Holding

A genuine administrative mistake in computing entertainment tax may be rectified by the assessing authority after giving the assessee a hearing, without liability to interest or penalty.

Summary

The respondent, owner of Hi Tech Theatre in Serilingampally Municipality, filed an application for entertainment tax under Section 5 of the Andhra Pradesh Entertainment Tax Act, 1939 before the municipality was upgraded from Grade III to Grade II on 18 May 2001. The Entertainment Tax Officer, unaware of the upgrade, assessed tax based on the old grade, a mistake later pointed out in 2005. The respondent challenged a show‑cause notice issued under s.5(6) seeking additional tax, interest and penalty. The Supreme Court held that a genuine administrative mistake can be rectified, the correct quantum determined by the appropriate authority after a hearing, and that no interest or penalty may be imposed. Consequently, the appeal was allowed, permitting rectification of the tax demand without costs.

Issues considered

Whether s.5(6) of the Andhra Pradesh Entertainment Tax Act, 1939 limits the authority to vary the tax amount only during the period for which the option is valid.
Whether a mistake in tax computation arising from municipal grade up‑gradation can be rectified after the assessment period and what procedural safeguards are required.
Whether interest or penalty can be levied on the amount of tax corrected after rectification.

Subjects

Entertainment taxMistake rectificationAndhra Pradesh Entertainment Tax ActTax assessmentMunicipal grade upgradeInterest and penaltyNatural justiceAdministrative error

Judgment

ENTERTAINMENT TAX OFFICER, MADHAPUR CIRCLE, A
HYDERABAD
v.
MIS. HI TECH THEATRE, MADHAPUR, HYDERABAD

SEPTEMBER 24, 2007 B
[S.B. SINHA AND H.S. BEDI, JJ.]
)...!

Andhra Pradesh Entertainment Tax Act, 1939:
S.5-Tax payable by cinema owner dependant on gradation of
c
municipality-Upgradation of municipality-Assessing officer
ignorant of upgradation-:-Mistake thereby in computation of tax
payable-Held: Mistake can be rectified-Question as to quantum of
difference may be determined by appropriate authority after giving
opportunity of hearing to assessee-However, assessee not liable to
D
pay any penalty and interest on the said amount.
Respondent owner of a cinema theatre was liable to payment
of entertainment tax. S. 5 of Andhra Pradesh Entertainment Tax Act,
provided for computation of tax on the basis of an option to be E
exercised by the owner of the theatre subject to the conditions as
may be prescribed therefor. The scheme for exercise of such an
option is that; (i) a proprietor has to file an application in the
::-{
prescribed form before the prescribed authority; (ii) the authority
would pass an order upon giving an opportunity of hearing to the F
owner of the theatre for correct determination of the amount and
the nature of security to be furnished by the proprietor for proper
payment of tax and the time within which such security to be
furnished; (iii) once such security is furnished the Entertainment Tax
,>., Officer is required to grant a permit in the prescribed form, namely, G
Form IV wherafter, the proprietor of the cinema theatre is to pay
tax in the manner indicated therein.
The cinema theatre in question is situated within
Serilingampally Municipality. In terms of Notification dated
605 H
606 · SUPREME COURT REPORTS [2007] 10 S.C.R.

A 18.5.2001, the Municipality was upgraded to Grade II from Grade
III. The respondent filed application in terms of the scheme prior to
18.5.2001.
Form IV was issued to the respondent on 25.5.2001.
B During assessment of tax proceedings in terms of the option
exercised by the respondent, the Entertainment Tax Officer was not
aware of the factum of upgradation of the Municipality in terms of
the said Notification dated 18.5.2001. The mistake was pointed out
only by the Office of the Accountant General. A show cause notice
C in terms ofs. 5(6) of the Act was, therefore, issued on the respondent
on or about 24.6.2005.
The question for consideration before this Court is whether in
terms of s. 5(6), an order of varying the quantum of tax could be
D passed only during the currency of period for which such tax is to be
paid.
Pa1ily allowing the appeal, the Court
HELD: 1. Io the fact situation attention of the assessing
E authority might not have been drawn to the Notification dated
18.5.2001 in terms whereof the Municipality was upgraded from
Grade III to Grade II, a mistake was committed in the matter of
computation of tax. If a genuine mistake has been committed not
only by the assessing authority in the said matter and furthermore )~
F as the respondent also did not bring the same to the notice of the
said authority, interest of justice would be subserved if the said
mistake be allowed to be rectified. [Para 10] [609-C-D]
2. The question in regard to the quantum of difference may be
determined by an appropriate authority after giving an opportunity
G of hearing to the respondent. The respondent shall neither be liable
to pay any interest on the said amount nor shall not be exigible to
any penalty. [Para 14] [611-E]
Swamy Theatre, Sanatnagar v. Deputy Commercial Tax Officer,
Sanatnagar, Hyderabad, (1992) Vol.15; A.P. Sales Tax Journal 63;
H
ENTERTAINMENTTAX OFFICER, MADHAPUR CIRCLE, 607
v. M/S.HITECHTHEATRE,MADHAPUR [SINHA,J.]

Union ofIndia and Ors. v. Bikash Kuanar, (2006) 10 SCALE 86 and A
Shri Shekhar Ghosh v. Union ofIndia andAnr., (2006) 11SCALE363,
referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4491 of
2007.
B
From the Judgment and final Order dated 6.1.2006 of the High Court
of Judicature of Andhra Pradesh at Hyderabad in W.P. No. 20087 of
2005.
R. Sundervardhan, Manoj Saxena, Rahul Shukla and T.V. George
for the Appellant.
c
N. Annapoorani for the Respondent.
The Judgment of the Court was delivered by
S.B. SINHA, J. Delay condoned. D
Leave granted.
(1) Interpretation ofSub-section(6) of Section (5) of the Andhra
Pradesh Entertainments Tax Act, 1939 in the facts and circumstances as
obtaining herein falls for our consideration in this appeal which arises out E
of a judgment and order dated 6.1.2006 passed by a Division Bench of
the Andhra Pradesh High Court in Writ Petition No. 20087 of 2005
allowing the writ petition filed by the respondent herein.
(2) The basic fact of the matter is not in dispute.
F
(3) Respondent owns a cinema theatre. It is exigible to payment of
entertainment tax. Section 4 of the Andhra Pradesh Entertainment Tax
Act provides for the mode and manner for calculating the quantum of tax
payable. Section (5) of the said Act, however, provides for computation
•• of tax on the basis of an option to be exercised by the owner of the theatre G
subject to the conditions as may be prescribed therefor. Indisputably, the
State has made rules for calculation of the tax in lieu of such an option
exercised by the owner of the cinema theatre. The scheme for exercise
of such an option is that;(i) a proprietor shall file an application in the
prescribed form before the prescribed authority;(ii) the authority would H
608 SUPREME COURT REPORTS [2007] 10 S.C.R.

A pass an order upon giving an opportunity of hearing to the owner of the
theatre for correct detennination of the amount and the nature of security
to be furnished by the proprietor for proper payment of tax and the time
within which such security to be furnished;(iii) once such security is
furnished the Entertainment Tax Officer is required t~ grant a pennit in
B the prescribed form, namely, Form IV wherafter, the proprietor of the
cinema theatre is to pay tax in the manner indicated therein.
(4) Sub-Section (6) of Section (5), however, entitles the prescribed
authority to vary the amount of tax payable if one or the other conditions
contained therein is satisfied.
c
(5) In this case the respondent filed an application in the prescribed
'Form' exercising an option under Section 5 of th~ Act. The cinema theatre
in question is situated within Serilingampally Municipality. It is now not in
dispute that in terms of a Notification dated 18.5.2001 the Municipality
D was upgraded to Grade II from Grade III.
(6) Form IV was issued to the respondent on 25.5.2001. Although,
the correct date of the filing of the application is not available on records
but the respondent must have filed the said application prior to 18.5.2001.
E (7) It is possible that during assessment of tax proceedings in terms
of the option exercised by the respondent, the Entertainment Tax Officer
was not aware of the factum of upgradation of the Municipality in terms
of the said Notification dated 18.5.2001. The mistake was pointed out
only by the Office of the Accountant General. A show cause notice in y
F terms of Sectin 5(6) of the Act was, therefore, issued on the respondent
on or about 24.6.2005.
(8) The question which arose for consideration before the Appellant
and, consequently, before the High Court was as to whether in terms of
Sub-section (6) of Section (5) of the Act read with Sub-Rule 13 of Rule
G 27, the words "during the period of option" referred to the power of the' -A''
prescribed authority to vary the amount of tax payable or only the amount
of tax payable.
(9) Respondent in support of its plea that an order of varying the
H quantum of tax could be passed only during the currency of the period
........~
ENTERTAINMENTTAX OFFICER, MADHAPUR CIRCLE, 609
v. M/S. HI TECH THEATRE, MADHAPUR [SINHA,].]

>- for which such tax is to be paid submitted that the said words restrict the A
power of the assessing authority to vary the amount of tax payable which
would mean that on the expiry of the said period, the power to vary the
amount of tax also comes to an end. Such a construction appears to have
found favour by the Andhra Pradesh High Court in Swamy Theatre,
Sanatnagar v. Deputy Commercial Tax Officer, Sanatnagar, B
Hyderabad, (1992) Vol. 15 AP. Sales Tax Journal 63).

>.-./
(10) Having heard learned counsel for the parties, we are of the
opinion that it is not necessary for us to go into the aforementioned
question. In the fact situation obtaining herein, we are satisfied that
attention of the assessing authority might not have been drawn to the c
Notification dated 18.5.2001 in terms whereof the Municipality was
upgraded from Grade III to Grade II, a mistake was committed in the
matter of computation of tax. If a genuine mistake has been committed
not only by the assessing authority in the said matter and furthermore as
the respondent also did not bring the same to the notice of the said D
·'(' authority, in our opinion, interest ofjustice would be subserved ifthe said
mistake be allowed to be rectified.
(11) In Union of India & Ors. v. Bikash Kuanar, (2006) 10
SCALE 86 this Court held:
E
" It is now trite that if a mistalce is committed in passing an
administrative order, the same may be rectified. Rectification of a
mistake, however, may in a given situation require compliance of
the principles of natural justice. It is only in a case where the mistake
is apparent on the face of the records, a rectification thereof is F
permissible without giving any hearing to the aggrieved party."

(12) In Shri Shekhar Ghosh v. Union of India and Anr., (2006)

. ,
11 SCALE 363 , it was held:
" It is not denied or disputed that even when a mistake is sought G
to be rectified, if by reason thereof, an employee has to suffer civil
consequences ordinarily the principles of natural jru.tice are required
to be complied with ..."
It was further held:
H
~'-
610 SUPREME COURT REPORTS (2007] 10 S.C.R.

A "If a mistake is to be rectified the same should be done as
expeditiously as possible. (See: Board ofSecondary Education,
Assam V. Mohd. Sarjumma, (2003] 12 sec 408)
We are not oblivious that in Ram Chandra Tripathi v. UP.
Public Services Tribunal IV and Ors., (1994] 5 SCC 180, an
B
order passed by way of a mistake was permitted to be corrected
as the same was done in violation of the order of injunction. In
such a situation only, this Court held that an opportunity of being
heard for correcting such mistake would not arise because there
would not have been any occasion to take one view or the other
c in the matter on the basis of representation to be made by the
affected employee.
It is also not a case where a mistake was apparent on the face
of the records and, thus, compliance of the principles of natural
D justice would not have been made any difference as was in the
case of Smt.Ratna Sen nee Roy v. The State of West Bengal
and Ors., (1995) 1 Cal. LT 462.
Requirements to comply with the principles of natural justice
would, therefore, vary from case to case. if upon giving an
E opportunity of hearing to an affected employee, it is possible to
arrive at a different finding, the principles of natural justice must
be complied with. We may notice that recently in Union ofIndia
and Ors. v. Bikash Kuanar, (2006) 10 SCALE 86, a Division
Bench of this Court opined:
F
" .... It is now trite that if a mistake is committed_ in passing an
administrative order, the same may be rectified. Rectification of a
mistake, however, may in a given situation require compliance of
the principles of natural justice. It is only in a case where the
mistake is apparent on the face of the records, a rectification
G
thereof is permissible without giving any hearing to the aggrieved
party."
(13) We may, however, notice that whereas according to the
respondent the difference in the quantum of tax was as under:
H
ENTERTAINMENTTAXOFFICER,MADHAPURCIRCLE, 611
v. MIS. HITECHTHEATRE,MADHAPUR [SINHA,J.]

(1) From 18-5-2001 to 25-5-2001 -Rs.16,724/-. A
(2) From 26-5-2001 to 14-6-2001 is Rs.27,624/-
(GCC increased due to enhancement of rates of admission)
3) From 15-6-2001 to 31-3-2001 is Rs.16,724/-(GCC
restored to Rs.16, 724/-because the licensing authority refused B
to grant permission for enhancement);
according to the appellant the said difference would be:
1. GCC Rs.18,562.00 18-5-2001 to 25-5-2001 E. Tax
Rs.89,840.00 C
2. GCC Rs.27,624.00 26.5.2001 to 14.6.2001 E.Tax
Rs.1,33,700.00
3. GCC Rs.18,562.00 15.6.2001 to 2.9.2001 E.Tax
Rs.89,840.00 D
4. GCC Rs.19,549.00 3.9.2001 to 31.3.2002 E.Tax
Rs.94,617.00
(14) We are, therefore, of the opinion that the question in regard to
the quantum of difference may be determined by an appropriate authority
after giving an opportunity of hearing to the respondent. We, however, .E
make it clear that the respondent shall neither be liable to pay any interest
on the said amount nor shall not be exigible to any penalty . We also make
it clear that computation of the difference in the amount of tax shall be
-...., confined only to the matter of upgradation of Municipality and no other.
F
(15) The appeal is allowed to the aforementioned extent. No costs.
D.O. Appeal partly allowed.