Commissioner Of Income Tax vs M/S Pratap Steel Rolling Mills
2010 Latest Caselaw 3256 Del

*          IN THE HIGH COURT OF DELHI AT NEW DELHI


+                      STR No.14-17 of 1989

                                    With

            STR No. 18 of 1989 and STR No. 7 of 1991


%                                 Decision Delivered On: 14th July, 2010.


1. STR Nos. 14 - 17 of 1989

    COMMISSIONER OF INCOME TAX                                . . . Appellant

                       through :            Mr. H.L. Taneja, Advocate


                             VERSUS

     M/s PRATAP STEEL ROLLING MILLS                         . . .Respondent

                       through:             Nemo


2. STR No.18 of 1989

    COMMISSIONER OF INCOME TAX                                . . . Appellant


                       through :            Mr. H.L. Taneja, Advocate


                             VERSUS

     M/s PRATAP STEEL ROLLING MILLS                         . . .Respondent

                       through:             Nemo



3. STR No. 7 of 1991

    COMMISSIONER OF INCOME TAX                                . . . Appellant


                       through :            Mr. H.L. Taneja, Advocate


                             VERSUS




STR 14-17 of 1989 & Others                                     Page 1 of 9
      M/s SARDAR OIL                                          . . .Respondent

                         through:           Nemo


CORAM :-
    HON'BLE MR. JUSTICE A.K. SIKRI
    HON'BLE MS. JUSTICE REVA KHETRAPAL

     1.    Whether Reporters of Local newspapers may be allowed
           to see the Judgment?
     2.    To be referred to the Reporter or not?
     3.    Whether the Judgment should be reported in the Digest?


A.K. SIKRI, J. (ORAL)

1. In all these cases, questions of law, which are referred for opinion

of this Court, at the instance the Commissioner of Sales Tax on

applications filed under Section 45 of the Delhi Sales Tax Act,

1975, are common which are reproduced below:

(i) Whether learned Appellate Tribunal was empowered

and had jurisdiction to go into the vires of the

provisions of Rule 23 (a) of the Delhi Sales Tax Rules,

1975?

(ii) Whether the learned Tribunal was justified in holding

that Rule 23A was repugnant to the relevant

provisions of the Act and the penalty was not

imposable?

2. For the sake of convenience, we may take note of the facts from

STR No.14-17 of 1989 in which the assessees M/s. Pratap Steel

Rolling Mills is a private limited company and is engaged in the

business of manufacture and sale of iron and steel. On the basis

of its sales tax registration certificates, the appellant purchased

iron scrap from the registered dealers by giving them declarations

in ST-1 forms and sent it to its Ballabhgarh factory in Haryana for

fabrication and after fabrication, received back the fabricated

goods for sale in Delhi. But it did not show purchase price of

unutilized raw materials in each quarterly return filed but showed

the same in the turnover for each year and got itself assessed

accordingly. The Assessing Officer (AO) was of the view that

under Rule 23A of the Delhi Sales Tax Rules, 1975 (hereinafter

referred to as „the Rules‟), it ought to have shown the purchase

price of unutilized raw materials in every quarterly return and paid

the tax on that amount within the prescribed period, i.e., 45 days

from the end of the quarter to which the return related to.

Consequently, the AO had not only imposed tax on the price of the

unutilized raw materials for each quarter but also imposed

interest on the tax so calculated.

3. Aggrieved by the order of the AO, the respondent-dealer filed

appeal before the Deputy Commissioner and the Deputy

Commissioner rejected the appeals of the respondent-dealer.

4. Feeling aggrieved, the respondent filed appeal before the Income

Tax Appellate Tribunal (hereinafter referred to as „the Tribunal‟)

and the Tribunal accepted that appeal. It held that the price of

the raw materials purchased on the basis of registration

certificates and not utilized in the manufacture of the goods will

be added to the taxable turnover (yearly) of the dealer and not in

the quarterly returns. The liability to pay interest will arise only

after the assessment is made and the amount of tax is not

deposited within a month from the service of demand notice. It

also held on the basis of an authority of the Tribunal in the case of

Hamdard Dawakhana Vs. C.S.T. in Appeal No.276/STT/80 that

Rule 23A is repugnant to the provisions of Section 2(9) of the Act

which defines „turnover‟ and so the liability to pay interest arises

after the amount of tax has been assessed under Section 23 or 24

of the Act and the dealer will be liable to pay interest after the

expiry of 30 days from the service of Notice demanding the

payment of tax. Therefore, it directed the Sales Tax Officer that

the interest would be calculated at the permissible rate with effect

from the date next following the date of expiry of one month from

the service of demand notice.

5. Thus, the view taken by the Tribunal, the dealers who violated the

declaration in From ST-1 inasmuch as they purchased raw

materials free of tax, on the strength of the said declaration for

use in the manufacture of goods in Delhi but transferred the raw

materials to a place out of Delhi for manufacture of goods.

Viewed thus, according to Rule 23A the dealers were liable to pay

tax along with interest with the return for the quarter following the

quarter during which such violation took place. But, the view

taken by the Tribunal was that interest was payable only when

assessment for the return period was made and the dealer did not

pay the tax within 30 days as envisaged by Section 27 of the Act.

6. Before we consider to answer these questions, we deem it

appropriate to point out that such questions had been referred in

other cases including in the case of Hamdard Dawakhana

(supra) itself, as well. Feeling aggrieved by the aforesaid order

of the Tribunal, Commissioner filed application for reference and

the Tribunal vide its order dated 13.10.1989 referred the aforesaid

questions of law for the opinion of this Court. Under almost

similar circumstances and relying upon the judgment of the

Tribunal in the case of Hamdard Dawakhana (supra), the same

questions are referred in other cases as well. Both these

questions need to be answered addressing one aspect, viz.,

whether it is within the powers of jurisdiction of the Tribunal to go

into the vires of the provisions of statutory rules.

7. The first reference registered as S.T. Reference No.12 of 1987 in

the case of Hamdard Dawakhana (supra) came up before a

Division Bench of this Court on 28.309.2005. This Reference was

returned unanswered on account of the fact that paper books had

not been filed for over 17 years. However, the Court granted

liberty to the Revenue to seek recall of the said order dated

28.09.2005 in case the requisite paper books were filed within six

months from that date. But unfortunately, the counsel who

appeared on 28.09.2005 neither informed the Department about

the order passed nor did he himself file the paper books within six

months. Subsequently, in the year 2008, when the Department

on a letter addressed to the Registrar of this Court came to know

about the order dated 28.09.2005, the Department filed an

application for restitution along with an application for

condonation of delay, relying on a judgment of the Supreme Court

in the case of Rafiq and Anr. Vs. Munshilal and Anr. [AIR 1981

SC 1400] that no one should suffer for the lapse on the part of the

counsel, but this application was rejected considering that there

was inordinate delay of three years.

8. In another case also, viz., S.T. Reference No. 5 of 1989 entitled

Commissioner of Sales Tax Vs. Lloyds Sales Corporation,

these questions were referred. However, vide orders dated

09.01.2009, this Court returned the said Reference unanswered

for the reasons stated therein. Main reason was that the

judgment of the Tribunal in that case was not founded on Rule

23A being repugnant to Section 2(o) of the Act.

9. Therefore, it is clear that none of these questions have been

answered so far, on merits.

10. With the aforesaid introductory remarks, we revert back to the

merits of this case.

11. Law on this aspect is well-settled, viz., an authority created under

a statute cannot question the vires of the statute or any other

provision thereof, as it functions within the four corners of the Act

and not outside it. Likewise, it is also a trite law that the Rules

made under the statute must, for all purposes of construction and

obligation be construed as if they were in the Act and are to be of

the same effect as contained in the Act, or that there is a

presumption of constitutionality in respect of law made by the

legislature.

12. Following are the judgments which laid down the aforesaid

proposition of law:

In the case of K.S. Venkataraman & Co. Vs. State of

Madras [60 ITR 112], the Supreme Court explained that a statute

imposes a liability and creates an effective machinery for deciding

questions of law or fact arising in regard to that liability, it may, by

necessary implication, bar the maintainability of a civil suit in

respect of the said liability. A statute may also confer exclusive

jurisdiction on the authorities constituting the said machinery to

decide finally a jurisdictional fact thereby excluding by necessary

implication the jurisdiction of a civil court in that regard. But an

authority created by a statute cannot question the vires of that

statute or any of the provisions thereof whereunder it functions. It

must act under the Act and not outside it. If it acts on the basis of

a provision of the statute which is ultra vires, to that extent it

would be acting outside the Act. In that event, a suit to question

the validity of such an order made outside the Act would certainly

lie in a civil court.

This position was reiterated by the Apex Court in the case of

Collector of Central Excise Vs. Doaba Co-Operative Sugar

Mills Ltd. [1988 (37) E.L.T. 478] holding that the Authorities

functioning under the Act are bound by the provisions of the Act.

A Division Bench of this Court in the case of M/s. Radhey

Shiam Sharma Vs. Sales Tax Officer & Others, following the

aforesaid dicta, reiterated the legal position in the following

manner:

"10. It is fairly well-settled in law that a forum, which is creature of a statue, cannot adjudicate upon the constitutional validity of a provision or the vires of that statute. By a catena of decisions, for example, K.S. Venkataraman & Co. (P) Ltd. v. State of Madras, (1966) 2 SCR 229; Commissioner of Income Tax v. Straw Products Ltd., (1966) 60 ITR 156; C.T. Senthilnathan Chettial v. State of Madras, (1968) 67 ITR 102; Alpha Chem v. State of U.P. (1993) 89 STC 304 and C.W.T. v. Hashmatunnisa Begum (1989) 176 ITR 98 (SC), the position has been clarified. Therefore, a forum, which is created under a statute, cannot adjudicate upon the vires of provisions of that statute. In Hashmatunnisa Begum‟s case (supra), while dealing with reference under Wealth-tax Act, 1957, the Apex Court inter alia, observed as follows:-

xxx xxx xxx

We, however, should not be understood to have pronounced on the question of constitutionality. That is the task of the Court in a judicial review by the rule of preference of a particular construction amongst alternatives, in order to avoid unconstitutionality is unavoidable here.

In alpha Chms‟s case (supra), the Apex Court observed, inter alia, as follows:-

"As the Tribunal is a creature of the statute, it can only decide the dispute between the assessee and the Commissioner in terms of the provisions of Act. The question of ultra vires is foreign to the scope of its jurisdiction."

By application of the same logic, an authority‟s power is circumscribed by the provision giving such power. If an authority does something, which is not provided for in the provision conferring the power he would be transgressing the jurisdiction of power conferred. Such action is indefensible in law."

13. We, thus, answer the questions referred in favour of the Revenue

holding that the Tribunal had no power or jurisdiction to declare

the provision of Rule repugnant to the provisions of the Act.

(A.K. SIKRI) JUDGE

(REVA KHETRAPAL) JUDGE JULY 14, 2010.

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