SAJJAD NABI DAR & CO. Versus COMMISIONER OF INCOME TAX,RAWALPINDI ZONE,RAWALPINDI

1. DORAB PATEL, J.- This petition for leave has been filed against the judgment of a Division Bench of the Lahore High Court by which the learned Judges of the Division Bench allowed the Reference by the respondent (who is the Commissioner of Income-tax, Rawalpindi Zone) under section 17 of the Sales Tax Act, 1951 (hereinafter called the said Act) against an order of the Appellate Tribunal under the said Act.

2. The petitioner is a timber merchant and in the year 1954-55 it had sold timber at Dargai in the tribal areas. We are also informed that the timber had been purchased in the tribal areas, so that the transactions for the purchase and sale of the timber bad been carried out exclusively in the tribal areas. Now, although according to the petitioner, the said Act was not applicable to the tribal areas, it had collected sales tax on its sales of timber from the persons to whom it had sold timber, and the dispute in this petition for leave relates to the sales tax thus collected by the petitioner in the year 1954-55. The amount collected was Rs 42,000 and the petitioner had deposited it with the Government in accordance with the provisions of the said Act. According to Mr. Butt, this deposit was under protest, but there is no evidence whatsoever in support of this plea. However, in the returns submitted by it under section 10 of the said Act, the petitioner appears to. Gave raised the plea that the sales tax had been illegally collected because the said Act had not been extended to the tribal areas. The Sales Tax Officer, Gujranwala accepted this plea by his order dated 17-2-1959 and directed the Government to refund to the petitioner the said amount of Rs 42,000. In view of the submissions advanced by learned counsel, it is relevant to observe here that this order of 17-2-1959 way a speaking order though a very cursory order and the Sales Tax Officer did not explain how he could order the refund to the petitioner of an amount which did not belong to the petitioner. In these circumstances, it is not surprising that the petitioner's assessment was reopened by a notice under section 28 of the hard Act and after hearing the petitioner, the Sales Tax Officer, 'A' Ward, Gujranwala, directed the petitioner by his order dated 25-4-1962 to refund to the Government the amount of Rs. 42,000 collected by the petitioner under the earlier order of 17-2-1959. This was on the obvious ground that the sum of Rs. 42,000 did not belong to the petitioner.

3. The petitioner filed an appeal against this order before the Appellate Assistant Commissioner of Income-tax and Sales Tax, B. Range, Lahore, and it is relevant to point out here that the appeal was not filed by the petitioner on behalf of the persons from whom it had collected the sales tax nor was it the petitioner's case that it would reimburse those persons on receiving the refund of Rs. 42,000 from the Government. However, the Appellate Assistant Commissioner directed the refund of this amount of Rs. 42,000 to the petitioner as he was of the view that the said Act had not been extended to the tribal areas. The Appellate Assistant Commissioner was also of the view that the statutory notice under section 28 of the said Act to the petitioner was bad because the order of the Sales Tax Officer dated 17-2-1959 in the petitioner's favour did not suffer from any error apparent on the record. Accordingly, he allowed the petitioner's appeal by his order dated 9-8-1963. The respondent challenged this order in an appeal before the Appellate Tribunal under the said Act and by its order dated 5-4-1966 this Tribunal remanded the case to the Sales Tax Officer for a finding on the question whether the purchases of timber from the petitioner were liable for tax under the said Act. We were informed that the Sales Tax Officer submitted in due course a report that the purchases of timber from the petitioner were not liable for sales tax under the said Act because the sales had taken place in the tribal territories to which the said Act had not been extended. We were also informed that this report reaffirmed the view taken in the order of 25-4-1.962 that the petitioner was not entitled to the refund of Rs. 42,000 because this sum did not belong to it. However, despite this report, the Appellate Tribunal agreed with the view taken by the Appellate Assistant Commissioner and dismissed the respondent's appeal on 30-11-1966.

4. Aggrieved by this order, the respondent applied to the Appellate Tribunal for a Reference to the Lahore Seat of the then West Pakistan High Court under section 17 of the said Act. This application was allowed and the Appellate Tribunal referred the following question to the High Court ;

5. "Whether on the facts and in the circumstances of the case the assessee was entitled to a refund of sales tax of Rs. 42,000 collected from the customers separately and in addition to the sale proceeds of timber instead of paying it to the State."

6. The question thus referred to the High Court was very wide and in the events that happened it was decided in the respondent's favour by a Division Bench of the Lahore High Court. The learned Judges of the Division Bench were not impressed by the petitioner's conduct in appropriating to itself an amount collected by it for payment to the Government. And, on a careful examination of the law, they held that the petitioner had collected this amount of Rs. 42,000 from its customers as the agent of the Government and that this agency had come to an of the view that the petitioner had no locus standi to seek the refund of this amount. The learned Judges were also of the view that the first order of the Sales Tax Officer in the petitioner's favour (namely the order dated 17-2-1959) contained an error apparent on the record within the meaning of section 30 of the said Act, therefore, they held that the Sales Tax Officer, 'A' Ward. Gujranwala was justified in reopening the question of the petitioner's assessment under section 28 of the said Act. Accordingly, by their judgment dated 7-6-1976 they accepted the Reference and in consequence the petitioner became liable to refund to the Government the amount of Rs. 42,000 which it had received in pursuance of the order of the Appellate Assistant Commissioner. Hence this petition for leave.

7. The petitioner had collected the amount of Rs. 42,000 from its customers on the plea that the amount thus collected by it was payable to the Government. That was admitted by Mr. Butt, therefore, as the petitioner had received the amount of Rs. 42,600 from the Government many years ago we inquired from learned counsel whether it had refunded to its customers the sales tax which it had collected from them on the plea that sales tax was payable to the Government. Learned counsel stated that the petitioner had not returned this amount to its customers, and it would appear that the petitioner did not make any attempt to repay this amount to its customers even though it ,bad received it from the Government many years ago. As this can only mean that the petitioner never intended to repay to its customers the amount collected by it from them, like the learned Judges of the Lahore High Court we are very poorly impressed by the petitioner's conduct. Accordingly, we drew learned counsel's attention to this aspect of the case, but his only reply was that if the petitioner had committed any offence it could be prosecuted for it but that its conduct did not entitle the High Court to interfere with the orders of the Appellate Assistant Commissioner and of the Appellate Tribunal. We are not impressed by this submission. Whatever be the position in the High Court, as the petitioner does not have a right of appeal to this Court against the High Court's judgment, the question is whether special leave should be granted to a petitioner whose claim is manifestly dishonest. However, as we have not heard full arguments on this question, we would refrain from deciding it, the more so, as we are satisfied that the petition must fail on merits also.

8. We pointed out earlier that the learned Judges of the Lahore High. Court held that the petitioner had acted as the Government's agent for the collection of sales tax and that this agency had come to an end on the deposit by the petitioner with the Government of the amount collected by it for sales tax from its customers. Mr. Butt submitted that the learned Judges of the Lahore High Court had erred in law in holding that the petitioner had acted as the Government's agent because the said Act had never been extended to the tribal areas, and as the said Act had never been extended to the tribal areas, the submission was that the question of the Government appointing the petitioner as its agent could not arise, because the Government was not entitled to levy sales tax in the tribal areas. Now even though the Government was not entitled to levy sales tax in the tribe areas, it could have rectified the petitioner's action on the same misunderstanding of the law which bad led the petitioner to collect tax from its customers, therefore, nothing turns on the fact that the said Act had not been extended to the tribal areas, and the real question is of the terms on which the petitioner had collected sales tax from its customers. Although that evidence was in the petitioner's exclusive possession, as it withheld that evidence, an adverse inference must be drawn against it, and, in the circumstances, the High Court was justified in holding that the petitioner bad collected sales tax from its customers as the agent of the Government.

9. However, even if it is assumed for the sake of argument that the finding of the High Court is erroneous, this will not help the petitioner's case As the petitioner does not claim to have collected sales tax for its own benefit, it follows that it had collected the tax either as the agent of the Government or as the agent of its customers, and if it was not the Government's agent, it was necessarily the agent of its customers for the purpose of paying the tax on their behalf to the Government. This agency came to an end as soon as it had deposited the tax with the Government, and thereafter only its customers could have sought the refund of the tax paid on their behalf. No doubt, these customers could have authorised the petitioner to apply on their behalf for the refund of the amounts paid by them, but as that is not the petitioner's case, the order of the Sales Tax Officer of 7-2-1959 enabled the petitioner to obtain the refund of money which did not belong to it. And this means that the basis of this order is the proposition that the petitioner was entitled to the tax paid by its customers, because its customers were not liable to pay the tax. This is a legal proposition which is obviously incorrect, if not absurd, and Mr. Butt did not even attempt to defend it. He. however. submitted that even if this order was erroneous, it did not suffer from any "mistake apparent on the face of the record", therefore, it could not be rectified under section 30 of the said Act because it bad become final.

10. Section 30, on which learned counsel relied, reads

11. "30.-(1) The Commissioner, the Appellate Assistant Commissioner or the Sales Tax Officer, may at any time within four years from the date of any order passed by him, of his own motion rectify any mistake apparent on the face of the record or proceeding connected with that order and shall within the like period rectify any such mistake which has been brought to his notice by an assessee.

12. (2)

(3) ..

(4) ..

13. An order cannot be corrected under this section merely because it is erroneous. It can be corrected only if it contains a "mistake apparent on the face of the record", and so the question is of the meaning of these words. As the word "apparent" means manifest, an order which is manifestly or obviously B wrong would come within the mischief of this section. and the order of 17-2-1959 suffers from such a mistake because the mistake in it is one which can be established without any elaborate arguments. Presumably therefore, the High Court hold that it fell within the mischief of section 30.

14. According to Mr. Butt, the view of the High Court was not correct, but he relied only on the orders of the Appellate Assistant Commissioner and of the Appellate Tribunal. Although these orders support the petitioner's contention, they do not improve its case because neither of the Tribunals have given any reasons for the conclusion reached by them. Mr. Butt then submitted that there was no proper pronouncement by the Supreme Courts on the construction of this section. Now, even if that be so, the concept of an order which suffers from an error apparent on the face of the record is not unknown to our Jurisprudence. A decree or order of a Court can be reviewed under rule 1 of Order XLVII of the Civil Procedure Code if it suffers from a "mistake or error apparent on the face of the record" and as observed by Mulla in his commentary on the Civil Procedure Code (12th Edition. p. 1259) a review will lie under this Order "whenever the Court considers that it is necessary to correct an evident error or omission Thus, a review was granted where an error on a point of law was apparent on the face of the judgment e.g. failure to apply the law of limitation to the facts found by the Court, or failure to consider a particular section of an Act . . . but the point of law must be indisputable". Similarly an award, which is after all a type of order, could be set aside under clause 14(c), Schedule 2 of the Civil Procedure Code, as it then stood, on the ground "that an object to the legality of the award is apparent on the face of it". The Privy Council bad occasion to construe these words in Champsey Bhara & Co. v: Jeevraj Balloo Spinning & Weaving Co. Ltd. A I R 1923 P C 6 and Lord Dunedin observed : "an error in law on the face of the award means that you can find in the award . . . . . some legal proposition which is the basis of the award and which you can then say is erroneous". Now the relevant provisions of section 30 of the said Act are similar to the clause construed by Lord Dunedin, except that the mistake which can be rectified under this section is not limited to a mistake of law and may be gathered from the impugned order as well as from the record, therefore, the nature of the mistake in the order of 17-2-1959 has to be ascertained from that order read with the record, and the record would necessarily include the returns submitted by the petitioner for the relevant assessment years. As the petitioner seeks special leave, it should have filed a copy of these returns. Be that as it may, the question is of the declaration made by it about the source of the sum of Rs. 42,000 deposited by it as tax. Mr. Butt admitted that this amount had been collected by the petitioner from its customers and it was so shown by the petitioner in its returns, therefore, the order of 17-2-1959 has to be read with this admission. And, if the order is read with this admission, it becomes very clear that the legal proposition which is the basis of the order is the proposition that the petitioner was entitled to the tax paid by its customers because those customers were not liable for the tax. As this is an obviously erroneous proposition, the mistake in the order is a mistake within the meaning of section 30 of the said Act, therefore, the Sales Tax Officer was entitled to reopen the case within the statutory period prescribed in section 28. As he reopened the case within the statutory period, the Appellate Assistant Commissioner and the Appellate Tribunal erred in setting aside his order which has been rightly restored by the High Court.

15. The petition is without merit and is dismissed.

16. S. A. H. Petition dismissed.