Holding

The revisional authority could not substitute the original assessment orders; the High Court’s interference was unjustified and its orders were set aside.

Summary

M/s. Kanpur Edibles Pvt. Ltd. challenged the Commissioner of Trade Tax, U.P.'s orders under Section 10‑B of the U.P. Sales Tax Act, 1948, which were issued in 2006 to revise a 2003 order cancelling re‑assessment notices. The Tribunal held that the 10‑B notices were beyond the limitation period, but the High Court reversed this, holding the notices were within time. The Supreme Court examined the scope of Section 10‑B/Section 108(1) and Explanation III to Section 21(1), concluding that a revisional authority may only test the legality of the order it is revising and cannot substitute a fresh assessment order. Since the original assessment orders were never varied and the limitation period had expired, the revisional authority had no power to re‑assess. Consequently, the Court set aside the High Court’s judgment and allowed the appeals, restoring the Tribunal’s decision.

Issues considered

Whether the Commissioner’s orders under Section 10‑B were issued within the statutory limitation period.
Whether the revisional authority under Section 10‑B can substitute an original assessment order while testing the legality of the order cancelling re‑assessment notices.
Interpretation of Explanation III to Section 21(1) regarding the continuance of an assessment order until varied.
Scope of the power conferred by Section 108(1) (Section 10‑B) to pass orders "with respect thereof".

Legislation cited

Central Sales Tax Act, 1956

Subjects

Sales TaxLimitation periodRevision of assessmentSection 10‑BSection 21Explanation IIIRe‑assessment

Judgment

[2008] 14 S.CJi. 1237

M/S. KANPUR EDIBLES PVT. LTD. A
II.
COMMISSIONER, TRADE TAX, U.P.
(Civil Appeal No. 6276 of 2008)
OCTOBER 24, 2008
B
[DR. ARIJIT PASAYAT AND DR. MUKUNDAKAM
)
SHARMA, JJ.]
U. P Sales Tax Act, 1948 - ss. 10-8 and '21 - Notices for
re-assessment of assessment order u/s.21(1) - Cancellation
bf - Notices uls. 10-8 for revision of cancellation order - Or- c
der of ass_essment by Commissioner holding notices to be
within /imitation - Set aside by tribunal, however, reversed by
High Court - Justification of~- Held: Not justified - Revisional
authority substituted original orders of assessment in garb of
testing legality or propriety of order cancelling notices u/s.
D
21 (1) - Such course has no legal basis - Revisional author-
ity was not empowered to make order of assessment - Ex-
pression 'with respect thereof' makes it clear that for testing
legality or propriety of the order, an order was to be passed
with respect thereof - More so, original orders could not be
varied after limitation period,- Thus, order of High Court set E
aside.
. For assessment years 1997-98 and 1998-99, orders.
of assessrl)_ent were passed on 27 .02.1999 and 17.06.2000
. respectively. On 21.08.2001 notice was issued for re-as- F
sessment in terms of s.21 of the U.P. Sales Tax Act, 1948.
By order dated 29.05.2003 the notice was cancelled. On
31.01.2006 and 08.02.2006 notices were issued u/s.10-B
for revision of order dated 29.05.2003. The appellant raised
objections ~egarding the period of limitation which were
G
,,,-
~ rejected. In appeal, the tribunal set aside the order of the
Commissioner and held that the notice u/s.10 was issued
beyond the period of limitation. Respondent-Department
filed Revision. High Court set aside the order of the tribu-
1237 H
1238 SUPREME COURT REPORTS [2008] 14 S.C.R.

·A nal. It held that the order of the Commissioner u/s.10-B
was within the period of limitation and thus, the order
passed by the tribunal for assessment years was con-
trary to law. Hence the present appeal.
Allowing the appeals, the Court
B
HELD: 1.1 Explanation Ill to sub-Section (1) of s. 21
~.
of the U.P. Sales Tax Act; 1948 makes the position clear
that an order of assessment or re-assessment which was
in existence at the point of time the notice was issued,
c continues to be effective unless it is varied by an. orcJ_er of
assessment or re-assessment made u/s. 21 in pursuance
of that notice. If it is not varied it goes without saying that
it continues to be operative and effective. The period for
making assessment or re-assessment is provided in sub-
section (2) of Section 21. The maximum period available
D for making assessment or re-assessment is 4 years from
the end of the a~sessment year in question. That is no
exception to this position·because sub-section (2) of sec-
tion 21 itself provides that such assessment or re-asse~s-
ment may be made under any provision of the Act which
E includes Section 10-B. [Para 8] (1247-A, B,· E, F).
1.2 The power of revision by the Commissioner or
such officer not below the rank of Deputy Commissioner
as may be authorized in this behalf by the State Govern- r·

ment by the notification, can be exercised by calling for
F and examining the records relating to any order other than '·
an order mentioned in Section 1OA passed by any officer
subordinate to him for the purpos~ of satisfying himself
as to the legality or propriety of su'ch order. The Commis-
sioner or the authorized officer is empowered to pass
G such order with respect thereof as he thinks fit. The cru-
cial expressions in Section 108(1) are "for the purpose +- '·
of satisfying himself as to the legality or propriety of such
order" and "with respect thereof". [Para 8] (1247-F, G, H;
1248-A)
H 1.3 In the instant case, what the revisional authority
M/S. KANPUR EDIBLES PVT. LTD. v. COMMI- 1239
SSIONER, TRADE TAX, U.P.

was empowered to test was the legality or propriety of A
the order cancelling the notices issued u/s. 21 (1) by or-
der dated 29.5.2003. Such an exercise cannot encompass
an order of assessment. It is of significance to note that
the original orders have not been varied and could not
have been varied after the period of limitation. What could B
not have been directly achieved has been attempted to
be done in an indirect manner. If the revisional authority
was of the view that the order dated 29.5.2003 was not
legal, then that order would have been varied if it was
found that order lacked legality or propriety. The expres- C
sion ."with respect thereof" makes the position clear that
for testing the legality or propriety of the order dated
29.5.2003 if any order was to be passed that had to be
passed with respect thereof. What the revisional author-
ity has do_ne is to substitute the original orders of assess-
0
ment in the garb of testing the legality and/or propriety of
the order cancelling the notices. Such a course is not
countenanced and has 110 legal basis. Therefore, the High
Court was not justified in interfering with the order of the
Tribunal. The impugned orders of the High Court are set
aside. [Para 8] (1248-A to E) E
Mis Kundan /al Srikishan, Matf!ura (U.P) v Commis-
sioner of Sales Tax, U.P and Anr (1987) 1 SCC 684; The
Deputy Commissioner of Commercial Taxes v. Mis H. R. Sri
Ramulu 1977 (1) SCC 703 - referred to.
F
CASE LAW REFERENCE'
(1987) 1 SCC 684 Referred to. Para 5
(1977) 1 SCC 703 . Referred to. Para 5
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 6276 G

' of 2008

From the final Order dated 14/5/2007 of the High Court of
Judicature at Allahabad in Trade Tax Revision No. 214/2007
H
1240 SUPREME COURT REPORT~ [2008] 14 S.C.R.

A WITH
C.A. Nos. 6277, 6278 and 6279 of 2008
Shail Kr. Dwivedi, A.A.G., Shanti Bhushan, Sunil Gupta,
K.G. Bhagat, Vineet Bhagat, Ehraz Zafar, Narendra Sharma,
B Satya Priya Kamra, Debasis Misra, Krishnan Venugopal, Arvind
Verma, Ravindra Kumar, Manoj Kr. Dwivedi and Gunnam
, Venkateswara Rao for the Appearing Parties.
The Judgment of the Court was delivered by
C DR. ARIJIT PASAYAT, J. 1. Leave granted.
2. These four appeals involve common issues and, there-
fore, are disposed of by this common judgment.
3. Challenge in each case is to the judgment of learned
Single Judge of Allahabad High Court holding that the order
0
passed by the Commissioner of Trade Tax, U.P. under Section
10-B of the U.P. Sales Tax Act, 1948 (in short the 'Act') (also
described as U.P. Trade Tax Act, 1948) was within the period
of limitation and therefore the order passed by the Trade Tax
E Tribunal, Kanpur Bench-1 (in short the 'Tribunal') passed in four
connected Second Appeal Nos.1 to. 4 of 2007 for the assess-
ment years 1997-98 and 1998-99 in both the State Act and the
Central Sales Tax Act, 1956 (in short the 'Central Act') was con-
trary to law.
F 4. The controversy lies within a very narrow compass re-
lating to scope and ambit of Section 10-B of the Act in the back- .~
ground of Section 21 of the Act.
5. A brief reference to the factual aspects would suffice.
G Orders of assessment were passed for the two assess-
ment years 1997-98 and 1998-99 on 27 .2.1999 and 17.6.2000
respectively. On 21.8.2001 notice for re-assessment in terriis
of Section 21 of the Act with authorization of the Additional Com-
missioner, Kanpur under Section 21 (2) was issued. It is to be
H not~d that for the period during which such notice can be is-
MIS. KANPUR EDIBLES PVT. LTD. v. COMMI- 1241
SSIONER, TRADE TAX, U.P. [DR ARIJIT PASAYAT, J]

sued is normally two years, but with the approval of the Com- A
~
missioner it can be extended to 4 years from the end of the
concerned assessment year. The order was passed on
29.5.2003 holding that the notice issued under Section 21 was
cancelled. In other words, holding that there was no need for
any variation in the assessment orders. On 31.1.2006 and 8
8.2.2006 notices under Section 10-8 of the Act for revision of
the order dated 29.5.2003 in respect of two assessment years
.. were issued. Preliminary objections raised by the appellant re-
lating to limitation were rejected by order dated 23.12.2006.
Appeal was preferred before the Tribunal which by order dated
13.3.2007 reversed the Joint Commissioner's order and held
c
that the notice under Section 10 was issued beyond the period
of limitation. Department filed Tax Revision cases before the
High Court. As noted above, the High Court has set aside the
orders of the Tribunal.
D
Learned counsel for the appellant submitted that the cru-
~
cial expression in Section 10-8 (3)(c) is "the order in question".
In the instant case the initiation of proceedings for revision in
terms of Section 10-8 related to the order dated 29.5.2003.
While purporting to revise that order, in reality orders of assess- E
ment have been passed which in substance substitutes the
earlier orders of assessment. The notices dated 31.1.2006 and
' 8.2.2006 cannot be related to the orders of assessment dated
27.2.1999 and 17.6.2000. It is submitted that even if under Sec-
tion 10-8 (1) an order is sought to be revised, the same should
F
•, be relatable to the order which is sought to be revised and can-
not be extended to an order which has become final and in re-
spect of which no proceeding under Section 108(1) has been
initiated.
With reference to the conclusions of the Joint Commis- G
sioner it is submitted that by merely stating that the order dated

. ~ 29.5:2003 was revised, the exemption granted previously has
been withdrawn and it has been held that the tax is recover-
able.
H

t
1242 SUPREME COURT REPORTS [2008] 14 S.C.R.

A It is pointed out that the effect of an order dropping the .
1
proceedings initiated for re-assessment was considered by this
Court in Mis Kundan Lal Srikishan, Mathura (UP)· v. Com-
missioner of Sales Tax, UP and Anr. (1987 (1) SCC 684).
With the object of getting over the view expressed, an amend-
s ment was made by U.P. Sales Tax (Amendment and Valida-
tion) Act,.1991 (in short the 'Validation Act') by adding Explana-
tion Ill to Section 21 (1) w.e.f. 1.3.1973. It is pointed out that in
Kundan Lat's case (supra) this Court with reference to the de- I I

cision in The Deputy Commissioner of Commercial Taxes v. '
,.___

C Mis H.R. Sri Ramulu (1977 (1) SCC 703) held that once a
notice is issued for the purpose of making re-assessment, the
assessment proceedings become re-opened and the initial
I
I
order of assessment ceases to be operative.
6. In response, learned counsel for the respondent slib-
D mitted that the High Court has correctly held that in a case where
there was large scale of manipulation of accounts, a purposive
construction has·to be made and the revisional order does not
suffer from any infirmity. Levy of tax has been made after hold-
ing that the order dropping the proceedings was bad and, there-
E fore, consequentially the assessment of the escaped turnover
has been directed to be done.
7. A few provisions which have relevance need to be noted.
They are Sections 7, 10-B, 21 and 22 which read as follows:

F Section 7. Determination of turnover and assessment
of tax.
(1) Every deader who is liable to pay tax ·under this Act
shall submit such return or returns of his turnover at
such intervals within such period, in such from and
G verified in· such manner, as may be prescribed; but
assessing authority may in its discretion, for reasons
to be recorded, extend the date for the submission ~
of the return by any person or class of persons.
xxx xxx xxx xxx
H
/-
1
M/S. KANPUR EDIBLES PVT LTD. v. COMi\tll- 1243
SSIONER, TRADE TAX, U.P. [DR. ARIJIT PASAYAT, J]

(2) If the assessing authority, after such enquiry as he A
considers necessary is satisfied that any returns
submitted under sub section (1) are correct,
complete, he shall assess the tax on the basis thereof.
(3) If no return is submitted by the dealer under sub
section (1 ), within the periods prescribed in that B
behalf or if the return submitted by him appears to
• the assessing authority to be incorrect or incomplete,
the assessing authority shall, after making such
enquiry as he considers necessary, determine the
turnover of the dealer to the best of his judgment and c
assess the tax on the basis thereof:
Provided ttiat before taking action under this Section the
dealer shall be given a reasonable opportunity of proving
the correctness and completeness of any return submitted
D
by him.
,.
Explanation - In this section and in sections 7-A, 7-B, 7-
C, 7-D, 7-E, 8-A, 14, 15-A, 18, 21 and 24-D the
expression, 'turnover' means the turnover of sales or of

-
~
(
purchases or both, as the case may be.
xxx xxx xxx xxx xxx
E

"'"" Section 10-8: Revision by Commissioner
(1) The Commissioner or such other officer not below
the rank of Deputy Commissioner as may be F
authorized in this behalf by the State Government by
notification may call for and examine the record
relating to any order (other than an order mentioned
in section 10 -A) passed by any officer subordinate
to him, for the purpose of satisfying himself as to the G
legality or propriety of such order and may pass such
~
~
order with respect thereof as he thinks fit.

• (2) No order under sub-section (1) affecting the interest
of a party adversely shall be passed unless he has
~
H
1244 SUPREME COURT REPORTS [2008] 14 S.C.R.

A been given a reasonable opportunity of being heard. -~

(3) No order under sub-section (1) shall be passed-
(a) to revise an order, which is or has been the
subject matter of an appeal under Section 9, or
B an. order passed by the Appellate Authority
under that section:
Explanation - Where the appeal against any 4
order is withdrawn or is dismissed for non-
payment of fee payable under Section 32 or for
c non-compliance of sub section (1) of Section
9, the order shall not be deemed to have been
the subject-matter of an appeal under section
9;
(b) before the expiration of sixty days from the date
D
of the order in question;
(c) after the expiration of four years from the date
of the order in question or after the expiration of
two years from the date of commencement of
E section 19 of the U.P. Sales Tax (Amendment
& Validation) Act, 1978, whichever is latter. "
I
xxx xxx xxx xxx )

Section 21. Assessment of tax on the turnover not
F assessed during the year:
.•
(1) If the assessing authority has reason to believe that
the whole or any part of the turnover of the dealer, for
any assessment year or part thereof, has escaped
assessment to tax or has been under assessed or
G has been assessed to tax at a rate lower than that at
which it is assessable under this Act, or any
deductions or exemptions have been wrongly allowed ,..
t .,..
in respect thereof, the assessing authority may, after
issuing notice to the dealer and making such inquiry
H as it may consider necessary, assess or reassess

J
r
M/S. KANPUR EQffiLES PVT. LTD. v. COMMI- 1245
SSIONER, TRADE T-AX, U.P. [DR. ARIJIT PASAYAT, J]

the deal~r or tax according to law: A
Provided that fhe tax shall be charged at the rate at
which it would have been charged had the turnover
not except assessment, or full assessment as the
case may be:
B
Explanation I:
Nothing in this sub-section shall be deemed to
prevent the assessing authority from making an
assessment to the best of its judgment.
c
Explanation 11:
For the purposes of this Section and section~ 22,
"assessing authority" means the officer or authority
who passed the earlier assessment order, if any,
and includes the officer or authority having jurisdiction D
for the time being to assess the dealer.
..
Explanation Ill:
~

Notwithstanding the issuance of notice under this
sub-section, where a,n order of assessment or re- E
assessment is in existence before the issuance of
such notice, it shall continue to be effective as such,
until varied by an order of assessment or
reassessment made under this section in pursuance
of such notice. F
(2) Except as otherwise provided in this section, no order
of assessment or reassessment under any provision
of this Act for any assessment year shall be made
after the expiration of two years from the end of such
year or March 31 , 194, whichever is later: G

\ . Provided that if the Commissioner on his own or on
the basis of reasons recorded by the assessing
--'
authority, is satisfied that it is just and expedient so
to do authorizes the assessing authority in that behalf,
H
1246 SUPREME COURT REPORTS [2008] 14 S.C.R.

A such assessment or reassessment may be made
after the expiration of the period aforesaid but not
after the expiration of four years, from the end of
such year notwithstanding that such assessment or
reassessment may involve a change of opinion:
B xxx xxx xxx xxx
Section 22: Rectification of mistakes.
(1) Any officer or authority, or the Tribunal or the High
Court may, on its own motion or on the application of
c dealer or any other interested person rectify any
mistake in any order passed by him or it under this
Act, apparent on the record within three years from
the date of the order sought to be rectified:
Provided that where an application under this sub-/,
D
section has been made within such period of three
years, it may be disposed of even beyond such 'i-.

period:
Provided further that no such rectification as has the
E effect of enhancing the assessment, penalty, fees or
other dues shall be made unless reasonable
) opportunity of being heard has been given to the
dealer or other person likPly to be affected by such
enhancement.
F (2) Where such rectification has the effect of enhancing
the assessment, the assessing authority concerned
shall serve on the dealer a revised notice of demand
in the prescribed form and therefrom all the
provisions of the Act, and the rules framed thereunder
G shall apply as if such notice had been served in the ~

first instance. I
8. It is to be noted that in Kundan Lal's case (supra) it was
observed that on initiation of the re-assessment proceedings
the original order of assessment becomes inoperative. But
t-

'
H
M/S. KANPUR EDIBLES PVT. LTD. v. COrvJMI- 1247
SSIONER, TRADE TAX, U.P. [DR. ARIJIT PASAYAT. J]

Explanation Ill to sub-Section (1) of Section 21 makes the posi- A
tion clear that where an order of assessment or re-assessment
is in existence before the issuance of the notice under sub-sec-
tion (1) it continues to be effective as such until varied by an
order of assessment or re-assessment made under Section
21 in pursuance of that notice. In other words, an order of as- B
sessment or re-assessment which was in existence at the point
of time the notice was issued, continues to be effective unless
it is varied. If it is not varied it goes without saying that it contin-
ues to be operative and effective. The period for making as-
sessment or re-assessment is provided in sub-section (2) of
•
/ Section 21. The period fixed for making assessment or re-as-
sessment under any provision of the Act for any assessment
c

year is two years from the end of the concerned assessment
year. However, this period can be extended in terms of the pro-
visa to sub-section (2) if the Commissioner on his own or on
D
the basis of reasons recorded by the assessing officer is satis-
fied that it is just and expedient to do so to make the assess-
ment or the re-assessment after the expiration of the period
provided in sub-section (2) but in any event not after the expira-
tion of 4 years from the end of such year notwithstanding that
such assessment or re-assessment may involve a change of E,
opinion. In other words, the maximum period available for mak-
ing assessment or re-assessment is 4 years from the end of
the assessment year in question. That is no exception to this
position because sub-section (2) of section 21 itself provides
that such assessment or re-assessment may be made under F
any provision of the Act which includes Section 10-8. The power
of revision by the Commissioner or such officer not below the
rank of Deputy Commissioner as may be authorized in this
behalf by the State Government by the notification, can be exer-
cised by calling for and examining the records relating to any G
..,
order other than an order mentioned in Section 1OA passed by
~
any officer subordinate to him for the purpose of satisfying him-
self as to the legality or propriety of such order. The Commis-
sioner or the authorized officer is empowered to pass such or-
der with respect thereof as he thinks fit. The crucial expressions H
1248 SUPREME COURT REPORTS [2008] 14 S.C.R.

A in Section 108(1) are "for the purpose of satisfying himself as
tO the legality or propriety of such order" and "with respect
thereof'. In the present case what the revisional authority was
enipowered to test was the legality or propriety of the order
cancelling the notices issued under Section 21 (1) by order dated
B 29.5.2003. Such an exercise cannot encompass an order of
assessment. It is of significance to note that the original orders
have not been varied and could not have been varied after the
period of limitation. What could not have been d_i_rectly achieved
has been attempted to be done in an indirect' manner. If the
C revisional authority was of the view that the order dated
29.5.2003 was not legal, then that order would have been var-
ied if it was found that order lacked legality or propriety. The
expression "with respect thereof' makes the position clear that
for testing the legality or propriety of the order (in the instant
case the order dated 29.5.2003) if any order was to be passed
D that had to be passed with respect thereof. Such an order does
· not empower the revisional authority to make an order of as-
sessment. As noted above, what the revisional authority has
done is to substitute the original orders of assessment in the
garb of testing the legality and/or propriety of the order cancel-
E ling the notices. Such a course is not countenanced and has no
legal basis. Therefore, the High Court was not justified in inter-
fering with the order of the Tribunal. The impugned orders of the -
High Court are set aside and the appeals are allowed but with-
out any order as to costs.
F
N.J. Appeals allowed.