Decided on March 13,1970



- (1.) THIRU L. V. Veeri Chettiar and his minor son V. Shamugham, the petitioners herein, formed themselves in to an association of persons in the year 1961 for carrying on the business of manufacture of handloom and powerloom cloths. They adopted the trading style of 'messrs. Shamugham textiles' and their factory was set up in Vembadithalam, Salem Dt. The petitioners later concerned themselves in the manufacture of readymade garments and were exporting such garments, art silk fabric and pure silk zari embroidered sarees, all of which came under the category of handloom cloth and handicrafts within the meaning of the Export promotion Scheme for handicrafts and handloom cloths initiated by the government of India. Under the said scheme certain import licenses were issued to the petitioners as against the export of handloom cloths and handicrafts. It is not necessary to set out the details of the export promotion scheme, as they are not necessary. The petitioners conceded that the import license so obtained by them were being sold by them by way of forward sale through named brokers in madras. Such blank transfers enabled the brokers to negotiate further the licences and sell the same. The petitioners would state that on e they effected a sale of the licences through the brokers, they were not aware as to who finally imported the goods undercover of the licence and under the letters of authority which they signed in blank contemporaneously along with the sale of the licences. The petitioners' case is that they maintain no accounts, in respect of such sale of licenses and according to him, no goods imported under the said licences were solidly them in the Maharashtra State, On 5-10-1964 the Sales Tax Officer (X-I)Enforcement Branch, Greater Bombay, who is the respondent in this case, sent a registered letter stating that the petitioners have made large imports at Bombay and called upon them to furnish to him the details of such imports and the disposal thereof. He characterised the petitioners as non-resident dealers and enclosed various forms to be filled up by the petitions for the respondent to deal with them accordance with the sales tax law in force in Bombay. One such form which was enclosed with the letter dated 5-10-1964 was a form which related to a certificate to be issued by a Chartered Accountant relating to the maintenance of the books of account by the petitioners and the statement of sales of imported goods etc. The petitioners replied in their letter dated 9-3-1965 stating that there were no imports of art silk as claimed during the period 1-1-1960 to 31-3-1964. In this view they sent back the statement marked "nil". The petitioners claim that the association of persons was dissolved on 9-6-1965. In spite of the disowning of any transaction in the nature of import or sale by the petitioners, the respondent was pursuing the petitioners to furnish before him their books' of account, In their letter dated 4-8-1966, the petitioners made it clear that there was no clearance of goods at Bombay Port and there was no sale of any commodity by the petitioners who were by them dissolved on 9-6-1965. They denied liability and stated that the association of persons is under no legal obligation to produce the accounts and documents called for. They reiterated that the licences were sold in accordance with the common practice of the trade through named brokers and blank papers in the nature of letters of authority were given at or abut the time of such sale. The petitions claim that there was no occasion or necessity for them, to keep accounts as there was no actual import of goods subsequent to 1-4-1964. They categorically stated as follows:-- "as soon as transactions are concluded with the brokers, blank papers would be signed to enable them taking necessary steps to effect the imports in the name of the firm, by the ultimate purchasers of the licenses. There was no direct contact at any stage between the association and the buyers of the licenses. Therefore the association is not in possession of the details regarding the names of parties. The names of buyers could be easily verified and found by the sales tax authorities with reference to the import clearance papers with the bombay Port trust authorities. If the officer has any information on which the suspicion that any transaction of sale was effected by the dissolved firm in Maharashtra State is based, the necessary material may kindly be furnished so that it would be possible to explain the nature of those transaction. " In effect, therefore, the petitioners challenged the factual hypothesis which prompted the respondent to issue the notice under the provisions of the Bombay sales Tax Act and purported to exercise jurisdiction thereunder. It appears that the petitioners' representative interviewed the respondent on or about 11th august 1966 and the position was made clear to him. This personal interview of the representative was followed by a letter of confirmation dated 23-8-1966. In this letter, while reiterating that they were not in possession of any particulars of sale of material at Bombay, the petitioners wanted that the details regarding the materials in the possession of the respondent be furnished to them, to enable them to answer the show cause notice. A reminder was sent on 31-8-1966. There also the position was further elucidated by the petitioners, but with the difference that they gave the name of the broker through whom the licences were sold as janab Gafoor Sahib Sunkuarama Chetti Street, Madras 1. The petitioners were so diligent and sincere to enquire of the respondent whether the ultimate buyers of the licences misused their names and pretended as if goods were sold in Bombay on behalf of and for the benefit of the petitioners. The petitioners also made out specifically that as they did not have direct contact with those buyers, any information leading to such sale may be forwarded to the petitioners, so that they could clear the suspicion in the mind of the respondent and consequentially work up their rights. In spite of such a sincere effort on the part of the petitioner, the respondent appears to have taken no steps in making any further investigation or securing materials to bring home o the petitioners that the goods imported under their licences were sold in the State of Maharashtra and within the jurisdiction of the officer concerned. On the other hand on 4-11-1966, the respondent issued the notice, which is impugned in this writ proceedings, which is practically a repetition of what he has stated but bereft of the particulars and materials requested for by the petitioners. The respondent, however, would state in the impugned notice that the petitioners have delivered goods imported in Bombay to local buyers. No attempt has been made to disclose as to who the buyers were, though such information was asked for. Apparently the respondent obtained information about the value of the licences granted for the years 1964-65 and 1965-66 from the Imports Control authorities and incorporated them in his notice under scrutiny by us, and concluded thus: "from this I infer that you must have been granted import licences for similar value in the past for 1960-61. As these goods have been sold after clearance in this State I provisionally hold you liable from 1-11960. . . . . I propose to pass best judgment order after adding 500% to the C. I. F. value. " He would add that information of imports has been disclosed to the representatives and he would not agree that notwithstanding the dissolution of the association of persons, there is no obligation on it to produce the books of account etc. , and subject itself to the jurisdiction of the respondent. Finally the respondent would state that since the petitioners were the owners of the goods as per documentary evidence, as per conditions of import licence, the responsibility rested with the petitioners and called upon then to show cause why he should not assess them in manner proposed and why also a penalty under S. 36 (2) (a) of the Bombay Sales Tax Act, 1959, be not imposed. He also served a notice under S. 33 of the said Act calling upon the petitioners to state their objections, if any, and called upon them to attend his office on a notified date. This notice prompted the petitioners to come up to this court under Art. 226 of the Constitution of India for the issue of a writ of prohibition prohibiting the respondent from taking any further proceedings in pursuance of his notice dated 2-1-1967.
(2.) IN the writ petition the petitioners' case is that there is total absence of jurisdiction in the respondent to initiate proceedings against the petitioners. This is because the petitioners did not effect any sales as alleged and as only a sale would attract sales tax and as no particulars of such sales were furnished in spite of several sincere requests made in that behalf, the impugned order is illegal. The petitioners would categorically state that they had not sold any goods in the erstwhile State of Bombay during the period of about five years prior to the date of dissolution. They would also raise a legal plea that the petitioners who formed themselves into an association of individuals having been dissolved the assessing authorities could not take any further action in law to bring to tax any transaction of theirs, even if there were any on the ground that they have escaped assessment. They claim that the respondent was acting in an arbitrary and high-handed manner in the absence of any material whatsoever and the proposed levy of penalty is capricious. Apprehending, therefore, that final order would be passed, which would be totally beyond the jurisdiction of the respondent, a rule nisi in the nature of a prohibition was sought. This court issued the rule nisi and the respondent has filed a counter affidavit.
(3.) IN the counter the respondent's case is that this court has no jurisdiction to entertain and hear the petitioner as no part of the cause of action has arisen within the jurisdiction of this court. He would claim that the petition as framed is not maintainable. On the fact, it is stated that as a mere proposal has been made under S. 33 of the Bombay Sales Tax Act, 1959, and as it is in the nature of a show cause memo, the petitioners are not entitled to challenge the said notice as the Act provides for adequate and efficacious remedies to challenge the final assessment orders by way of appeal, revision etc. The respondent does not admit that the petitioners did not import the goods or did not sell them in the State of maharashtra or that the petitioners' firm was not aware to whom the imported goods were sold. He adds that as lawful custodian of the relevant documents connected with import licences it was incumbent upon the petitioners to produce the relevant evidence before the respondent to prove that the petitioners had not imported goods and that they did not sell imported goods in the State of maharashtra. He would maintain that he justified in making the proposal as he did and such a proposal to assess even a dissolved association is competent under S. 19 (3) of the act read with S. 18 thereto. The respondent's specific case is that the onus is upon the petitioners to establish that there was no sale in the State and her had the necessary jurisdiction to issue the order and there has not been a violation of the principles of natural justice.;

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