of the first proviso which allows limitation of one year to be calculated from the date on which the last instalment was due in the present case.

To be~ with there is an error in the fourth clause of

the first proviso inasmuch as the words "be reckoned" have been inadvertently left out in that clause.

The intention to use these H words is obvious from the way in which the first three clauses are worded.

Supplying those words because they were inadverrnntly omitted it is clear that one of two limitations is applicable

CHAMPA v. REVENUE BOARD (Hidayatullah, C.J.) 475

to the present case, according to the circumstances of the case If it is to be considered under the main clause of sub-s. ( 7), then we have to find out wherther the whole of the 'amount was

payable by a particular date on which the assessee can be said to have become a defaulter.

If, however, the fourth clause of the proviso applies then we have to see whether by reason of the grant of instalments, limitation would only commence to run from the date c, n which the last of the instalments was payable.

In this connection reference has been made by the High Court and the Board of Revenue to the agreements and the letters written sending the assessment orders and the notices of demand. The agreements set out a scheme of payments by instalments and the entire sum payable was Rs. 67,48,841/11/-. This was payable in different instalments, from 1952 to 31st March, 1957.

It was, however, provided as follows :

" ...... provided however that in the event of due and punctual payment of all instalments Government will give up the sum of Rs. 11,49,019/-5/- with interest thereon, from the last instalment and accept the sum of Rs. 55,99,822/6/- with interest thereon in full settlement of the balance due provided further that in the event of any default in payment of any sum on due date therefrom or in the event of it being found that the guarantee hereby given or any part thereof is not enforceable for any reason whatsoever there will be no abatement and the parties of the first and second part will pay the full sum of Rs. 67,48,841/-11/-.

The monies payable on 31st March, 1953, 31st March, 1954, 31st March 1955, 31st March 1956 and 31st March 1957 shall be applied pro rata towards the tax liability of the party of the first part and the parties of the second part mentioned in Schedule "Y" hereto.

The said parties shall however be at liberty to make any part payment at any time towards the said instalments not less than Rs. 10,000/- (Rupees ten thousand) at a time.

4. In the event of any instalment not being paid within the time , mentioned above (such time being deemed to be of the essence of the. arrangement) or in the event of it being found that the guarantee hereby given or any part thereof is not enforceable for any reason whatsoever the whole of the balance of the said sum of Rs. 67,48,841/11/- will at once become doc

and payable with interest at the rate aforesaid and Government w:ill (in addition to all rights for enforcement oi this document) be entitled to take ail steps to enlorce payment induding issue of certificate under Section 46(2) of tl1e Income Tax Act and proceedings under the West B1:ngal Public Demands Recovery Act and Revenue Recovery Act."

The .contention of the appellants is that the letters of the 22nd September, 1952 (one of which has been reproduced above as a sample) were accompanied by the notices of demand and on the breach of the payment of the instalment of Rs. 9,50,000/- on 31st March, 1953, the appellants became defaulters within the meaning of the Act in respect of the whole amount of tax.

Therefore recovery proceedings could only commence within the end of a financial year commencing from 31st March, 1953 since the payment of the instalment was co-terminus with the end of the financial year. This, according to them, was provided in the agreement itself in the extract just reproduced from the agreements above.

The other side contends that cl. (iv) of the proviso to s. 46, sub-s. ( 7) takes no account of the exigibility of the whole amount under a scheme of payment by instalments. Whenever instalments are granted the period of limitation counts from the last instalment and here it would be one year from March 31,

1957. The ddault could be taken note of earlier also because the whole amount remained exigible the moment the first default was made. In the present case the certificate was issued on March 14, 1956 and, therefore, it was well within the period of limita<ion.

The learned single Judge in the case (Sinha J.) very rightly pointed out that under the agreements two things were done. Firstly, the total liability of the parties was calculated and each party became jointly and severally liable for the whole sum. Then instalments were fixed and on the breach of a single instalment the whole of the amount became exigible. The assessment order reproduced the agreement as part of it and the agreement therefore became tl1e assessment order.

Under the assessment order a notice of demand was sent t<J pay the money oftbe first instalment of Rs. 9,.50,000/- by March 31, 1953. On breach of it the whole amount was said to be exigible and the demand in respect of that was also made. The appellants therefore, rightly concluded the Judge, became defaulters on the failure to pay the first instalment.

Since instalments were granted, cl. (iv) of the proviso to sub-s.

(7) of s. 46 applied to the case. This conclusion is correct. That clause does noi: mention about the exigibility of the whole amount or exigibility of any particular instalment. It only says that if

CHAMPA v. REVENUE BOARD (Hegde, J.) 477

instalments are granted time of one year ending with the end ot the tmancial years is to be calculated from the date on winch

the last instalment is payable.

The language of cl. (iv) of the proviso was untortunate in expressing this intent and has now been corrected in the new Act but the intention was always obvious. Even in the second agreement which replaced the first agreement the same condition obtained. There was a concession snown in the matter of penalty and smaller instalments were fixed.

But the Central Board of Revenue had stipulated even then that the concession mentioned above would only be available if the revised scheme of payment was strictly followed. In other words, payment was to be made by instalments an.d this concession therefore attracted the provisions of cl. (iv). The Government could always accept any instalment even if paid late without having to worry about the period of limitation of one year from the date of demand, since cl. (iv) of the first proviso gave them an option to wait till the last instalment was payable.

The scheme of the instalments took the matter out of the main part of su\>.s.

(7) and brought it within the proviso to clause (iv).

We are, therefore, satisfied that the High Court was right in holding that the certificates were issued within the period of limitation prescribed by law and were not barred by time. The first four appeals therefore fail and are dismissed with costs.

The other appeals need not be considered since special leave was granted against the main order and those appeals themselves have failed.

The remaining four appeals against order refusing certificate are accordingly dismissed as infructuous with no separate order as to costs.

Hegde, J.-These appeals should be allowed, as in my opinion the impugned certificate is barred under sub-s. (1) of s. 46 of the Indian Income Tax Act, 1922 (in short 'the Act').

The facts of the case are fully set out in the judgment of my Lord, the Chief Justice.

Hence there is no need to state them over again.

Under the agreement entered into between the assessees and the department, if the assesees fail to pay any one or more of the instalments fixed, the entire tax became recoverable forthw!th.

Ad!Uittedly the assessees failed to pay the instalments as stipulated m the agreement and therefore it was open to the department to recover the entire arrears of tax.

It is true that the default clause in the agreement was intended for the benefit of the department and therefore under the law of contract, it was open to the department to waive that Clause and sue for the recovery of the various instalments as and when they fell due. But that aspect of the quetiQII is not relevant for considering the true

scope of sub-s. (7) of s. 46.

Section 46 creates a special machinery for the recovery of arrears of tax.

Section 46 is found in Ch. IV of the Act which deals with recovey of tax and penalties.

Section 45 prescribes, when an assessee becomes a defaulter.

The main part of that section says :

"Any mnount specified as payable in a notice of demand under sub-section (3) of section 23A or under section ~9 or an order under section 31 or section 33, shall be paid within the time, at the place and to the person men1ioned in the notice. or order or if a time is not so mentioned, then on or before the first day of the second month following the date of the service of the notice or order, and any assessee failing so to pay shall be deemed to be in default, provided that, when an assessee has presented an appeal undef section 30, the Income-tax Officer. may in his discretion treat the assessee as not being in default as long as such appeal is undisposed of."

(The proviso to that section and the explanation are not relevant for our present purpGse).

For finding out whether an assessee is a defaulter or not, all that we have to see is whether he has failed to comply with the

proviions of s. 45. If he has.Uild to comply with the demand made in accordance with the provisions in s. 45 within the time mentioned therein then he is 'defaulter' within the meaning of 'the Act'. Unless the assessee is a defaulier, no action can be taken against him under s. 46.

Non-fulfLment of the terms of the agreement does not amount to a default under s. 45. Therefore the first thing we have to see is when the assessees became defaulters.

For deciding that question reference to the agreement is irrelevant. Admittedly demand notices under s. 29 had bee!Drissued

to the assessees on September 22, 1952 in respect of the entire tax due from them.

Therefore they became defaulters as soon as they failed to comply with those demands.

This takes .. us to s. 46.

Sub-s. (1) of s. 46 says : . "When an assessee is in default in making a payment of income-tax, the Income-tax Officer may in his discretion dimct that, in addition to the amount of the arrears, a sum not exceeding that amount shall be recovered f:rom the assessee by way of penalty."

The default referred fo in this sub-section is necessarily a default under s. 45.

That much is obvious froin the scheme of Ch. VI.

Now let us read sub-s. (7) of s. 46. It is as follows :

CHAMPA v. REVENUE BOARD (Hegde, J.) 479

"Save in accordance with the provisions of sub-section (1) of section 42 or to the proviso to section 45, no proceedings for the recovery of any sum payable under this Act shall be commenced after the expiration of one year from the last day of the financial year in which any demand is made under this Act :

Provided that the period of one year herein referred to shall ~

(iv) where the sum payable is allowed to be paid by instalments, from the date on which the last of such instalments was due".

If we read the impugned sub-s. (7) of s. 46, it is clear that no proceedings for the recovery of any sum payable under the Act can be commenced after the expiration of one year froI!l the last day of the financial year in which any demand is made under the Act. In the instant case, the demands in question were made on September 22, 1952. Therefore the recovery proceeding's should have been commenced before 31st March 1953 but actually. they were commenced on March 14, 1956.

Hence they are prime. facie barred.

This talces us to sub-cl. (iv) of the proviso to sub-s. (7) of s. 46.

Under that proviso where the sum payable is allowed to be paid by instalments, the one year prescribed in sub-s. (7) of s. 46 will be. computed from the date on which the last of such )nstalments

was due.

The expression "was due" does not appear. to be grammaticalfy correct. It should have been "is due".

This correction has been made in the corresponding provision of the 1961 Indian Income• Tax Act; but that error is immaterial for our present purpose.

The words "was due" can only mean "is due" even under the Act. For finding out when the sum claimed 'was due', we must again go back to s. 45.

In view of the demand notices issued in September 1952 and sum became due when the assessees became defaulters and therefore the recovery proceedings under the Act should have been initiated before March, 1954.

The same having not been initiated before that date, the proceedings .in question must be held to have been barred.

In my opinion for finding out the date on which the last instalment was due, we cannot fall back on the agreement between the assessees and the revenue.

Chapter V of the Act has nothing to do with the agreement between the assessees and the revenue.

The expression "was due'~ in s. 46(7) has reference to the tax which is due in accordance with the provisions in ss. 45 and 46,

For the reasons mentioned above I allow these appeals. A

ORDER

In accordance with the opinion of the majority, Civil Appeals Nos. 564, 566, 568 and 570 of 1966 (arising from the common judgment and orde:r of the Division Bench of the Calcutta High a Court, December 10, 1963) are dismissed with costs.

The other appeals are also dismissed as infructuous with no separate order as to costs.

Y.P.

CHAMPA KUMARI SINGm & ORS

THE MEMBER BOARD OF REVENUE, WEST BENGAL AND OTHERS

C. SHAH

K. S. HEGDE

A. N. RAY

I. D. DuA, JJ.

ss. 46 and 47

March 31, 1957

March 31, 1953

s. 23

Income-tax Act, 1922

s. 46(2)

s. 4

Indian Income-tax Act, 1922

Hidayatullah

Shah

Grover

Ray

Dua

S. 47(7)

Per Hegde

s. 45

s. 46

s. 45

s. 46

s. 47(7)

s. 46(7)

s. 45

Chapter V of the Act

s. 46(7)

ss. 45 and 46

CIVIL APPELJCATE JURISDICTION

Calcutta High Court

G

M. C. Chagla

P. N. Tiwari

I. B. Dadachanji

C. Mathur

Ravinder Narain

Jagadish Swarup

R. Gopalakrishnan

R. N. Sachthey

M. HIDAYATULLAH

J. c. SHAH

A. N.

GROVER

I. D. DUA

HIDAYA- TULLAH

Hidayalullah

April 23, 1959

November 24, 1964

Art. 133(1)

Dalchand Singhi

Madhya

Pradesh

Bahadur Singh Singhi

Jhagrakhand Collieries Ltd.

Bahadur Singh

Rajendra Singh Sin

Birendra Singh Singhi

July 7, 1944

Narendra Singh Singhi

Rajendra Singh Singhi

December 12, 1950

Champa Kumari

Ashok Kumar Singhi

Chandn1 Kumar Singhi

July 3, 1951

July 31, 1951

November 28, 1951

Champa Kumarj

Narendra Singh Singhi

August 29, 1952

September 22, 1952

Champa Kumari Singhi

V. Satyamurti

s. 29

Income-tax Act

March 25, 1953

s. 33

s. 23

Income-tax Act

March 31, 1954

December 27. 1954

31. 1954

March 14. 1956

s. 46(2)

Income-tax Act

s. 7

s. 9

January 5, 1957

s. 51

s. 46(7)

Indian Income-tax Act, 1922

G Union of India

s. 53

Art. 226

Sinha

Mookerji

Sen

Art. 133(1)

Cbagla

s. 46

Indian Income Tax Act, 1922

ss. 1 and 7

section 42

section 45

31st March, 1957

31st March, 1953

31st March, 1954

31st March 1955

31st March 1957

Section 46(2)

Income Tax Act

22nd September, 1952

s. 46

March 31,

1957

March 14, 1956

s. 46

Central Board of Revenue

Hegde

s. 46

Indian Income Tax Act, 1922

s. 46

Section 46

Section 46

Section 45

section 23A

section 31

section 33

section 30

s. 45

s. 45

s. 46

s. 45

s. 29

s. 46

s. 46

s. 45

s. 46

section 42

section 45

s. 46

31st March 1953

s. 46

s. 46

s. 45

Chapter V of the Act

s. 46(7)

ss. 45 and 46

Calcutta High a Court

December 10, 1963