Holding

Calling for the records constitutes the exercise of power under Section 15(4), thereby initiating revision proceedings within the prescribed four‑year limitation.

Summary

The appellant, a manufacturer of agarabathis, challenged an assessment order that taxed packing material as raw material. The First Appellate Authority excluded the packing material on 28‑03‑1992, but the Additional Commissioner later called for the case records on 16‑03‑1996, found the order erroneous, issued a show‑cause notice on 20‑05‑1996 and passed a revision order in October 1996. The appellant argued that the mere call for records did not constitute initiation of proceedings under Section 15(4) of the Karnataka Tax on Entry of Goods Act, 1979, and that the subsequent show‑cause notice was therefore time‑barred. The Supreme Court held that calling for records is the exercise of power contemplated by Section 15(4) and thus marks the initiation of revision proceedings within the four‑year limitation from the 1992 order. Consequently, the limitation period was satisfied and the appeal was dismissed.

Issues considered

Whether the Additional Commissioner’s call for records on 16‑03‑1996 amounts to the exercise of power under Section 15(4) of the Karnataka Tax on Entry of Goods Act, 1979.
Whether the limitation period of four years for initiating revision proceedings under Section 15(4) was complied with.
Whether a show‑cause notice can be issued under Section 15(1) and if its issuance after the call for records is time‑barred.

Legislation cited

Karnataka Tax on Entry of Goods Act, 1979s. 15(1), s. 15(4), s. 15-B

Subjects

limitation periodrevisional powerssuo motutax on entry of goodspacking materialassessment orderSection 15Section 15-Brevenue

Judgment

MIS . . L RANGA RAO AND SONS A
v.
THE STA TE OF KARNATAKA AND ORS.

MAY 16, 2007

[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.] B

Karnataka Tai: on Enuy of Goods Act, 19i9-s. 15 and 15(4)-
Revisional powers of Commissioner, Additional Commissioner. Joint
Commissioner and Deputy Commissioner-Exercise of-Additional C
Commissioner calling for the records of case regarding error in the order of
First Appellate Authority and loss to Revenue within the prescribed period
of four years from the date of order passed by First Appellate Authority-
Held: Amounts to exercise of power uls I 5(4) and revisional proceedings
(suo motu) were within limitatirn period-When revisional authority called
for the records of the case from the First Appellate Authority, initiation of D
proceeding uls I 5(1) took place thus, jurisdiction exercised within the
limitation period-Limitation.

An assessment order was passed levying tax on all the items imported
into the local area of Mysore. Appellant-manufacturer of agaraba this'
contended that packing material should not to be taxed as raw material. By E
order dated 28.3.1992, Appellate Authority excluded the packing material
from taxation. Additional Commissioner examined the order of First Appellate
Authority and called for the records on 16.3.1996 regarding error in the
order of the First Appellate Authority and the loss to the Revenue. Thereafter,
on 20.5.1996 Additional Commissioner issued show cause notice to the F
appellant under section 15(1) of the Karnataka Tax on Entry of Goods Act,
1979 that upon scrutiny of the records he found that the order dated 28.3.1992
was erroneous and prejudicial to the Revenue since the packing material was
liable to be taxed @2%. The Additional Commissioner then called upon the
assessee to show cause. Thereafter, it passed an order under section 15(1)
around 14/15.10.1996. It was assessee's case that a mere consideration by G
the Additional Commissioner in his Chamber on 16.3.1996 regarding error
in the order of the First Appellate Authority and the loss to the revenue cannot
constitute initiation of proceedings u/s 15(1) ; nor did it constitute exercise
of power within the meaning of s.15(4) of the said 1979 Act and thus the

1191 H
1192 SUPREME COURT REPORTS [2007] 6 S.C.R.

A revisional proceedings (suo motu) were time barred; that the proceedings \
u/s 15(1) could only be initiated by issuan; o' a show cause notice; and that
the proceedings initiated by Additional Commissioner by way of show cause
notice on 20.5.1996 was beyond the prescribed period of 4 years from the
date of the order passed by the First Appellate Authority on 28.3.1992. Division
Bench of High Court held that the proceedings under section 15(2) was not
B time barred. Hence the present appeal.

Dismissing the appeal, the Court

HELD: I.I. A bare reading ofs.15(1) indicates that the Commissioner,
Additional Commissioner, Joint Commissioner and Deputy Commissioner
C could suo motu call for and examine the records of any proceedings under
this Act The pre-conditions were-an error in the order passed by an officer
subordinate to the revisional authority and prejudicial to the interest of
revenue. Once these two conditions stood fulfilled, the revisions! authority
was authorized to give an opportunity to the assessee of being heard and after
D making such inquiry as he though fit he could pass appropriate orders as the
circumstances of the case would justify. This power was essentially a
supervisory power. However, in order to ascertain whether the officer
subordinate to him had passed an erroneous order, which was also prejudicial
to revenue, the Commissioner including the Additional Commissioner etc.
was required to call for and examine the record of proceedings. Therefore,
E the revisional authority had to call for the records, he had to examine such
records, he had to be satisfied regarding fulfillment of the above two conditions
and thereafter give opportunity to the assessee of being heard and on making
appropriate inquiry the revisional authority was empowered to pass appropriate
orders. [Para 7) [1197-E, F, G; 1198-A, BJ
F 1.2. Under section 15(1) read withs. 15(4), there was no provision for
issuance of a show cause notice. The reason is obvious. Section 15(4) required
the revisional authority to exercise its powers within four years from the date
of passing of the order sought to be revised. The concept of exercising the
power is important, particularly in the absence of any provision for issuance
G of a show cause notice. When the revisional authority suo motu called for
the records for examination and when he examines the records, the exercise
of power under s.15(4) of the Act takes place. This can be equated to initiation
of pl'oceedings. Conceptually, there is a distinction between initiation of· .-
proceedings and completion of proceedings within the stipulated period. The
H limitation prescribed in s.15(4) was the limitation for initiation of proceedings
N. RANG A RAO v. STATE OF KARNA TAKA 1193
'{ whereas limitation prescribed in s.15-B was in respect of completion of A
proceedings within the prescribed period. !Para 7) [ll98-C, D, El

1.3. A bare reading ofs.15-B with the provision indicates that s.15-B
was retrospective. The Head Note indicates limitation in regard to passing of
orders inter alia under s. 15. It stated clearly that notwithstanding anything
contained in s.15, where any proceeding is initiated under section 6 or where B
any records have been called for under section 15, the authority shall pass
orders within a period of three years from the date of calling for the records.
The proviso clarified that in respect of proceedings in which records have
been called for before the date of commencement of the Karnataka Taxation
Laws (Amendment) Act, 1997(w.e.f. l.4.1997) the revisional authority shall C
dispose of the proceedings within a period of four years from the date of
commencement of the (Amendment) Act, 1997.
[Para 71 (1198-F, G, H; 1199-A[

1.4. Section 15-B indicated the dichotomy between initiation of
proceedings and completion of proceedings. The legislative intent was clear. D
It demarcated two aspects, namely, commencement of proceedings and
completion of proceedings (outer limit). Section 15(4) prescribed limitation
for commencement of proceedings whereas Section 15-B prescribed
limitation for completion of the proceedings. The Legislature intended
maximum leeway in cases where an error resulted in loss to revenue. In the
circumstances, under the scheme of the 1979 Act, the initiation proceedings E
took place when the revisional authority called for the records of the case
from the First Appellate Authority and, therefore, the jurisdiction stood
exercised within the period of limitation. Lastly, it is stated that on 1.4.1997,
the tax appeal against the order of the Revisional Authority was pending
decision. Moreover, the law of limitation is generally procedural. Thus, there F
is no infirmity in the impugned judgment of the High Court.
(Para 7) (1199-A-DJ

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5852 of2006.

From the final Judgment and Order dated 05.08.2006 of the High Court G
of Kamataka at Bangalore in Tax-Appeal-Entry Tax No. 22 of 1996.

A.K. Ganguli, Sr. Adv., V. Balaji, T. Shanthi and P. Narasimhan for the
Appellant.

Sanjay R. Hedge, Amit Kr. Chawla, Vikrant Yadav and Ramesh Jadhav
for the Respondent. H
1194 SUPREME COURT REPORTS [2007] 6 S.C.R.

A The Judgment of the Court was delivered by )

KAPADIA, J. 1. This civil appeal is filed by the assessee and is directed
against the judgment and order delivered by the Division Bench of the
Kamataka High Court on 5.8.2006 in Tax Aprea! No. 22/1996 holding the
proceedings under Section 15(2) of Karnataka Tax on Entry of Goods Act,
B 1979 ("the said 1979 Act") are not barred by time.

2. A short question which arises for determination in the civil appeal is:
Whether mere calling for the records for examination of the case on 16.3.1996
by Additional Commissioner constituted exercise of power within the meaning
of Section 15(4) of the said 1979 Act so as to fall within the limitation period
C specified therein?

3. The appellant is the manufacturer of branded agarabathis having its
manufacturing unit at Mysore. It causes entry of various raw materials into
the local area of Mysore. For the Assessment Years 1986-87 to 1989-90, the
D Assessing Officer ("AO") passed an order of assessment levying tax on all
the items imported into the local area of Mysore. According to the appellant,
packing material was not to be taxed as raw material. This was not accepted
by the AO. Aggrieved by the said decision, an appeal was filed. The Appellate
Authority excluded the packing material from taxation. The decision of the
Appellate Authority was delivP.red on 28.3.1992. On 20.5.1996 a show cause
E notice was given to the appellant-assessee by the Additional Commissioner
under Section 15(1) stating that, upon scrutiny of the records, he found the
order dated 28.3.1992 to be erroneous and prejudicial to the Revenue for the
reason that as per serial No. 16-A of the Schedule to the 1979 Act, packing
material was liable to be taxed @ 2%, which has not been noticed by the First
F Appellate Authority and, therefore, it had committed an error in setting aside
the tax levied by the AO on the value of packing material. In the circumstances,
the Additional Commissioner called upon the assessee to show cause as to
why the order of the First Appellate Authority should not be set aside and
restore the Assessment Order levying tax on the value of packing materials.
In the show cause notice, the Additional Commissioner stated that the order
G of the First Appellate Authority was examined on 16.3.1996 and, therefore, the
revision proceedings were within time.

4. As stated above, the short point which arises for determination in
this civil appeal is whether mere calling for records of the case for examination
on 16.3.1996 amounts to exercise ofpowerunder Section 15(4) of the said 1979
H
N. RANGA RAO v. STATE OF KARNATAKA [KAPADIA.J.] 1195
Act. A
5. To complete the chronology of events, it may be noted that the order
of the First Appellate Authority was dated 28.3.1992, the order calling for the
records by the Additional Commissioner was around 16.3.1996, the decision,
on the question of error in the order of the First Appellate Authority and the
loss to the revenue consequent thereto, was dated 16.3.1996, the show cause B
notice was dated 20.5.1996 and the same was received by the assessee on
24.5.1996. The order ultimately passed by the Additional Commissioner under
Section 15(1) was of 14/15.10.1996. Therefore, according to the assessee, mere
calling for the records for examination around 16.3.1996 did not amount to
exercise of power within the meaning of Section 15(4) of the said 1979 Act C
and if that be the case then, according to the assessee, issuance of the show
cause notice on 20.5.1996 was beyond the prescribed period of 4 years from
the date of the order passed by the First Appellate Authority on 28.3 .1992.
According to the assessee, in the present case, the Additional Commissioner
had initiated proceedings by way of show cause notice on 20.5.1996. According
to the assessee, proceedings under Section 15(1) could only be initiated by D
issuance of a show cause notice. According to the assessee, a me.re
consideration by the Additional Commissioner in his Chamber on 16.3.1996
regarding error in the order of the First Appellate Authority and the loss to
the revenue cannot constitute initiation of proceedings under Section 15(1)
and nor did it constitute exercise of power within the meaning of Section 15(4) E
of the said 1979 Act. Consequently, according to the assessee, the revisional
proceedings (suo motu) were time barred.

6. The Kamataka Tax on Entry of Goods Act, 1979 was enacted to
provide for the levy of tax on the entry of goods into local areas for
consumption, use or sale therein. Section 3 is the charging section. Under F
Section 3 a tax was levied and collected on entry of goods mentioned in he
First Schedule into a local area for consumption, use or sale therein at the
rates prescribed. Section 3-A dealt with collection of tax by registered dealer.
Chapter III dealt with filing ofretum, making of assessment, payment of taxes,
recovery and collection of taxes. Under Section 5, every registered dealer was

- required annually to submit a return to the AO within the period prescribed. G
Section 5(4) and 5(5) provided for passing of assessment orders. Section 8
dealt with payment and recovery of tax. Chapter V dealt with appeals and
revision. Section 15 formed part of Chapter V. We quote hereinbelow Section
15 and Section 15-B.
H
1196 SUPREME COURT REPORTS (2007) 6 S.C.R.

A "15. Rei,•isional Powers of Commissioner, Additional Commissioner,
Joint Commissioner and Deputy Commissioner: ( l) The Commissioner
may on his own motion call for and examine the record of any
proceeding under this Act and if he considers that any order passed
therein by any officer subordinate to him is erroneous in so far as it
is prejudicial to the interests of the revenue, he may, if necessary, stay
B the operation of such order for such period as he deems fit and after
giving the assessee an opportunity of being heard and after making
or causing to be made such inquiry as he deems necessary pass such
orders thereon as the circumstances of the case justify, including an
order enhancing or modifying the assessment, or cancelling the
c assessment or directing a fresh assessment.

(2) The Additional Commissioner may on his own motion call for and
examine the record of any proceedings under the Act, and if he
considers that any order passed therein by a Joint Commissioner, or
an appellate authority of the rank of a Deputy Commissioner is
D erroneous in so far as it is prejudicial to the interests of revenue, he
may, if necessary, stay the operation of such order for such period as
he deems fit and after giving the assessee an opportunity of being
heard and after making or causing to be made such inquiry as he
deems necessary, pass such order thereon as the circumstances of the
case justify, including an order enhancing or modifying the assessment
E
or cancelling the assessment or directing a fresh assessment.

(3) The Joint Commissioner may on his own motion call for and
examine the record of proceeding under this Act, and if he considers
that any order passed therein by any officer who is not above the rank
of Deputy Commissioner is erroneous in so far as it is prejudicial to
F
the interests of revenue, he may, after giving the assessee an
opportunity of being heard and after making or causing to be made
such inquiry as he deems necessary, pass such order thereon as the
circumstances of the case justify, including an order enhancing or
modifying the assessment, or cancelling the assessment or directing

-
G a fresh assessment.

(4) The power under sub-sections(!) to (3) shall be exercisable only
within a period of four years from the date of the order sought to be
revised was passed. ,-
H Explanation: In computing the period of limitation for the purpose of
N. RANGA RAO v. STATEOFKARNATAKA (KAPADIA. J.] 1197

sub-section (4) any period during which any proceeding under this A
section is stayed by an order or injunction of any Court shall be
excluded.

15-B. Limitation in regard to passing orders in respect of certain B
proceedings: (l) Notwithstanding anything contained in Sections 6
and 15, where any proceeding is initiated under Section 6 or any
records have been called for under Section 15, the authority referred
to in the said sections shall pass orders within a period of three years
from the date of initiation of such proceedings or calling for the
records, as the case may be: c
Provided that in respect of the proceedings initiated or records
called for before the date of commencement of the Karnataka Taxation
Laws (Amendment) Act, 1977, orders shall be passed within a period
of four years from such commencement.
D
(2) In computing the period specified in sub-section(!), the period
during which a proceeding, has been deferred on account of any stay
granted by any Court or any other authority shall be excluded."

7. A bare reading of section 15(1) indicates that the Commissioner,
Additional Commissioner, Joint Commissioner and Deputy Commissioner could E
suo motu call for and examine the records of any proceedings under this Act
if he considered that any order passed therein by any officer subordinate to
him was erroneous so as to be prejudicial to the interest of the revenue, he
was empowered to stay the operation of such order for such period as he
deemed fit and after giving the assessee an opportunity of being heard arid
after making such inquiry, as he thought fit, could pass such orders as the
F
"'" circumstances of the case would justify, including the order enhancing or
modifying the assessment or even cancelling the assessment or even direct
a fresh assessment. The pre-conditions to the. exercise of this suo motu
powers were 1:\vo fold, namely, error in the order passed by an officer
subordinate to the revisional authority and prejudice to the interest of revenue. G
Once these two conditions stood fulfilled, the revisional authority was
authorized to give an opportunity to the assessee of being heard and after
making such inquiry as he thought fit he could pass appropriate orders as
the circumstances of the case would justify. This power was essentially a
~supervisory power. However, in order to ascertain whether the officer
H
1198 SUPREME COURT REPORTS [2007) 6 S.C.R.

A subordinate to him had passed an erroneous order, which was also prejudicial
to revenue, the Commissioner including the Additional Commissioner etc. was
required to call for and examine the record of such proceedings. Therefore,
the revisional authority had to call for the records, he had to examine such
records, he had to be satisfied regarding fulfilment of the above two conditions
B and thereafter give opportunity to the assessee of being heard and on making
appropriate inquiry the revisional authority was empowered to pass appropriate
orders. It is important t::> note that under Section 15(1) there was no provision
for giving a show cause notice as in the case of some other similar enactments.
However, the power under sub-sections (I), (2) and (3) of Section 15 was
exercisable only within four years from the date of the order sought to be
C revised. Under Section 15(4), therefore, a period of limitation was prescribed.
The revisional authority had to exercise its powers only within four years
from the date when the order sought to be revised was passed. Therefore,
under Section 15(1) read with Section 15(4), there was no provision for
issuance ofa show cause notice. The reason is obvious. Section 15(4) required
the revisional authority to exercise its powers within four years from the date
D of passing of the order sought to be revised. The concept of exercising the
power is important, particularly in the absence of any provision for issuance
of a show cause notice. When the revisional authority suo motu calls for the
records for examination and when he examines that records, the exercise of
power under Section 15(4) of the Act takes place. This can be equated to
E initiation of proceedings. There is one more aspect which needs to be
considered. Conceptually, there is a distinction between initiation of
proceedings and completion of proceedings within the stipulated period. The
limitation prescribed in Section 15(4) was the limitation for initiation of
proceedings whereas limitation prescribed in Section 15-B was in respect of
completion of proceedings within the prescribed period. In our view, a bare
F reading of Section 15-B with the proviso indicates that Section 15-B was
retrospective. Firstly, the Head Note indicates limitation in regard to passing
of orders inter alia under Section 15. It stated clearly that, notwithstanding
anything contained in Section 15, where any proceeding is initiated under
Section 6 or where any records have been called for under Section 15, the
G authority shall pass orders within a period of three years from the date of
calling for the records. The proviso clarified that in respect of proceedings
in which records have been called for before the date of commencement of
the Karnataka Taxation Laws (Amendment) Act, 1997 (with effect from 1.4.1997)
the revisional authority shall dispose of the proceedings within a period of
four years from such commencement. This proviso indicates that proceedings
H in which records have been called for even in cases falling before 1.4.1997 had
N. RANGA RAO 1•. STATE OF KARNATAKA IKAPADIA,J.) 1199

to be disposed of within four years from the date of commencement of the A
(Amendment) Act. 1997. In our view, Section 15-B indicated the dichotomy
between initiation of proceedings and completion of proceedings. The
legislative intent was clear. It demarcated two aspects, namely, commencement
of proceedings and completion of proceedings (outer limit). Section 15(4)
prescribed limitation for commencement of proceedings whereas Section 15-
B prescribed limitation for completion of the proceedings. We are required to B
keep in mind that the Legislature intended maximum leeway in cases where
an error resulted in loss to revenue. In the circumstances, we are of the view
that under the scheme of the 1979 Act. the initiation proceedings took place
when the revisional authority called for the records of the case from the First
Appellate Authority and, therefore, the jurisdiction stood exercised within the C
period of limitation. Lastly, we may state that on 1.4.1997 in the present case
the tax appeal against the order of the Revisional Authority was pending
decision vide Tax Appeal No. E.T. 22/96. Moreover, the law of limitation is
generally procedural, hence, in our view, Section 15-8 was retrospective. For
the above reasons, we find no infirmity in the impugned judgment of the High
Court. J)

8. Before concluding, we may state that, as discussed above, the
Karnataka Tax on Entry of Goods Act, 1979 prescribed limitation for initiation
of proceedings, it also prescribed limitation for completion of proceedings
unlike some other Acts under which the limitation prescribed was only in
respect of completion of proceedings. We do not wish to comment about
E
those provisions/enactments. Our present judgment is confined strictly to the
1979 Act herein.

9. For the aforestated reasons, we find no infirmity in the impugned
judgment of the Kamataka High Court and accordingly the civil appeal filed F
by the assessee stands dismissed with no order as to costs. As regards the
merits of the case, we express no opinion as the same have not been argued
before us.

N.J. Appeal dismissed.
G