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S. T. C. Application No. 251 of 1972, decided on 18th April, 1983.

‑‑ Ss. 28 & 5(3)‑Interpretation of statutes‑Practice and procedure--Departmental instructions followed for a considerably long period --Held, such practice cannot be departed‑Form SST‑15 prescribed by C. B. R. not in derogation of any provision of Act or Rules framed thereunder‑Form consistently followed by Sales Tax Officers while issuing notice under S. 28 and binding on Sales Tax Officers by virtue of S. 5(3)‑Held, Sales Tax Officer bound to adopt period of 35 days mentioned in Form S. S. T. 15.

‑‑ S. 28‑Contention that deletion of 35 days period mentioned in Form S. S. T. 1: not rendered assessment void as Form permitted by C. B. R. was only directory in nature and any departure from said. Form would not render assessment void‑Held, absence of any specific prejudice caused to assessee may not have effect of rendering assess ment void‑Time allowed to assessee to file return curtailed to prejudice and disadvantage of assessee not merely question of departure from Form‑Assessee allowed 3 days period to file return of sales tax for a period of 10 years‑Assessee could file quarterly return within 30 days of end of quarter‑Held, assessee should have been allowed period which assessee provided for filing quarterly return‑Sales Tax Officer could not fix period less than that mentioned in Form or alternatively not less than period prescribed under S. 10 for filing of quarterly return.

Nasrullah Awan for Applicant.

Ali Athar for Respondent.

Date of hearing : 4th April, 1983.

‑These direct references under section 17(i) of the Sales Tax Act, 1951 (we will hereafter refer it as the Act only) have been filed by the department referring the following two questions for our decision :‑

"(ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the notice dated 21‑6‑1965 which was issued under subsection (2) of section 28, was void ab initio because it did not allow 35 days time for the filing of the returns

(iii) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that there is a‑ minimum mandatory period of 35 days for filing returns required under sub section (2) of section 28 of the Sales Tax‑Act, 19 1‑wbich the Sales Tax Officer must allow for filing returns under that provision (subsec tion (2) of section 28 of the Sales Tax Act, 1951."

These references relate to the assessment years 1955‑56 to 1957‑58. For these years the Sales tax Officer issued notices to the respondent under section 28 of the Act on 21‑6‑65 requiring him to file the returns of Sales fax on 24‑6‑1965. No returns were submitted by the respondent and accordingly the Income‑tax Officer passed the following order :‑

In response to notice under section 28 of the Sales Tax Act, 1951. Mr. Tasawar Ali, Accountant attended. Case discussed and assessment is completed as under :‑

Issue demand notice and challan accordingly."

The assessment orders of all these years are identical except the figures of estimated sale, which is shown as Rs. 72,000 for 1956‑56 while for the years 1956‑57 and 1957‑58 the same is shown as Rs. 75,000, respectively. The respondent /assessee filed an appeal against the order of Sales Tax Officer before the Appellate Assistant Commissioner of Income Tax which was dismissed and the order of the Sales Tax Officer was maintained. On further appeal by the respondent before the Income Tax Appellate Tribunal, the assessment orders for these years were set aside on the ground that the notices issued by the Sales Tax Officer in respect of the assessment years 1955‑56 to 1957‑58 were invalid and therefore the assessment proceedings were also held to be invalid. Against the order of Appellate Tribunal the department filed the above references.

The learned counsel for the department contended before us that there being no period of limitation prescribed either under the Act or the rules framed thereunder for filing of return in response to a notice issued under section 28 of the Act it was open to the Sales Tax Officer to fix any period in the circumstances of these cases. The learned counsel further contended that the Form S.S.T. 15 prescribed by the Board of Revenue had no binding effect and in any case the Sales Tax Officer was not bound to adopt the period of 35 days mentioned in the said form. The learned counsel for the assessee/respondent on the other hand contended that under section 5(3) of the Act all directions, orders and instructions issued by the Central Govern ment are binding on all officers who are charged with the duty of execution of the Act and therefore the form of notice to be issued under section 28 of the Act prescribed by the Government is binding on ail officers of the depart ment in all respects while discharging their functions under the Act. It is also contended that although the Act or the rules did not prescribe any specific period for filing of return by an assessee in response to a notice issued under section 28 of the Act, but Form S. S. T. 15 which has been prescribed by the .C. B. R. in this regard has been followed by the department since 1951, ever Since the Act came into force, and therefore, it had almost acquired a binding effect and could not be disregarded. Alternatively it is contended by the learned counsel that the notices dated 21‑6‑1965 issued by the Sales Tax officer required the respondent to file the returns for the period 1955‑56 to 1957‑58 within a period of 3 days of the notice. This period allowed by the S. T. Officer, it is contended, could not by any standard be considered as a reason able time as the S. T. Officer was: bound to fix a reasonable period for filing these returns in the absence of a provision in the Actor in the rules framed thereunder in this behalf. The reasonable period in the submission of learned counsel in‑these cases could not be less than the period prescribed under section 10 of the Act for filing of the quarterly returns under the Act. After careful consideration of the arguments of the learned counsel we are of the opinion that the view taken by the tribunal is quite reasonable and in accordance with the law. Section 28 of the Act gives powers to Sales Tax Officer to assess the tax payable under the Act for any years, which has not been paid for any reason, after issuing notice to the assessee and after making such enquiry as the Sales Tax Officer may consider necessary. Such assessment could be made within a period of four years from the end of that years. By Finance Act V of 1964 which was enforced on 30‑6‑1964 the following subsection (2) was added after subsection (1) of section 28, Sales Tax Act :‑‑

"(2)‑ Notwithstanding anything to the contrary contained in subsection (1), the assessment for the tax payable for any one quarter or more quarters than one of the period beginning on the first day of April 1954 and‑ending on the thirtieth day of June, 1961 may be made at any time before the thirtieth day of June, 1965, after issuing a notice to the assessee and making such enquiry as the Sales Tax Officer considers necessary and no assessment or re‑assessment made, any other proceeding taken or notice issued shall be called in question by any Court, tribunal or any authority merely on the ground that at the time the assessment or re‑assessment was made, proceeding taken or notice issued the time within which much assessment or re-assessment should have been made, proceeding taken or notice issued under this section, as in force before its amendment, had expired ;"

As a result of insertion of section (2) in section 28 of the Act it became permissible for the Sales Tax Officer to draw proceeding for assessment of Sales Tax in respect of any year between the period from 1‑4‑1954 to 30‑6‑1961 which was not paid and which otherwise could not have been done because of the bar of 4 years' period provided in subsection (1) of section 28 of the Act: However, such assessment under section 28(2) of the Act had to be completed before 30‑6‑1965. In the case before us the Sales Tax Officer issued notices in Form S: S. T. 15 to the assessee on 21‑6‑1965 requiring him to file returns of sales tax for the assessment years 1955‑56 to 1957‑58 by 24‑6‑1965 and while doing so the Sales Tax Officer scored off the portion of notice which provided that the return, could be filed by the assessee within 35 days of the receipt of notice. This was done presumably to bring the assessment within the period allowed by newly‑added subsection (2) of section 28 of the Act. Although thereafter, in each successive year the time limit was extended and finally by Finance Act XL of 1974 the subsection (2) of section 28 of the Act was omitted and in its place a new section 28(A) was permanently added. Be that as it may, the question raised before the Income Tax Appellate Tribunal was that whether the deletion of 35 days period provided in the Form S. S. T. 15 by the Sales lax officer and requiring the assessee to file the return, within 3 days of the receipt of notice was valid or not. It is true that/the Act or the Rules framed thereunder do

not. It is true that the Act or the Rules framed thereunder do not provide for any period within which a return of sale tax is to be filed in response to a notice issued to an assessee under section 28 of the Act but it is not disputed that the Central Board of Revenue had prescribed Form S. S. T. 15 for issuing such a notice under section 28 of the Act and this form is followed by the Sales Tax Officer invariably since 1951. For the sake of convenience we reproduce here the Form S. S. T. 15 prescribed by the Central Board of Revenue which is as follows

"Form S. S. T. 15

NOTICE UNDER SECTION 28 OF THE SALES TAX ACT, 1951

DATED 19 Office of the G I R No.

Licence No.

To

Assessment year/quarter ending .

Whereas I have reason to believe that the value of taxable sales of your business in the year/quarter ending . . . . . . 19 . . . .

(i) has wholly/partially escaped assessment:

(ii) has been assessed at too low a rate and I therefore propose.

(a) to assess the said value of taxable sales that escaped assessment.

(b) to revise the‑ assessment of sales tax.

(2) I hereby require you to deliver to me not later than or within thirty‑five days of the receipt of this notice, a return in the attached form of total taxable sales of your business assessable for the years/quarter ending . . . . . of . . . . 19

In the case of Nazir Ahmed v. Pakistan (PLD 1970 SC 453) the learned Judges of Supreme Court while dealing with the effect of a long established departmental cons truction/practice of a service rule by the department, made the following observations which respectfully reproduce here :‑‑

Mr. Mahmood Ali Kureshi, the learned counsel for the appellant, has contended that the construction of the words "appointed at one time" as meaning "selected at one time" for training has been consistently interpreted by the department itself in that sense, and that if a different view is now taken, the seniority of a large number of Engineering Supervisors will be upset. He has cited instances to support his sub mission which illustrate that the department has maintained seniority, of the candidates in the cadre from the date of their selection for training after passing the competitive examination of the Engineering Supervisors in a particular year irrespective of the dates of their subsequent postings to their jobs. To check this point, we had sent for the Director‑General of the Department who was unable to controvert this position. The departmental practice has followed the right course in the implementation of the relevant rule but whether right or wrong, it will be extremely unfair to make a departure from it now after a lapse of so many years and to disturb rights that have been settled by a long and consistent course by this practice.

In the case of the appellant, the seniority initially accorded to him has held the ground continuously for ten long years until it was disturbed by the impugned order. This, to say the least, is bound to weaken the faith of the employees in the attitude and behaviour of the department. A passage from Crawford's Statutory Construction (1940 edition at page 399) may be usefully reproduced to point out the effect of "departmental construction", that to say, the construction which is placed in practice on the provisions of a statute or rules by the administrative authorities who are charged with the execution of the statute or the rules. The learned author observes: "Where the executive construction has been followed for a long time an element to estoppel seems to be involved. Naturally many rights will grow up in reliance upon the interpretation placed upon a statute by those, whose duty it is to execute it. Often grave injustices would result should the Courts reject the construction adopted by the executive authorities."

It would appear from the above-quoted passage that where a Government.

It would appear from the above‑quoted passage functionary acting under a statute adopts a particular construction with regard to any departmental instruction lawfully issued in that behalf and follow a practice built upon that interpretation for a considerably long period it would not be permitted to depart from such practice or interpretation normally. In the cases before us the learned counsel for the department is unable to show that Form S. S. T. 15 prescribed by the C. B. R. was in any way in deroga tion of any of the provisions of the Act or the rules framed thereunder. On the contrary the admitted position in these cases is that Form S. S. T. 15 prescribed by the C. B. R. was being consistently followed by the Sales Tax Officers while issuing notices under section 28 of the Act, since 1951. Apart from it the learned counsel for the respondent rightly pointed out that form S. S. T. 15 prescribed by the C. B. R. in this behalf was binding on the Sales 'fax Officer by virtue of section 5(3) of the Act.

The effect of instructions and the circular, issued by the Central Board of Revenue under the Indian Income‑tax Act, was considered by the Supreme Court of India in the light of section 5(B) of Indian Income‑tax Act which is similar in its terms to section 5(3) of the Act, in the cases of Navoit Lal C. Javeri v. K. K. San, Appellate Assistant Commissioner of Income‑tax Bombay (1969 P T D 93 ) and Ellerman Lines Ltd. v. Commissioner of Income Tax, West Bengal I ((1971) 821 T R 913). In the first referred case the Supreme Court of India considered the effect of a circular dated 10‑5‑1955 issued by the C. B. R. there, which exempted from tax the outstanding loans and advances to the share‑holders of the Company which were otherwise liable to be taxed as dividends in the year 1955‑56, if they were genuinely refunded to the respective companies before 30th June, 1955. The Supreme Court of India while examining the validity and the binding effect of the above circular by C. B. R. which was challenged before it held as follows.:‑‑‑

"There is another material circumstance which cannot be ignored. It appears that when these 'amendments were introduced in Parliament, the Hon'ble Minister for Revenue and Civil Expenditure gave an assurance that outstanding loans and advances which are otherwise liable to be taxed dividends in the assessment year 1955‑56 will not be subjected to tax if it is shown that they had been genuinely refunded to the respective companies before the 30th June, 1955. It was realises by the Government that unless such a step was taken, the operation

of section 12(1‑B) would land to extreme hardship, because it would have covered the aggregate of all outstanding loans of past years and that may have imposed an unreasonably high liability on the respective share‑holders to whom the loans might have‑been advanced: In order that the assurance given by the Minister in Parliament should be carried out, a circular (No. 20 (XX1‑6)/55) was issued by the Central Board of Revenue on the 10th May, 1955. It is clear that a circular of the kind which was issued by the Board of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under section 5(8) of the Act. This circular pointed out to all the officers that it was likely that some of the com panies might have advanced loans to their share‑holders as a result of genuine transactions of loans, and the idea was not to affect such transactions and not to bring them within the mischief of the new provision. The officers were, therefore, asked to intimate to all the companies that if the loans were repaid before the 30th June, 1955, in a genuine manner, they would not be taken into account in determining the tax liability of the share‑holders to whom they may have been advanced. In other words, past transactions which would normally have attracted the stringent provisions of section 12 (1‑B) as it was introduced in 1955, were substantially granted exemption from the operation of the said provisions by making it clear to all the com panies and their share‑holders that if the past loans were genuinely refunded to the companies, they would not be taken into account under section 12(1‑B). Section 12(1-B) would, therefore, normally apply to loans granted by the companies to their respective share‑holders with full notice of the provisions prescribed by it."

The second case referred to above the‑Indian Supreme Court while examining the instructions issued by the Indian C. B. R. with regard to principles to be applied in assessing the foreign shipping company and specially the British Shipping Companies, who were permitted under the said instruction to elect to be assessed on the basis of a ratio certificate granted by the U. K. authorities regarding the income or loss and the wear. and tear allowance, held as follows :‑

"The learned Solicitor‑General appearing for the revenue at one stage of his arguments contended that the instructions issued by the Board of Revenue cannot have any binding effect and those instructions cannot abrogate or modify the provisions of the Act. But he did not contend that rule 33 is ultra vines the Act. The instructions in question merely lay down the manner of applying rule 33.

Now coming to the question as to the effect of instructions issued under section 5(8) of the Act, this Court observed in Navnit Lal C. Javer v. K K. Sen, Appellate Assistant Commissioner, Bombay:

It is clear that a circular of the kind which was issued by the Board would be binding on all‑officers and persons employed in the execution of the Act under section 5(8) of the Act. This circular pointed out to all the officers that it was likely that some of the companies might have advanced loans to their shareholder as a result of genuine transactions of loans, and ‑the idea was not to affect such transactions and not to bring them within, the mischief of the new provision.

The directions given in that circular clearly deviated from the provisions of the Act, yet this Court held that the circular was binding on the Income‑tax officer."

We are in respectful agreement with the view expressed by Indian Supreme Court in above‑noted two cases and accordingly hold that the Form of notice i.e (S. S. T. 15) prescribed by the C. B. R. is binding on all officers and persons who are employed in the execution of the Act by virtue of section 5 (3) of the; Act. The learned counsel for the department referred us the case, of, Commissioner of Sale; Tax v. Shaikh Inayatullah (1966 P T D 287) and contented that the deletion of 35 days period mentioned in the form S. S. T. 15 by the Sales‑tax Officer while issuing notice to respondent did not render the assessment void as the form permitted by the C B R was only directory in nature and any departure from it could not have the effect of rendering the assessment void. No doubt in the case cited by the learned counsel the Court held that a departure from the prescribed form would not render the assessment void but in the cases before us the question is not merely of the departure from the prescribed form. The question before us is whether in the circumstances of the case the deletion of 35 days period allowed in form S. S. T. 15 to the assessee to file the return in response to the notice under section 28 of the Act and providing a lesser period of 3 days only in its place amounted to an illegality which tendered the assessment void. It is true that in the absence of any specific prejudice caused to the assessee, each and every departure from the form of notice prescribed by the authorities may not have the effect of rendering the assessment void but where the time allowed to the assessee under the prescribed from file the return in response to a notice under section 28 of the Act is sought to be curtailed to the prejudice and disadvantage of an assessee it does not remain merely the question of departure from the prescribed form. In the case before us the S. T. C. had allowed only three days time to the assessee to file the returns of sales tax in response to notices issued under section 28 of the Act for a period which was 10 years earlier to the date of issue of notice. Could this be considered as a reasonable period for filing the returns, in the absence of a provision in the Act in this behalf It is not disputed that under section 10 of the Sales Tax Act an assessee could file return of sales tax for every quarter within 30 days of the end of the quarter. Wt‑ fail to see why a similar period should not be allowed to an assessee who is called upon to file his return in respect of an assessment year under section 28 of the Act. We are therefore of the view that in the absence of a provision in the Act and the rules framed thereunder providing for filing of return of sales tax in response to a notice under section 28 of the Act, the respondent should have been allowed at least that period for filing the returns which an assessee would be entitled to under the Act for filing the quarterly return from the date the notice under section 28 were issued to respondent by the Sales Tax Officer:

In the light of the above discussion and after carefully considering the case law cited at the bar we are of the view that the form of notice (S. S. T. 15) prescribed by the C. B. R. for issuing notice to an assessee under section 28 of the Act, is binding on the Sales Tax Officer and therefore he could nor fix a period less than that which is mentioned in the said form for filing of a return by the assessee in response to that notice. Alterna tively the Sales Tax Officer while issuing notice under Section 28 of the Act was bound to fix a reasonable period for filing of the return from the date of such notice which could not be less than the period prescribed under section 10 of the Act, for filing of the quarterly return of sales tax by an assessee. We therefore answer the questions referred to us accordingly but leave, the parties to bear their respective costs in the circumstances of the case.

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