Holding

A summary rejection of an appeal under Rule 49 does not constitute an appellate order within the meaning of Rule 80, and therefore the Commissioner may validly exercise suo moto revision under Section 23(4); the respondent was also given a reasonable opportunity of hearing.

Summary

The State of Orissa appealed against the High Court's order quashing the Commissioner of Sales Tax's revision of assessment orders for the assessment years 1969-70 and 1970-71 against Mis. Krishna Stores. The assessments had been reassessed under Sections 12(4) and 12(8) of the Orissa Sales Tax Act, and the firm’s appeals were summarily rejected under Rule 49 for procedural defects. The Commissioner then exercised suo moto revision power under Section 23(4) read with Rule 80, revising the orders and demanding additional tax. The firm contended that the earlier summary rejection of its appeals barred the Commissioner from revising the orders and that it had not been given a reasonable hearing. The Supreme Court held that a summary rejection under Rule 49 is not an "appellate order" within the meaning of Rule 80, so the Commissioner’s revision power was valid, and that the firm had been afforded a reasonable opportunity of hearing. Consequently, the appeals were allowed and the High Court judgment set aside.

Issues considered

Whether a summary rejection of an appeal under Rule 49 precludes the Commissioner from exercising suo moto revision power under Section 23(4) read with Rule 80 of the Orissa Sales Tax Rules.
Whether the respondent was denied a reasonable opportunity of hearing before the Commissioner exercised revision.
Interpretation of the term "appellate order" in the context of Rule 80.

Legislation cited

Income Tax Act, 1961s. 263
Orissa Sales Tax Act, 1947s. 12(4), s. 12(8), s. 23(4)

Subjects

sales taxsuo moto revisionappellate orderRule 49Rule 80Section 23(4)natural justiceopportunity of hearingassessment

Judgment

A STATE OF ORISSA AND ORS.
v.
MIS. KRISHNA STORES

JANUARY 21, 1997

B (AM. AHMADI, CJ. AND SUJATA V. MANOHAR, J.)

Sales Tax:

Orissa Sales Tax Act, 1947/0rissa Sales Tax Rules, 1947, Sections 23
C (4), 12 (4), 12 (8)/Rules 80, 49--Bar in Rule 80 in exercise of the suo moto
power of revision by the Commissio11e1-Held: Not applicable to an order
summarily rejecting the appeal under Rule 49 for non-rectification of
defects-Proper opportunity of hewing before passing the order of revision was
given to the assessee as he was served with a notice, appeared through his
counsel and submitted written submission which was considered, before
D passing the ordel'-Administrative LaW-Natural justice-Opportunity of hear-
ing.

The respondent firm was assessed for the assessment year 1969-70
under Section 12 (4) of the Orissa Sales Tax Act, 1949. Consequent to
E seizure of its account books it was reassessed for that year under Section
12 (8) . It was also assessed for the assessment year 1970-71 under Section
12 (4). It filed appeals in respe1:t of both the assessment years. The appeals
were defective in as much as the requisite court fees were not paid and the
grounds of appeals were not mentioned. Since, despite reminders and
notices the respondent did nolt rectify the defects, the appeals were sum-
p marily rejected under Rule 49 of the Orissa Sales Tax Rules. Subsequently
Commissioner, Sales Tax issued notices under Rule 80 of the Orissa Sales
Tax Rules for proposed revision of the assessment Orders for the said two
years on the ground that a large amount of turnover had escaped assess-
ment. Ultimately, the Commissioner revised the assessment orders for
G both the assessment years and enhanced the amount of chargeable tax. On
appeal the High Court quashed both revisional orders.

The present appeals were filed by the Revenue against the Order of
the High Court. The respondent contended that in view of the rejection of
the appeals, the power of suo moto revision under Rule 80 could not have
H been exercised by the Commissioner, and that it was not given an oppor-
436
STATE v. MIS KRISHNA STORES 437

tunity of hearing. A
Allowing the appeals, this Court

HELD: 1.1. An order rejecting the appeals under Rule 49 of the
Orissa Sales Tax Rules does not preclude the Commissioner from exercis-
ing power under Section 23 (4) of the Orissa Sales Tax Act read with Rule B
80. An order rejecting the appeal on the ground that it is not in the
··'",'. specified form or that all the requirements of the form are not fully
complied with cannot be considered to be an appellate order within the
meaning of Rule 80 of the Orissa Sales Tax Rules. Rule 49 (1) clearly
provides that such summary rejection can take place after giving the C
appellant an opportunity to rectify the defects. This is not a rejection or
dismissal of appeal after hearing the appellant on merits. Hence such an
. order would not qualify as an appellate order under Rule 80. [441-G-H]

1.2 .. The purpose of a revision by the Commissioner suo moto is to
ensure that the assessee is correctly assessed relating to his tax liability. D
If there is an appellate authority which has considered the assessment
Order, then the Commissioner cannot suo moto revise the order. When,
however, an appeal is not accepted for consideration at all because of
defects there is no question of the department being required to follow the
procedure laid down for challenging such an order. Rule 80, when it refers E
to the Commissioner exercising a suo moto power of revision in respect of
orders other than appellate orders, clearly contemplates an appellate
order which has considered the Original assessment order on merit in
some form or the other. [441-G-H; 442-A-B]

1.3. In the context of Section 23 (4) of the Orissa Sales Tax Act where F
the words -" any order other than an appellate order" are absent, the
prohibition against revising an appellate order in Rule 80 should be taken
to apply only to an appellate order in its full sense i.e. an order which is
passed after considering any issue arising in the appeal. It would not cover
an order of rejection under Rule 49 (1), when the appeal is not entertained G
at the threshold for consideration. [444-H; 445-A]

CIT v. Amrit Lal Bhogilal & Co., (1958) 34 ITR 130; Goier Bros. (P)
Ltd. v. Ratan Lal Singh, [1975) 1 SCR 394; Sheoda Singh v. Daryao Kanwar,
AIR (1966) SC 1332 and State of Madras v. Madurai Mills Co. Ltd., AIR
(1967) SC 681, referred to. H
438 SUPREME COURT REPORTS [1997] 1 S.C.R.
A 2. A reasonable opportunity was given to the respondent before the
Commissioner had passed his order. From the facts as set out, it is
apparent that the respondent was served with a notice of proposed revision
on 21.3.1975. The reasons for such revision were communicated to the
respondent on 2.5.1975. The riispondent had filed written submissions to
the Commissioner which were considered at the hearing of the case. After
B furnishing the grounds of revision, the hearing of the case was fixed on
7.5.1975. There is nothing on record to show that the respondent wanted
more time or had asked for more time. The respondent appeared through
his Advocate on 7.5.1975 and submitted his written arguments. Thereafter
the Commissioner has passelil a detailed order on 26.5.1975. Looking to
C these facts it cannot be said that a reasonable opportunity of hearing was
n~t given to the respondent. [445-B-D]

Krishna Stores v. C.S. T., (1979) 43 STC 64 (Orissa), reversed.

CIVIL APPELLATE JURISDICTION : Civil Appeal N0s. 643-644
D of 1978.
From the Judgment and Order dated 2B.4.77 of the Orissa High
Court in O.J.C. No. 1680-81 of 1975.

Raj Kumar Mehta for the Appellants.
E
R.K. Maheshwari for the Respondent.

The Judgment of the Court was delivered by

MRS. SUJATA V. MANOHAR, J. The respondent is a partnership
F firm carrying on business as agents of Hindustan Lever Ltd., Indian Oil
Corporation and various other corporations. The respondent carries on
whole-sale business in the products of these companies and has its
registered office at Kantabanji District Bolangir in the State of Orissa. For
the assessment year 1969-70 the respondent was assessed under Section
G 12(4) of the Orissa Sales Tax Act, 1947 (hereinafter referred to as the said
Act) by order dated 23.9.1970. Thereafter on 26.11.1970, the vigilance Unit
of the Sales Tax Department seized the books of account and other
documents of the respondent. On the basis of the report which was
submitted by the Vigilance Unit the assessment for assessment year 1969-
70 was reopened. The respondent was reassessed under Section 12(8) of
H the said Act under an order dated 27.5.1972. By another order of the same
STATE v. MIS KRISHNA STORES [SUJATA V. MANO HAR, J.] 439
date, namely 27.5.1972, an assessment order for assessment year 1970-71 A
was also passed under Section 12(4) of the said Act. The respondent filed
appeals in respect of both these orders. The appeals were defective. The
requisite court fees were not paid and the memo of appeal did not contain
grounds of appeal. The respondent was called upon to remove these
defects by the office of the Sales Tax Department. But despite reminders
B
and notices, the respondent did not remove these defects; with the result
that the appeals were summarily rejected under Rule 49 of the Orissa Sales
Tax Rules.

By notices dated 15th of March, 1975 issued under Rule 80 of the
Orissa Sales Tax Rules, the Commissioner of Sales Tax in exercise of his C
powers under Section L.3(4) of the said Act proposed revising the assess-
ment orders dated 27.5.1972 for assessment years 1969-70and1970-71. The
Commissioner proposed a suo motu revision of the said orders because in
his opinion the respondent had been under-assessed and a large amount
of turn- over had escaped assessment. These notices were served on the D
respondent on 21.3.1975. Pursuant to the said notices, the respondent
appeared before the Commissioner of Sales Tax. After taking several
adjournments the respondent requested the Commissioner of Sales Tax for
reasons for issuing the notice of suo motu revision. The reasons were
thereupon communicated to the responderit on 2.5.1975. Hearing of the
case was fixed on 7.5.1975. The respondent made his submissions in writing E
before the Commissioner of Sales Tax. These submissions were considered
by the Commissioner of Sales Tax. The respondent, however, did not
explain the accounts or the entries appearing in the seized documents. By
a detailed order dated 26.5.1975, the Commissioner of Sales Tax, after
-~ considering the submissions made by the respondent, revised the assess- F
ment orders and demanded excess taxes to the tune of Rs. 1,12,620 for the
assessment year 1969-70 and Rs. '79,710 for the assessment year 1970-71.

The respondent filed writ petitions before the High Court of Orissa
being O.J.C. Nos. 1680 and 1681 of 1975 challenging the said orders of the G
Commissioner of Sales Tax. The challenge was two-fold. The respondent
challenged the jurisdiction of the Commissioner of Sales Tax under Section
23(4) of the said Act read with Rule 80 of the Orissa Sales Tax Rules to
revise the assessment. The respondent also submitted that it had not been
given a reasonable opportunity of hearing before the Commissioner of
Sales Tax. Both these contentions were upheld by the High Court which H
440 SUPREME COURT REPORTS (1997] 1 S.C.R.
A quashed the impugned orders dated 26.5.1975. The present appeals are
from the judgment and order of the High Court dated 28.4.1977.

Section 23(4) of the said Act is as follows :

Section 23(4)(a) : Subject to such rules as may be made and for
B reasons to be recorded in writing the Commissioner, may, upon
application by a dealer or on his motion revise any order made
under this Act or the rules made thereunder by any person other
than the Tribunal or Additional Tribunal as the case may be,
appointed under sub-section (3) of Section 3 to assist him :
c Provided that the Commissioner shall not entertain any such
application for revision if the dealer filing the same having a
remedy by way of appeal under sub-section (1), or sub-section (3)
did not avail of such remedy or the application is not filed within
the prescribed period."
D
Rule 80 of the Orissa Sales Tax Rules is as follows :

"80. The Commissioner may of his own motion, at any time
within three years from the date of passing of any order by the
Assistant Sales Tax Officer qr by the Sales Tax Officer and within
E two years from the date df passing of any order other than an
·appellate order by the Additional Commissioner, Deputy Commis-
sioner or the Assistant Commissioner, as the case may be, call for
the record of the proceedings in which such order was passed and
revise any such order."
F
The respondent has contended that the Commissioner has no power
to sito motu revise the orders dated 27.5.1972 of the Sal.es Tax Officer
because in the present case appeals were preferred by the respondent from
the said orders of the Sales Tax Officer before the Assistant Commissioner
of Sales Tax. These appeals were ryjected on account of the respondent's
G failure to cure various defects. It is the contention of the respondent that
under Rule 80 a suo motu power of revision by the Commissioner cannot
be exercised in respect of an appellate order. Since in the present case the
orders of the Sales Tax Officer have merged in the orders passed in the
two appeals the power of revision cannot be exercised by the Commissioner
H under Rule 80.
STATE v. MIS KRISHNA STORES [SUJATA V. MANOHAR, J.] 441

We have, therefore, to consider whether in the present case the A
Commissioner is seeking to revise any appellate order passed by the
Assistant Commissioner of Sales Tax within the meaning of Rule 80. The
notices which have been issued by the Commissioner under Rule 80 seek
to revise the assessment orders passed by the Sales Tax Officer, Undoub-
tedly, the respondent preferred two appeals from these assessment orders
B
before the Assistant Commissioner of Sales Tax. These appeals, however,
were rejected under Rule 49 of the Orissa Sales Tax Rules. Rule 49 which
deals with summary rejection of appeal is as follows :

"49. Summary Rejection of Appeal :
c
(1) If the memorandum of appeal is not in the specified form or
if all the requirements of the form are not fully complied with, the
appellate authority may reject the appeal summarily,· after giving
·the appellant such opportunity as it may think fit to rectify the
defects.
D
(2) The appeal may also be summarily rejected on other grounds
which shall be reduced to writing by the appellate authority :

Provided that before an order rejecting an appeal is passed the·
appellant shall be given a reasonable opportunity of being heard."
E
In the present case the appeals have been rejected under Rule 49(1).
This is clearly a rejection at the initial stage of filing of an appeal which is
defective. Such rejection is before tJie appeal is taken up for consideration
by the appellate authority. An order rejecting the appeal on the ground
...-( that it is not in the specified form or that all the requirements of the form F
are not fully complied with cannot be considered an appellate order within
the meaning of Rule 80. Rule 49(1) clearly provides that such summary
rejection can take place after giving the appellant an opportunity to rectify
the defects. This is not a rejection or dismissal of an appeal after hearing
the appellant on merit. Such an order would not qualify as an appellate
order under rule 80. The purpos~ of a revision by the Commissioner suo G
motu is to ensure that the assessee is correctly assessed relating to his tax
liability. If there is an appellate authority which has considered the assess•
ment order then the Commissioner cannot suo motu revise the order. The
department would then have to follow the procedure laid down for chal-
lenging the appellate order. When, however, an appeal is not accepted for H
...
442 SUPREME COURT REPORTS (1997] 1 S.C.R.
A consideration at all because of defects there is no question of the depart-
ment being required to follow that procedure laid down for challen_,ging
such an order. Rule 80, when it refers to the Commissioner exercising a
suo motu power of revision in respect of orders other than appellate
orders, clearly contemplates an appellate order which has considered the
B original assessment order on merit in some form or the other. An order
rejecting. an appeal at the stage of filing cannot be considered as an
appellate order in the context of Rule 80.

Our attention has been drawn by learned advocate of the respondent
to somewhat similar provisions of Section 263 of the Income Tax Act of
C 1961, and cases relating to it. We will refer only to a few of those cases.
Under that section the Commissioner has the power to suo motu revise any
order passed by the Income-tax Officer if it is erroneous in so far as it is
prejudicial to the interests of the revenue.

D In cases where the appellate authority had passed an order disposing
of the assessee's appeal again~t the assessment order of the Income-tax
Officer but had not dealt with all the points arising from the Income-Tax
Officer's order, a question arose whether the Commissioner could exercise
his power of revision in respect of those points which were not considered
in the appeal. Prior to the amendment of Section 263 in 1988, there was a
E conflict of opinion among different High Courts on this question. Some
High Courts were of the. view that even if all the points arising from an
Income-tax Officer's order were not considered in appeal, or even if in
appeal the order of the Income-tax Officer was confirmed, the order of the
Income-tax Officer merged in the appellate order and, therefore, the
F Commissioner could not exercise his power of revision in respect of any
point arising out of the Income-tax Officer's order once an appellate order
had been passed. Some other High Courts, however, held that the power
of revision could not be exercised only in respect of those points which
were urged and decided in the appeal. In respect of points not so urged
or decided in appeal, the power of revision could be exercised by the
G Commissioner. It is not necessary to examine this question here.

This issue is now taken care of by an amendment made in 1988 in
Section 263 of the Income-tax Act. Explanation (c) to Section 263(1) after
amendment provides that when: any order referred to in this sub-section
H and passed by the assessing officer had been the subject-matter of any
STATE v. MIS KRISHNA STORES [SUJATA V. MANOHAR,J.] 443

appeal filed on or before or after the first day of June 1988, powers of the A
Commissioner under this sub-section shall extend and shall be deemed
always to have extended to such matters as had not been considered and
decided in such appeal.

Prior to this amendment, however, in the case of Commissioner of B
Income-Tax, Bombay v. Anuitlal Bhogilal & Co., (1958) 34 ITR 130 this
Court was required to consider a composite order passed by the Income-
tax Officer granting registration to a firm under Section 26A of the Indian
Income-Tax Act, 1922 along with an order of assessment of the firm. The
firm had filed an appeal against the order of assessment which had been
decided by the Appellate Assistant Commissioner. The court was required C
to consider whether the order of the Income-tax Officer registering the
firm can be revised by the Commissioner under Section 33B if he considers
that as erroneous and prejudicial to the revenue. This Court held that he
could. The order of registration was a 1separate non-appealable order.
While so holding, this Court said that if an appeal is provided against an
1
D
order passed by a tribunal, the decision of the appellate authority is the
operative decision in law if the appellate authority modifies or sets aside
the decision of the tribunal. It is obvious that it is the appellate decision
that is effective and can be enforced. In law the position would be just the
same even if the appellate decision merely confirmed the decision of the
tribunal. As a result of the confirmation or affirmation of the decision of E
the tribunal by the appellate authority, the original decision merges. in the
appellate decision and it is the appellate decision alone which subsists and
is operative and capable of enforcement. The respondent strongly relies on
these observations. However, in that case the court was not required to
consider whether the power of revision could be exercised in a case where F
the appeal was rejected at the threshold without any application of mind
by the appellate authority on the issue arising therein.

In the case of State of Madras v. Madurai Mills Co. Ltd., AIR (1967)
SC 681 this Court, however, observed that the doctrine of merger was not
a doctrine of rigid and universal application. The application of the G
doctrine depends on the nature of the appellate or revisional order in each
case. and the scope of the statutory provision conferring the appellate or
revisional jurisdiction. Basically, therefore, unless the appellate authority
has applied its mind to the original order or any issue arising in appeal
while passing the appellate order, .one should be careful in applying the H
444 SUPREME COURT REPORTS [1997] 1 S.C.R.
A doctrine of merger to the appellate order.

The respondent strongly relied upon a decision of this Court in Gaier
Brothers Pvt. Ltd. v. Ratan Lal Singh, [1975] 1 SCR 394. In that case a
decree for possession in favour of the plaintiff was passed by the Munsifs
court. It was confirmed in appeal and the second appeal was dismissed by
B the High Court. The court said that the judgment of an inferior court if
subjected to an examination by the superior court, ceases to have existence
in the eye of law and is treated as being superceded by the judgment of
the superior court. In other words the judgment of the inferior court loses
its identity by its merger within the judgment of the superior court. This
C was clearly a case where at each stage the appeal was decided on merit. It
has no relevance here. The other case relied upon by the respondent is of
Sheodan Singh v. Da1yao Kun war, AIR ( 1966) SC 1332. In that case the
trial court had decided two suits having common issues on merit. There
were two appeals therefrom. One of them was dismissed on the ground of
D limitation and the other on accounit of default in printing. With the result
that the Trial Court's decision stood confirmed. This Court said that the
decisions of the appeal court will be res judicata as the appeal court must
be deemed to have heard and finally decided the matter. The entire
controversy before the court related to the application of the doctrine of <
res judicata.
E
The power to revise in a taxing statute, however, will have to be
examined in the context of the statute. We have to consider whether an
order rejecting the appeals under Rule 49(1) precludes the Commissioner
from exercising power under Section 23(4) read with Rule 80. Under
F Section 23(4) the Commissioner can, inter alia, on his own motion revise
any order made under this Act or the Rules by any person other than a
tribunal or an additional tribunal. Therefore, under this sub-section the
Commissioner is not expressly prevented from revising an appellate order
if made by any person other than the tribunal or an additional tribunal.
Under Rule 80, however, the Commissioner may, of his own motion revise
G any order passed by the Assistant Sales Tax Officer or the Sales Tax Officer
withinthree years. The Commissioner can also suo motu revise within two
years any order other than an appellate order passed by the Additional
Commissioner, the Deputy Commissioner or the A~sistant Commissioner.
In the context of Section 23(4) where the words "any order other than an
H appellate order" are absent, the prohibition against revising an appellate
STATE v. M/S KRISHNA STORES [SUJATA V. MANOHAR, J.] 445

order in Rule 80 should be taken as applying only to an appellate order in A
its full sense i.e. an order which is passed after considering any issue arising
in appeal. It would not cover an order of rejection under Rule 49(1), when
the appeal is not entertained at the threshold for consideration.

It is next contended that the respondent was not given an opportunity
to be heard by the Commissioner. From the facts as set out, it is apparent B
that the respondent was served with a notice of proposed revision on
21.3.1975. The reasons for such revision were communicated to the respon-
dent on 2.5.1975. The respondent had furnished written submissions to the
Commissioner which were considered at the hearing of the case. After
furnishing the grounds of revision the hearing of the case was fixed on C
7.5.1975. There is nothing on record to show that the respondent wanted
more time or had asked for more time. The respondent appeared through
his advocate on 7.5.1975 and submitted his written arguments. Thereafter
the Commissioner has passed a detailed order on 26.5.1975. Looking to
these facts it cannot be said that a reasonable opportunity of hearing was
not given to the respondent. D
In the premises the appeals are allowed and the impugned judgment
and order of the High Court is set aside. There will, however, be no order
as to costs.

H.K. Appeals are allowed E