Holding

A statutory appeal under the Central Sales Tax Act must be decided with adequate reasons; an order lacking reasons and failing to address material legal questions is a non‑application of mind and must be set aside.

Summary

Mis. Steel Authority of India Ltd, a public sector undertaking engaged in manufacture and inter‑state sale of iron and steel, was assessed under the Central Sales Tax Act, 1956 for the year 2001‑02 with a demand of Rs 19.25 crore. The company appealed the assessment before the Assistant Commissioner (first appellate authority). The Assistant Commissioner dismissed the appeal in a brief order that neither addressed the several legal questions raised nor provided any reasons, showing a complete non‑application of mind. The Supreme Court held that a statutory appeal must be decided with a reasoned order, as the right to reason is a component of natural justice. Consequently, the Court set aside the Assistant Commissioner’s order and remitted the matter for fresh consideration with a requirement to give a reasoned decision, without expressing any view on the merits. The appeal was allowed in part and the case was sent back to the first appellate authority.

Issues considered

What is the requirement of a reasoned order in a statutory appeal under the Central Sales Tax Act?
Does the absence of reasons and failure to address raised legal questions constitute a non‑application of mind warranting set‑aside?
Can the Supreme Court intervene in a statutory appeal where the first appellate authority has acted casually?

Legislation cited

Central Sales Tax Act, 1956s. 19, s. 3, s. 8(2)(b)

Subjects

Central Sales TaxStatutory appealRight to reasonNatural justiceNon‑application of mindReasoned orderTax assessmentDouble taxation

Judgment

[2008] 10 S.C.R. 655

MIS. STEEL AUTHORITY OF INDIA LTD. A
v.
SALES TAX OFFICER, ROURKELA-1 CIRCLE AND ORS.
(Civil Appeal No. 4290 of 2008)
JULY 10, 2008
B
[DR. ARIJIT PASAYAT AND P. SATHASIVAM, JJ.]

Appeal: Statutory appeal - Disposal of, in casual man-
ner - Held: Various important questions of law raised not dealt
with by first appellate authority - Reading of the order shows c.
complete non-application of mind - Matter remitted to first ap-
pellate authority for fresh consideration - Central Sales Tax
Act, 1956.
Judgment/Order: Reasoned order - Right to - Held:
Spelling out reasons for the order made is one of the salutary D
requirement of natural justice - Right to reason is an indis-
pensable part of a sound judicial system.
Appellant-assessee was engaged in carrying on
manufacture and sale of various products. Apart from that,
the appellant-Company effected transfer of stock of goods E
to its branches located at various places of the country.
For the assessment year 2001-02, notice was issued for
assessment under Central Sales Tax Act, 1956 and de-
mand of Rs.19.25 crores was raised. The appellant filed
F ,
appeal challenging the assessment order. During the
pendency of the appeal, an application for stay was filed.
The Assistant commissioner (first appellate authority) di-
rected payment of part of the amount. On revision, Com-
missioner directed payment of Rs.10 crores. High Court
directed deposit of Rs.2 crores. The said order was ques- G
tioned in SLP No.5314 of 2006. This Court on 31.3.2006,
passed interim order of stay.
On 19.4.2006, the First appellate authority dismissed
655 H
656 SUPREME COURT REPORTS [2008] 10 S.C.R.

A the appeal and confirmed the order of assessment. On
appeal and stay applicati.on, order of deposit of Rs.15
crores was passed. The said order was challenged be-
fore the High Court and by the impugned order, the High
Court disposed of the said petition without expressing
B any opinion on merits but observing that the matter was
under examination by this Court. Hence the present ap-
peal.
Partly allowing the appeal and remitting the matter
to Assistant Commissioner, the Court
c
HELD: 1.1. In normal course, the plea relating to the
merits of the assessment, when a statutory remedy has
been availed, is not entertainable. But the casual manner
in which the first appellate authority has disposed of the
.appeal is shocking. A bare reading of the order shows
0
complete non-application of !llind. This is not the way a ~
statutory appeal is to be dis·posed of. Various important
questions of law were raised. Unfortunately, even they
were not dealt with by the first appellate authority. [Paras
E 8, 9] (661-F, 662-F]
Ashok Leyland Ltd. v. State of Tamil Nadu & Anr. (2004)
3 sec 1; Ashok Leyland Limited v. Union of India & Ors.
(1997) 9 sec 10 - referred to.
• 1.2. Reason is the heartbeat of every conclusion. It
F introduces clarity in an order and without the sarne it be- ...\
comes lifeless. [Para 1O] [662-G]
Raj Kishore Jha v. State. of Bihar (2003) 11 SCC 519 -
relied on.
G MR. in Breen v. Amalgamated Engg. Union (1971) 1 All
ER 1148; Alexander Machinery (Dudley) Ltd. v. Crabtree
(1974) ICR 120 (NIRC) - referred to. r

1 :3~ Right to reason is an indispensable part of a
H sound judicial system; reasons at least sufficient to indi-
MIS. STEEL AUTHORITY OF INDIA LTD. v. SALES 657
TAX OFFICER, ROURKELA-1 CIRCLE [DR ARIJIT PASAYAT, J.]

cate an application of mind to the matter before court. An- A
other rationale is that the affected party can know why the
decision has gone against him. One of the salutary require-
ments of natural justice is spelling out reasons for the or-
der made; in other words, a speaking-out. The "inscrutable
face of the sphinx" is ordinarily incongruous with a judi- B
cial or quasi-judi~ial performance. [Para 11) [663-C,D]
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 4290
of 2008
From the final Order dated 7.9.2006 of the High Court of c
Orissa at Cuttack in W.P. (C) No. 11192 of 2006
G.E. Vahanvati, S.G., Parag P. Tripathi, A.S.G. Altaf II.
Naiyak, A.G., Shail Kumar Dwivedi, A.AG., Ranjit Kumar,
Rakesh Dwivedi, S. Borthakur, Sunil Kumar Jain, K1rti Renu
Mishra, Gopal Singh, Anukul Raj, Sweta Singh, ,Hemantika Wahi, D
Pinky, Jesal, R. Sathish, Bharat Swaroop Sharma, Vijay Kumar
Pandita, Dayan Krishnan, Neelam Sharma, T.C. Sharma, Neera
Gupta, Asha G. Nair, Vismai Rao, D.S. Mahra, V.G. Pragasam,
S.J. Aristotle, Prabu Ramasubramaniam, Vikrant Singh Sais,
B.S. Banthia, Khwairakpam Nobin Singh, David Rao, Tarun E,
Jamwal, S. Biswajit Meitei, Vijay Prakash, Sanjay R. Hegde,
Amit Kr. Chawla, Arun Varma, Vikrant Yadav, Jatinder Kumar
Bhatia, Manjit Singh, Harikesh Singh, T.V. George, Ajay Pal,
Avijit Roy, Ranjan Mazumdar (for Mis. Corporate Law Group),
Vandana Mishra, Sahdev Singh, Vibha Dwivedi, G.V. Rao, A. F ,
Subhashini, Tabraj, Ashwani Garg, Anis Suhrawardy and R.
Nedumaran for the appearing parties.
The Judgment of the Court was delivered by
Dr. ARIJIT PASAYAT, J. 1. Leave granted.
G
2. Challenge in this appeal is to the order passed by a
Division Bench of the.Orissa High Court disposing of the writ
petition without any decision on merits because in respect of
the assessment year in question, i.e. 2001-02, an order was
earlier passed by thts Court on 31.03.2006. H
658 SUPREME COURT REPORTS [2008] 10 S.C.R.

A 3. A brief reference to the factual aspects will be neces-
sary.
.
The appellant, a Public Sector Undertaking carries on busi-
ness in manufacture and sale of Iron & Steel and Chemical
Fertiliser as its finished product and bi-product, surplus and re-
B jected articles, in course of inter-state trade and commerce and
export. Apart from that, the appellant-Company effects transfer
of stock of goods to its branches located at various places of
the country. For the assessment year 2001-02, notice was is-
sued under Rule 12(5) of the Central Sales Tax (Orissa), Rules,
C 1957 (in short 'Central Rules') for the purpose of assessment
under Central Sales Tax Act, 1956 (in short the 'Act'). After ex-
amination of the books of accounts produced, an extra demand
of Rs.19,25,41, 763.00 was raised. The appellant-Company had
disclosed net sale and transfer of goods during the year under
D assessment in question as follows:
1. Sales U/s 8(1)(a)(b) Rs. 714, 18,82,639.06
2. Sales U/s 8(2)(b) Rs. 10,37,23,857.45
3. Export Sales Rs. 10,95,977.00
E
4. Branch/Stock transfer Rs.1130,24,48,338.61
Total Rs.1854,91 ,50,812.12
The Assessing Officer found that certain declaration forms
F in Form 'C' were not produced and, therefore, the differential
tax was to be levied. With reference to Clause (a) of Section 3,
it was held that the sales made under the Annual Memorandum
of Understanding (MOU), which were treated as Bank transfers
· are in fact, sales made in course of inter-state trade and com-
G merce and, therefore, are subject to tax. Accordingly tax was
levied.
Questioning correctness of the assessment made, an
appeal. was preferred before the Assistant Commissioner of
Sales Tax, Sundergarh Range, Rourkela. During the pendency
H of the appeal, an application for stay was filed. The Assistant
MIS. STEEL AUTHORITY OF INDIA LTD. v. SALES 659
TAX OFFICER, ROURKELA-1 CIRCLE [DR. ARIJIT PASAYAT, J.]

Commissioner directed payment of part of the demand. Ari A
application for revision was filed before the Commissioner, who,
by order dated 28.12.2005 in Revision Case No. SU-87/05-06
directed payment of Rs.10.00 Crores. A Writ Petition was filed.
before the High Court pointing out that the deeision of this ·oolJrt ·
in Ashok Leyland Ltd. Vs. State of Tamil Nadu &Anr. (2004 (3) :B
SCC 1) had full application.A Division Bench of the High Court,
by order dated 15.02.2006 directed deposit of Rs.2.00 Crores.
The said order was questioned in S.L.P.(C) No.5314/2006. In
the said special leave petition, several States and Union Terri-
tories were impleaded as opposite parties because it was c
pointed out that requisite tax under the Act had already been
paid in different States and Union territories. This Court passed
the following order on 31.03.2006:
"Issue notice.
D
There shall be interim stay in the meanwhile.
Any payment. already made in compliance of the High
Court's order shall be without prejudice to the claims
involved."
A few days thereafter, on 19.04.2006, the Assistant Com- E
missioner disposed of the appeal filed dismissing the same and
confirming the order of assessment. A Second Appeal was filed
before the Orissa Sales Tax Tribunal (in short the Tribunal). An
application for stay was also filed. By order dated 14.08.2006,
the Commissioner directed deposit of Rs.15.00 Crores. The said F
order was challenged before the High Court and, as noted above,
by the impugned order, the High Court disposed of the said peti-
tion without expressing any opinion on merits but observing that
the matter was under examination by this Court.
G
4. Though various points were urged in respect of the ap-
peal, learned counsel for the appellant submitted that even with-
out examination of various issues raised, by a cryptic and prac-
tically non-reasoned order, the Assistant Commissioner has
dismissed the appeal filed.
H
. 0
660 SUPREME COURT REPORTS [2008] 10 S.C.R.

A 5. It is submitted that a statutory appeal should not be dis-
posed of in such a casual manner. It is pointed out that notwith-
standing the fact that tax has been paid in several States where
the articles transferred the Branches have been sold, the State
has erroneously treated the transactions to be inter-state sale and
B levied tax which in essence amounts to double taxation. It is sub-
mitted that this is nothing but an attempt to collect tax illegally. It is
j , •. not legal and is in clear violation of Article 265 of the Constitution of
·· India, 1950 (in short the 'Constitution'). It is also pointed out that the
ratio of the decision of this Court in Ashok Leyland Limited v. Union
C of India & Ors. (1997 (9) SCC 10) has not been kept in view. It is
submitted that an amendment to the Act has been made and Sec-
tion 19 has been introduced which reads as follows:
"19. Central Sales Tax Appellate Authority
(1) The Central Government shall constitute, by
D
notification in the Official Gazette, an Authority to settle
inter-State disputes falling under Section 6A read
with Section 9 of this Act, to be known as "the Central

E
(2)
Sales Tax Appellate Authority
referred to as the Authority)".
(hereinafter

The Authority shall consist of the following Members
appointed by the Central. Government, namely:-
-
(a) a Chairman, who is a retired Judge of the
Supreme Court, or a retired Chief Justice of a
F High Court; ·
(b) an officer of the Indian Legal Service who is, or
is qualified to be, an Additional Secretary to
the Government of India; and
G (c) an officer of a State Government not below the
rank of Secretary or an officer of the Central
Government not below the rank of Additional
Secretary, who is an expert in sales tax matter.

(2A) Notwithstanding anything contained in sub-section
H
M/S. STEEL AUTHORITY OF INDIA LTD. v. SALES 661
TAX OFFICER, ROURKELA-1 CIRCLE [DR. ARIJIT PASAYAT, J.]
'
(2), the Chairman or a Member holding a post as A
such in the Authority for Advance Rulings appointed
under clause (a) or clause (c), as the case may be,
of sub-section (2) of Section 245-0 of the Income
~
.....
Tax Act, 1961 may, in addition to his being the
Chairman or a Member of that Authority, be appointed B
as the Chairman or a Member, as the case may be,
of the Authority under this Act.
(3) The salaries and allowances payable to, and the
terms and conditions of service of, the Chairman
and Members shall be such as may be prescribed. c
(4) The Central Government shall provide the Authority
with such officers and staff as may be necessary for
the efficient exercise of the powers of the Authority
under this Act."
D
6. It is pointed out that ultimately the Central Sales Tax
Appellate Authority can decide the matter after the Tribunal in
the concerned State decides the matter. It is the stand of the
appellant that the Forum provided under the Statute is being
rendered un-effective by the casual disposal of the appeal. E
7. Learned counsel for the respondent-State of Orissa,
however, submitted that when the assessee has already availed
~ the statutory remedy, no interference is called for.
~
(
.. 8. In normal course, we would not have entertained the F
plea relating to the merits of the assessment when a statutory
remedy has been availed. But what shocks us is the casual

' manner in which the first appellate authority has disposed of
the appeal. The appellate order covers pages 36 to 42 in the
paper book. The first page and a part of the second page deal
G
with various data relating to the assessment order, the assess-
...
ing officer, the registration number and the details of turnovers
and the tax etc. In paragraph (2), the observations of the as-
sessing officer are noted and in paragraph 3, starting from
pages 39 to 41, different stands of the appellant have been
H
662 SUPREME COURT REPORTS i2008] 10 S.C.R.
•f

A noted. In paragraph 4, the conclusions of the first appellate au-
thority are noted. They read as follows:
"I have carefully gone through the impugned order of
assessment, averments of the learned advocate and the
.,.. v
materials available on record. On the first point of dispute
B regarding the claim of the appellant towards refund of Tax
of Rs.14,59.122.52 collected from the bidders, before this
forum also the Appellant failed to adduce any evidences
regarding refund of tax to such bidders from whom tax
was collected. In absence of such documentary evidences,
c the claim of the appellant is not credible.
On the second point of dispute regarding levy of tax on the
sale turnover of Rs, 1,21,03375.18 due to non furnishing
of declarations in for·ms. Hence, there is no interference
from this forum on the observation of the learned S.T.O.,
D
in levying tax under Section 8 (2) (B) of the CST Act.
Lastly on the point of rejection of the claim of the appellant
towards branch transfer of goods valued at Rs.241,87,42,
357.93 from the order of assessment it is found that the
E learned S.T.O. on due verification and proper examination
of the material evidences has rightly taken by the learned
counsel of the appellant company and the decisions of the
different courts cited are not applicable in the present
case, the same is not considered." / '
--.\_
F 9. A bare reading of the order shows complete non- appli-
cation of mind. As rightly pointed out by learned counsel for the
appellant, this is not the way a statutory appeal is to be disposed
of. Various important questions of law were raised. Unfortunately,
even they were not dealt by the first appellate authority.
G
10. Reason is the heartbeat of every conclusion. ltintroduces
-/'
clarity in an order and without the same it becomes lifeless. (See
Raj Kishore Jha v. State of Bihar 2003 (11) SCC. 519)
11. Even in respect of administrative orders Lord Den-
H ning, M.R. in Breen v Amalgamated Engg. Union (1971) 1 All

----~

'
'
M/S. STEEL AUTHORITY OF INDIA LTD. v. SALES 663
TAX OFFICER, ROURKELA-1 CIRCLE [DR ARIJIT PASAYAT, J.]

ER 1148, observed: ''The giving of reasons is one of the funda'"' A
mentals of good administration." In Alex_ander Machinery
(Dudley) Ltd. v. Crabtree 1974ICR120(NIRC) it was observed:
"Failure to give reasons amounts to denial of justice." "Reasons.
are live links between the mind of the decision-taker to the con-
troversy in question and the decision or conclusion arrived at."·. B
Reasons substitute subjectivity by objectivity. The emphasis on ·
recording reasons is that if the decision reveals the "inscrutable
face of the sphinx", it can, by its silence, render it virtually im-
possible for the courts to perform their appellate function or ex-
ercise the power of judicial review in adjudging the validity of c
the decision. Right to reason is an indispensable part of a sound
judicial system; reasons at least sufficient to indicate an appli-
cation of mind to the matter before court. Another rationale is
that the affected party can know why the decision jias gone.
against him. One of the salutary requirements of natural justice
is spelling out reasons for the order made; in other words, a D
speaking-out. The "inscrutable face of the sphinx" is ordinarily
incongruous with a judicial or quasi-judicial performance.
12. Therefore, in terms of the observations made by this
Court while issuing notice on 19.10.2006, we set aside the im- i:;
pugned order of the Assistant Commissioner and remit the mat-
ter to him for a fresh consideration of the appeal. Needless to
say, he has to dispose of the appeal by a reasoned order deal-
ing with all the points of challenge highlighted by the appellant.
13. We make it clear that we have not expressed any opin- F
ion on the merits of the case.
14. Considering the fact that similar disputes are a recur-
ring feature, the first appellate authority would do well to dis-
pose of the appeal within a period of six months from the date G
of receipt of copy of our order. .....
15. The appeal is allowed to the aforesaid extent without
any order as to costs.
D.G. Appeal allowed. H