Learned counsel for the revenue, however, strongly relied
upon M/s. Murarilal Mahabir Prasad and others v. Shri B.R.
Vad and others, (1975) 2 SCC 736, a case arising under the
Bombay Sales Tax Act, 1953. Since this judgment has been
relied upon as the sheet anchor of the revenue’s case, it is
important to deal with it in some detail.
23. The question that arose in the aforesaid case was
whether a dissolved firm could be re-assessed to sales tax in
respect of its pre-dissolution turnover. By a two to one (2:1),
decision, this Court held that the Bombay Act contained the
necessary provisions to re-assess such a dissolved firm in
respect of its pre-dissolution turnover. The majority judgment
referred to the definition of “dealer” in the Bombay Act of 1953
and referred to this Court’s judgment in State of Punjab v. M/s
Jullunder Vegetables Syndicate (supra). We find that the
majority judgment of this Court relied heavily on the fact that
dishonest persons may dissolve a firm in order to escape
liability to assessment of taxes legitimately due from them but
which have escaped assessment. In paragraph 19, the
majority held:
“It is plausible that a distinction ought to be made
between the death of an individual and the
dissolution of a firm. Human beings, as assessees,
are not generally known to court death to evade
taxes. Death, normally, is not volitional and it is
understandable that on the death of an individual,
his liability to be assessed to tax should come to an
end unless the statute provides to the contrary. With
firms it is different, because a firm which incurs
during its existence a liability to pay sales-tax may,
with a little ingenuity, evade its liability by the
voluntary act of dissolution. The dissolution of a firm
could therefore be viewed differently from the death
of an individual and the partners could be denied
the advantage of their own wrong. But we do not
want to strike this new path because the Jullundur
case (supra) and the two cases which follow it have
likened the dissolution of a firm to the death of an
individual. Let us therefore proceed to examine the
other provisions of the 1953 Act.”
It then went on to quote Section 15(1) of the Bombay Sales Tax
Act, 1953 and then arrived at this conclusion:
“22. Section 15(1) contains an important clause that
action thereunder can be taken by the Collector
after giving a notice to the assessee under Section
14(3) of the Act within the prescribed period. Once
such a notice is given, the Collector gets the
jurisdiction to assess or re-assess the amount of tax
due from the dealer and all the provisions of the Act
"shall apply accordingly as if the notice were a
notice served under" Section 14(3). Section
14(3) speaks of the power of the Collector to assess
the amount of tax due from the dealer after giving
notice to him, if the Collector is not satisfied that the
returns furnished are correct and complete. The
jurisdiction to assess or reassess which is conferred
by section 15(1) is thus equated with the original
jurisdiction to assess the dealer under section 14.
By this method, the continuity of the legal
personality of the assessee is maintained in order to
enable the assessment of turnover which has
escaped assessment. It is no answer to a notice
under section 15 that the partners having dissolved
the firm, the assessment cannot be reopened. It
puts a premium on one's credulity to accept that
having created a special jurisdiction to assess or
reassess an escaped turnover, the Legislature
permitted that salutary jurisdiction to be defeated by
the device of dissolution. The argument of the
appellants really comes to this: suppress the
turnover, evade the sales-tax, dissolve the firm and
earn your freedom from taxation.”
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.5802 OF 2005
SHABINA ABRAHAM & ORS. … APPELLANTS
VERSUS
COLLECTOR OF CENTRAL EXCISE
& CUSTOMS ...RESPONDENT
R.F. Nariman, J.
Dated;July 29, 2015.
1. “Nothing is certain except death and taxes.” Thus spake
Benjamin Franklin in his letter of November 13, 1789 to Jean
Baptiste Leroy. To tax the dead is a contradiction in terms. Tax
laws are made by the living to tax the living. What survives the
dead person is what is left behind in the form of such person’s
property. This appeal raises questions as to whether the dead
person’s property, in the form of his or her estate, can be taxed
without the necessary machinery provisions in a tax statute.
The precise question that arises in the present case is whether
an assessment proceeding under the Central Excises and Salt
Act, 1944, can continue against the legal representatives/estate
of a sole proprietor/manufacturer after he is dead. The facts of
the case are as follows.
2. One Shri George Varghese was the sole proprietor of
Kerala Tyre and Rubber Company Limited. By October 1985,
this proprietary concern had stopped manufacture and
production of tread rubber. By a show cause notice dated
12.6.1987, for the period January 1983 to December 1985, it
was alleged that the assessee had manufactured and cleared
tread rubber from the factory premises by suppressing the fact
of such production and removal with an intent to evade
payment of excise duty. The provisions of Section 11A, as they
then stood, of the Central Excises and Salt Act were invoked
and duty amounting to Rs.74,35,242/- was sought to be
recovered from the assessee together with imposition of
penalty for clandestine removal.
3. On 14.3.1989, the said Shri George Varghese died. As a
result of his death, a second show cause notice was issued on
18.10.1989 to his wife and four daughters asking them to make
submissions with regard to the demand of duty made in the
2Page 3
show cause notice dated 12.6.1987. By their reply dated
25.10.1989, the said legal heirs of the deceased stated that
none of them had any personal association with the deceased
in his proprietary business and were not in a position to locate
any business records. They submitted that the proceedings
initiated against the deceased abated on his death in the
absence of any provision in the Central Excises and Salt Act to
continue assessment proceedings against a dead person in the
hands of the legal representatives. The said show cause notice
was, therefore, challenged as being without jurisdiction.
4. As the Central Excise Authorities posted the matter for
hearing and refused to pass an order on the maintainability of
the show cause notice alone, the legal heirs approached the
High Court under Article 226 of the Constitution by filing a Writ
Petition in January, 1990. The learned single Judge of the High
Court quashed the proceedings against the legal heirs stating
that the Central Excises and Salt Act did not contain any
provisions for continuing assessment proceedings against a
dead person. Against this, revenue went in appeal. The
3Page 4
Division Bench of the High Court of Kerala reversed the single
Judge’s judgment.
5. Shri Rajshekhar Rao, learned counsel appearing for the
legal heirs made submissions before us with great clarity and
persuasiveness. He submitted that a reading of Sections 2(f),
(3), Section 4(3)(a), Section 11 and 11A as they stood at the
relevant time would show that unlike the provisions of the
Income Tax Act, there is no machinery provision in the Central
Excises and Salt Act for continuing assessment proceedings
against a dead individual. He stressed the fact that an
assessee under the said Act means “the person” who is liable
to pay the duty of excise under this Act and further stressed the
fact that in cases of short levy, such duty can only be recovered
from a person who is chargeable with the duty that has been
short levied. He further invited our attention to the Central
Excise Rules and Rules 2(3) and 7 in particular to buttress his
submission that there is no machinery provision contained
either in the Act or in the Rules to proceed against a dead
person’s legal heirs. He cited certain judgments before us
which we will advert to later on in this judgment.
4Page 5
6. Shri A.K. Panda, learned senior advocate appearing on
behalf of the revenue contended that a close reading of Section
11 of the Central Excises and Salt Act will indicate that sums
are recoverable from an assessee by an attachment and sale of
excisable goods belonging to such assessee and further that if
the amount so recoverable falls short, it can be recovered from
the person himself as an arrear of land revenue. Inasmuch as
a dead man’s property can be attached and sold and
proceeded against, it is clear that the necessary machinery is
contained in the Central Excises and Salt Act. His further
submission is that Section 11A of the said Act is a machinery
provision and, therefore, the rule to be applied is that that
construction should be preferred which makes a machinery
Section workable. He also referred us to the definition of
“person” in Section 3(42) of the General Clauses Act to buttress
his submission that a legal representative would be included
within a “person” as so defined. He referred us to Section 6 of
the said Act dealing with registration and argued that
registration of a person makes him a legal entity liable to be
assessed as such. His other submission is that the general
5Page 6
principle, namely, that a cause of action abates when a person
who institutes a proceeding dies is not applicable in the present
case and cited various judgments before us in support of the
said principle. He also submitted that the position under the
Income Tax Act would be entirely different as income tax is a
tax leviable on a person whereas a duty of excise is leviable on
manufacture of goods. He also cited a number of decisions
which will be dealt with in the course of this judgment.
7. We have heard learned counsel for the parties. Before
entering into a discussion on the merits of the case, it is
necessary to set out the statutory provisions contained in the
Central Excises and Salt Act at the relevant time, which are
given below:-
2(f) "manufacture" includes any process incidental
or ancillary to the completion of a manufactured
product; and
(i) In relation to tobacco includes the preparation
of cigarettes, cigars, cheroots, biris, cigarette
or pipe or hookah tobacco, chewing tobacco
or snuff,
(ia) in relation to manufactured tobacco,
includes the labeling or re-labelling of
containers and repacking from bulk packs to
retail packs or the adoption of any other
treatment to render the product marketable to
the consumer.
6Page 7
(ii) In relation to salt, includes collection, removal,
preparation, steeping, evaporation, boiling, or
any one or more of these processes, the
separation or purification of salt obtained in
the manufacture of saltpeter, the separation of
salt from earth or other substance so as to
produce elementary salt, and the excavation
or removal of natural saline deposits or
efflorescence;
(iii) In relation to patent or proprietary medicines,
as defined in Item No. 14-E of the first
Schedule and in relation to cosmetics and
toilet preparations as defined in Item No.14-F
of that Schedule, includes the conversion of
powder into tablets or capsules, the labeling
or relabeling of containers intended for
consumers and repacking from bulk packs to
retail packs or the adoption of any other
treatment to render the product marketable to
the consumers;
(iv) In relation to goods comprised to Item
No.18-A of the First Schedule, includes sizing,
beaming, warping, wrapping, winding or
reeling, or any one or more of these
processes, or the conversion of any form of
the said goods into another form of such
goods;
And the word “manufacturer” shall be
construed accordingly and shall include not
only a person who employs hired labour in the
production or manufacture of excisable goods,
but also any person who engages in their
production or manufacture on his own
account.”
3. Duties specified in the First Schedule to be
levied. (1) There shall be levied and collected in
such manner as may be prescribed duties of excise
on all excisable goods other than salt which are
produced or manufactured in India and a duty on
7Page 8
salt manufactured in, or imported by land into, any
part of India as, and at the rates set forth in the First
Schedule.
4. Valuation of excisable goods for purposes of
charging of duty of excise. –
(1) Where under this Act, the duty of excise is
chargeable on any excisable goods with reference
to value, such value shall, subject to the other
provisions of this section be deemed to be –
(a) the normal price thereof, that is to say, the price
at which such goods are ordinarily sold by the
assessee to a buyer in the course of wholesale
trade for delivery at the time and place of removal,
where the buyer is not a related person and the
price is the sole consideration for the sale:”
(4) For the purposes of this section, -
(a) “assessee” means the person who is liable to
pay the duty of excise under this Act and includes
his agent;”
11. Recovery of sums due to Government. - In
respect of duty and any other sums of any kind
payable to the Central Government under any of the
provisions of this Act or of the rules made
thereunder, the officer empowered by the Central
Board of Excise and Customs constituted under the
Central Boards of Revenue Act, 1963, to levy such
duty or require the payment of such sums may
deduct the amount so payable from any money
owing to the person from whom such sums may be
recoverable or due which may be in his hands or
under his disposal or control, or may recover the
amount by attachment and sale of excisable goods
belonging to such person; and if the amount
payable is not so recovered he may prepare a
certificate signed by him specifying the amount due
from the person liable to pay the same and send it
to the Collector of the district in which such person
8Page 9
resides or conducts his business and the said
Collector, on receipt of such certificate, shall
proceed to recover from the said person the amount
specified therein as if it were an arrear of land
revenue.
11A. Recovery of duties not levied or not paid or
short levied or short paid or erroneously refunded.-
(1) When any duty of excise has not been levied
or paid or has been short-levied or short-paid or
erroneously refunded, a Central Excise Officer may,
within six months from the relevant date, serve
notice on the person chargeable with the duty which
has not been levied or paid or which has been
short-levied or short-paid or to whom the refund has
erroneously been made, requiring him to show
cause why he should not pay the amount specified
in the notice:
Provided that where any duty of excise has not
been levied or paid or has been short-levied or
short-paid or erroneously refunded by reason of
fraud, collusion or any wilful misstatement or
suppression of facts, or contravention of any of the
provisions of this Act or of the rules made
thereunder with intent to evade payment of duty, by
such person or his agent, the provisions of this
sub-section shall have effect, as if for the words "six
months", the words "five years" were substituted.”
Rule 2(3) and Rule 7 of the Central Excises Rules, 1944, read
as under:
“2. Definitions.—In these rules, unless there is
anything repugnant in the subject or context—
(3) "assessee" means any person who is liable for
payment of duty assessed and also includes any
producer or manufacturer of excisable goods or a
9Page 10
registered person of a private warehouse in which
excisable goods are stored;
7. Recovery of duty.- Every person who produces,
cures or manufactures any excisable goods, or who
stores such goods in a warehouse, shall pay the
duty or duties leviable on such goods, at such time
and place and to such persons as may be
designated, in, or under authority of these rules,
whether the payment of such duty or duties is
secured by bond or otherwise.
Provided that nothing contained in this rule shall
apply to molasses produced in a khandsari sugar
factory.
Provided further that in respect of goods falling
under Chapter 62 of the First Schedule to the
Central Excise Tariff Act, 1985 (5 of
1986), manufactured on job-work, the provisions of
these rules shall apply subject to the provisions of
rule 7AA.”
8. On a reading of the aforesaid provisions, it is clear that
Shri Rajshekhar Rao, learned counsel appearing on behalf of
the appellants is correct – there is in fact no separate
machinery provided by the Central Excises and Salt Act to
proceed against a dead person when it comes to assessing him
to tax under the Act.
9. The position under the Income Tax Act, 1922 was also the
same until Section 24B was introduced by the Income Tax
10Page 11
(Second Amendment) Act of 1933. Prior to the introduction of
the aforesaid Section, the Bombay High Court had occasion to
deal with a similar question in Commissioner of Income Tax,
Bombay v. Ellis C. Reid, A.I.R. 1931 Bombay 333. A Division
Bench of the Bombay High Court noticed the definition of
“assessee” contained in Section 2(2) of the 1922 Act which
definition stated that “‘assessee’ means a person by whom
income tax is payable”. The Division Bench went on to say that
the words “or by whose estate” are conspicuous by their
absence in the said definition. The Division Bench then went
on to say that there appears to be nothing in the charging
Section to suggest that a man who has once become liable to
tax can avoid payment of tax by dying before such tax has been
assessed or paid. However, the Act has to contain appropriate
provisions for continuing an assessment and collecting tax from
the estate of a deceased person which was found to be absent
in the 1922 Act before it was amended by insertion of Section
24B. Having noticed various provisions of the said Act, the
Division Bench went on to say:-
11Page 12
“These are, I think, the only material provisions, of
the Act. It is to be noticed that there is throughout
the Act no reference to the decease of a person on
whom the tax has been originally charged, and it is
very difficult to suppose the omission to have been
unintentional. It must have been present to the mind
of the legislature that whatever privileges the
payment of Income-tax may confer, the privilege of
immortality is not amongst them. Every person
liable to pay tax must necessarily die and in
practically every case, before the last installment
has been collected, and the legislature has not
chosen to make any provisions expressly dealing
with assessment of, or recovering payment from,
the estate of a deceased person. In order that the
Government may succeed and the assessment
made in this case may be held legal I think, one
must do a certain amount of violence to the
language of Section 23(4); I think one must either
do a certain amount of violence - I should say a
considerable amount of violence - to the language
of Section 27, or else hold that the privilege
conferred on a living person assessed under
Section 23(4) of getting the assessment set aside is
not to be enjoyed by the estate of a deceased
person - a distinction for which I can see no logical
reason. One must also construe Section 29 so as to
give to the word "assessee" one meaning in one
place and another meaning in another place.
In my judgment, in construing a taxing Act the
Court is not justified in straining the language in
order to hold a subject liable to tax. If the legislature
intends to assess the estate of a deceased person
to tax charged on the deceased in his lifetime, the
legislature must provide proper machinery and not
leave it to the Court to endeavor to extract the
appropriate machinery out of the very unsuitable
language of the statute. We are not concerned with
the case which may arise of the death of a person
12Page 13
after assessment but before payment.” (at page
335)
10. Given the aforesaid decision of the Bombay High Court,
the legislature was quick to amend the Income Tax Act, 1922 by
inserting Section 24B which reads as follows:-
Section 24B : Tax of deceased person payable
by representative-
(1) Where a person dies, his executor, administrator
or other legal representative shall be liable to pay
out of the estate of the deceased person to the
extent to which the estate is capable of meeting the
charge the tax assessed as payable by such
person, or any tax which would have been payable
by him under this Act if he had not died.
(2) Where a person dies before the publication of
the notice referred to in sub-section (1) of section 22
or before he is served with a notice under
sub-section (2) of section 22 or section 34, as the
case may be, his executor, administrator or other
legal representative shall, on the serving of the
notice under sub-section (2) of section 22 or under
section 34, as the case may be, comply therewith,
and the Income-tax Officer may proceed to assess
the total income of the deceased person as if such
executor, administrator or other legal representative
were the assessee.
(3) Where a person dies, without having furnished
a return which he has been required to furnish
under the provisions of section 22, or having
furnished a return which the Income-tax Officer has
reason to believe to be incorrect or incomplete, the
13Page 14
Income-tax Officer may make an assessment of the
total income of such person and determine the tax
payable by him on the basis of such assessment,
and for this purpose may, by the issue of the
appropriate notice which would have had to be
served upon the deceased person had he survived,
require from the executor, administrator or other
legal representative of the deceased person any
accounts, documents or other evidence which he
might under the provisions of sections 22 and 23
have required from the deceased person.”
11. This judgment of the Bombay High Court has been
affirmed in two judgments of this Court. In Commissioner of
Income Tax, Bombay City I v. Amarchand N. Shroff, [1963]
48 I.T.R. 59, this Court referred with approval to Ellis C. Reid
and held:-
“The correct position is that apart from section 24B
no assessment can be made in respect of the
income of a person after his death. See Ellis C.
Reid v. Commissioner of Income-tax. In that case,
and that was a case before section 24B was
enacted, a person was served with a notice under
section 22(2) of the Income-tax Act but no return
was made within the period specified and he died. It
was held that no assessment could be made under
section 23(4) of the Act after his death. At p.106 it
was observed:-
"It is to be noticed that there is throughout the Act
no reference to the decease of a person on whom
the tax has been originally charged, and it is very
difficult to suppose the omission to have been
unintentional. It must have been present in the
14Page 15
mind of the legislature that whatever privileges the
payment of income-tax may confer, the privilege of
immortality is not amongst them. Every person
liable to pay tax must necessarily die and, in
practically every case, before the last instalment
has been collected, and the legislature has not
chosen to make any provisions expressly dealing
with assessment of, or recovering payment from the
estate of a deceased person".
The individual assessee has ordinarily to be a living
person and there can be no assessment on a dead
person and the assessment is a charge in respect
of the income of the previous year and not a charge
in respect of the income of the year of assessment
as measured by the income of the previous year.
Wallace Brothers & Co. Ltd. v Commissioner of
Income-tax. By section 24B the legal
representatives have, by fiction of law, become
assessees as provided in that section but that fiction
cannot be extended beyond the object for which it
was enacted. As was observed by this Court in
Bengal Immunity Co. Ltd. v. State of Bihar legal
fictions are only for a definite purpose and they are
limited to the purpose for which they are created
and should not be extended beyond that legitimate
field. In the present case the fiction is limited to the
cases provided in the three sub sections of section
24B and cannot be extended further than the liability
for the income received in the previous year.” (at
page 66)
12. Similarly, in Commissioner of Income Tax, Bombay v.
James Anderson, [1964] 51 I.T.R. 345, this Court referred with
approval to the judgment in Ellis C. Reid’s case and further
15Page 16
held that even after Section 24B was enacted tax cannot be
assessed on receipts on the footing that it is the personal
income of the legal representative. This Court held:-
“It was then urged that apart from section 24B, the
legal representatives of a deceased person also
represent his estate in the matter of taxation of
income and it is competent to the taxing authorities
to assess them on income received on behalf of the
estate. Counsel did not rely upon any specific
provision of the Act in support of the contention, and
merely asserted that the Act seeks to tax all
assessable incomes, and income received by a
legal representative of the estate of a deceased
person should not be permitted to escape tax to the
detriment of public revenue. But if the Legislature
has failed to set up the procedure to assess such
income, the Courts cannot supply it. The expression
"assessee" in section 2(2) as substituted by the
Indian Income Tax (Amendment) Act, (25 of 1953),
with effect from April 1, 1952, means a person by
whom income-tax or any other sum of money is
payable under the Act, and includes every person in
respect of whom any proceeding and this Act has
been taken for the assessment of his income or of
the loss sustained by him or of the amount of refund
due to him. By section 3 where income-tax is
chargeable for any year at any rate or rates
prescribed by the Act of the Central Legislature, tax
at that rate shall be charged for that year in
accordance with and subject to the provisions of the
Act in respect of the total income of the previous
year of every individual, Hindu undivided family,
company and local authority, and of every firm and
other association of persons or the partners of the
firm or the members of the association individually.
The charge to income-tax has therefore to be in
16Page 17
accordance with and subject to the provisions of the
Act, and the Legislature has not provided that the
income received by a legal representative which
would, but for the death of the deceased, have been
received by such deceased person, is to be
regarded for the purpose of assessment as the
personal income of the legal representative. To
assess tax on such receipts on the footing that it is
the personal income of the legal representative is to
charge tax not in accordance with the provisions of
the Act.” (at page 352)
13. In Commissioner of Income Tax, Bombay v. Darabsha
Nasarwanji Mehta, A.I.R. 1935 Bombay 167, the Bombay High
Court held that Section 24B of the 1922 Act was not
retrospective and stated that as Avabai N. Mehta died before
the said Act came into force and before she had made any
return, her estate was not liable to be assessed to tax particular
regard being had to the opening words of Section 24B which
state “where a person dies” which are words in the present
tense.
14. Pursuant to the 12th Law Commission Report, a new
Income Tax Act was passed in 1961 which contained elaborate
provisions for assessment of deceased persons after they die.
The anomalies left by Section 24B of the 1922 Act, as pointed
17Page 18
out in the two Supreme Court judgments referred to above,
were sought to be rectified in the new provisions contained in
the 1961 Act. Sections 159 and 168 of the Act are apposite in
this regard and read as follows:-
“159. (1) Where a person dies, his legal
representative shall be liable to pay any sum which
the deceased would have been liable to pay if he
had not died, in the like manner and to the same
extent as the deceased.
(2) For the purpose of making an assessment
(including an assessment, reassessment or
recomputation under section 147) of the income of
the deceased and for the purpose of levying any
sum in the hands of the legal representative in
accordance with the provisions of sub-section (1),—
(a) any proceeding taken against the deceased
before his death shall be deemed to have been
taken against the legal representative and may be
continued against the legal representative from the
stage at which it stood on the date of the death of
the deceased;
(b) any proceeding which could have been taken
against the deceased if he had survived, may be
taken against the legal representative; and
(c) all the provisions of this Act shall apply
accordingly.
(3) The legal representative of the deceased shall,
for the purposes of this Act, be deemed to be an
assessee.
(4) Every legal representative shall be personally
liable for any tax payable by him in his capacity as
legal representative if, while his liability for tax
remains undischarged, he creates a charge on or
disposes of or parts with any assets of the estate of
18Page 19
the deceased, which are in, or may come into, his
possession, but such liability shall be limited to the
value of the asset so charged, disposed of or parted
with.
(5) The provisions of sub-section (2) of section 161,
section 162, and section 167, shall, so far as may
be and to the extent to which they are not
inconsistent with the provisions of this section, apply
in relation to a legal representative.
(6) The liability of a legal representative under this
section shall, subject to the provisions of
sub-section (4) and sub-section (5), be limited to the
extent to which the estate is capable of meeting the
liability.”
“168. (1) Subject as hereinafter provided, the
income of the estate of a deceased person shall be
chargeable to tax in the hands of the executor,—
(a)if there is only one executor, then, as if the
executor were an individual; or
(b)if there are more executors than one, then, as if
the executors were an association of persons;
and for the purposes of this Act, the executor
shall be deemed to be resident or non-resident
according as the deceased person was a resident
or non-resident during the previous year in which
his death took place.
(2) The assessment of an executor under this
section shall be made separately from any
assessment that may be made on him in respect of
his own income.
(3) Separate assessments shall be made under
this section on the total income of each completed
previous year or part thereof as is included in the
period from the date of the death to the date of
complete distribution to the beneficiaries of the
estate according to their several interests.
19Page 20
(4) In computing the total income of any previous
year under this section, any income of the estate of
that previous year distributed to, or applied to the
benefit of, any specific legatee of the estate during
that previous year shall be excluded; but the income
so excluded shall be included in the total income of
the previous year of such specific legatee.”
15. It will be noticed that under Section 159(2), for the
purpose of making any assessment, any proceeding taken
against the deceased before his death is by deeming fiction
deemed to have been taken against his legal representative
and may be continued against the legal representative from the
stage at which it stood on the date of the death of the
deceased. Further, the legal representative under sub-section
(3) of 159 is again by deeming fiction deemed to be an
assessee himself. However, the liability of such representative
is limited only to the extent to which the estate left by the
deceased is capable of meeting the tax liability subject to the
contingencies mentioned in sub-sections (4) and (5) of Section
159.
16. Similarly, under Section 168, where the assessee has left
a Will, the income of the estate of the deceased person
20Page 21
becomes chargeable in the hands of the executor of such will.
This is made clear by Section 168.
17. It will be seen that the definition of “assessee” contained
in Section 4(3)(a) of the Central Excises and Salt Act is similar
to the definition of assessee contained in the Income Tax Act,
1922. Under that Act, as we have already seen, an assessee
means “a person by whom income tax is payable.” Under the
Central Excises and Salt Act, an assessee means “the person
who is liable to pay the duty of excise under this Act”. The
present tense being used, it is clear that the person referred to
can only be a living person as was held in Ellis C. Reid (supra).
Further, the only extension of the definition of “assessee” under
the Central Excises and Salt Act is that it would also include an
assessee’s agent, which has nothing to do with the facts of the
present case. It is well settled that a “means and includes”
definition is exhaustive in nature and that there is no scope to
read anything further into the said definition.
18. As has been correctly pointed out by learned counsel for
the appellants, the notice that is served under Section 11A is
21Page 22
only on the person chargeable with excise duty, which takes us
back to “assessee” as defined.
19. Learned counsel for the revenue relied upon Section 11 of
the Act, which, according to him, indicates that an attachment
and sale of excisable goods can belong to a dead person and
such attachment and sale can continue notwithstanding the
death of such person. Apart from the fact that there is nothing
about dead persons in Section 11, Section 11 is limited only to
recovery of sums that are due to the Government. The very
opening words in Section 11 show that duty and other sums
must first be payable to the Central Government under the Act
or the rules. If such sums are not “payable” then the provisions
of the Section do not get attracted at all. We have seen that the
Act contains no machinery provisions for proceeding against a
dead person’s legal heirs, such as are contained in the Income
Tax Act. Obviously, therefore, duty and other sums do not
become “payable” without such machinery provisions. Further,
Section 11 deals with modes of recovery of tax payable and
does not deal with the subject matter at hand – namely
machinery provisions for assessment in the hands of the estate
22Page 23
of a dead person and, therefore, does not have much bearing
on the matter in issue in the present case. The argument,
therefore, as to the insertion of the proviso to Section 11 by an
Amendment Act of 2004 so as to provide that if a person from
whom some recoveries are due transfers his business to
another person, then the excisable goods in the possession of
the transferee can also be attached and sold again leads us
nowhere. In fact learned counsel for the appellants also relied
on this proviso to argue that the Legislature’s need to add the
proviso shows that nothing can be read into the Central Excises
and Salt Act by implication. As has been stated above, Section
11 deals with an entirely different situation and the addition of
the proviso therein is not of much significance as far as the
question we have to answer is concerned.
20. Learned counsel for the revenue, however, contended
that the principles applied in the case of the Income Tax Act
should not be applied to the Central Excises and Salt Act as the
latter Act is a tax on manufacture of goods and not on persons.
We are afraid this argument cannot be countenanced in view of
this Court’s judgment in State of Punjab v. M/s Jullunder
23Page 24
Vegetables Syndicate, [1966] 2 S.C.R. 457. In that judgment,
the question before this Court was whether a dissolved firm
could be assessed to sales tax under the East Punjab General
Sales Tax Act, 1948, with respect to its pre-dissolution turn over.
After analyzing the East Punjab General Sales Tax Act, this
Court held:-
“The scheme of the Act is a simple one. A firm is a
dealer; the said dealer is assessable to tax on its
turnover, if its turnover exceeds the prescribed limit.
It cannot do business while being liable to pay tax
under the Act without getting itself registered and
possessing a registration certificate. It is assessed
to tax under Section 11 of the Act in the manner
prescribed thereunder. If it discontinues its
business, it shall within the specified time inform the
prescribed authority accordingly. A dealer and its
partners are jointly and severally responsible to pay
the tax assessed on the dealer. But there is no
provision expressly empowering the assessing
authority to assess a dissolved firm in respect of its
turnover before its dissolution. The question is
whether such a power can be gathered by
necessary implication from the other provisions of
the Act.” (at page 461)
The Court went on to say:
“Though under the partnership law a firm is not a
legal entity but only consists of individual partners
for the time being, for tax law, income-tax as well as
sales-tax, it is a legal entity. If that be so, on
dissolution, the firm ceases to be a legal entity.
Thereafter, on principle, unless there is a statutory
24Page 25
provision permitting the assessment of a dissolved
firm, there is no longer any scope for assessing the
firm which ceased to have a legal existence. As in
the present case, admittedly, the firm was dissolved
before the order of assessment was made, the said
order was bad.” (at page 462)
The Court went on to consider various High Court decisions
and ultimately concluded as follows:-
“Strong reliance was placed upon two judgments of
this Court. This Court in C.A. Abraham v.
Income-tax Officer, Kottayam, speaking through
Shah, J., held that S.44 of the Income-tax Act set up
a machinery for assessing the tax liability of firms
which have discontinued their business. This was
followed by this Court again in Commissioner of
Income-tax, Madras v. S.V. Angidi Chettiar. These
two decisions are of no help to the Revenue in the
present case. Indeed, in a sense they are against it.
The Income-tax Act contains an express provision
for assessing a dissolved firm. Indeed, but for that
provision no assessment could be made under that
Act on dissolved firms.
For the foregoing reasons we hold that the High
Court was right in holding that the assessment order
on the dissolved firm could not be supported under
the provisions of the Act. The High Court has given
a correct answer to the question propounded for its
decision.” (at page 464)
21. This judgment is a complete answer to the contention of
learned counsel for the revenue inasmuch as on a parity of
reasoning, sales tax is not a personal tax but a tax on the sale
25Page 26
of goods. Nevertheless, this Court held that in the absence of
any machinery provisions to assess and collect sales tax from a
deceased person – in that case it was a dissolved partnership
firm – all proceedings against such deceased person/dissolved
firm abate. The aforesaid judgment has been followed by this
Court in Khushi Ram Behari Lal & Co. v. Assessing
Authority, Sangrur, (1967) 19 STC 381 and in Additional
Tahsildar, Raipur v. Gendalal, (1968) 21 STC 263.
22. Learned counsel for the revenue, however, strongly relied
upon M/s. Murarilal Mahabir Prasad and others v. Shri B.R.
Vad and others, (1975) 2 SCC 736, a case arising under the
Bombay Sales Tax Act, 1953. Since this judgment has been
relied upon as the sheet anchor of the revenue’s case, it is
important to deal with it in some detail.
23. The question that arose in the aforesaid case was
whether a dissolved firm could be re-assessed to sales tax in
respect of its pre-dissolution turnover. By a two to one (2:1),
decision, this Court held that the Bombay Act contained the
necessary provisions to re-assess such a dissolved firm in
respect of its pre-dissolution turnover. The majority judgment
referred to the definition of “dealer” in the Bombay Act of 1953
and referred to this Court’s judgment in State of Punjab v. M/s
Jullunder Vegetables Syndicate (supra). We find that the
majority judgment of this Court relied heavily on the fact that
dishonest persons may dissolve a firm in order to escape
liability to assessment of taxes legitimately due from them but
which have escaped assessment. In paragraph 19, the
majority held:
“It is plausible that a distinction ought to be made
between the death of an individual and the
dissolution of a firm. Human beings, as assessees,
are not generally known to court death to evade
taxes. Death, normally, is not volitional and it is
understandable that on the death of an individual,
his liability to be assessed to tax should come to an
end unless the statute provides to the contrary. With
firms it is different, because a firm which incurs
during its existence a liability to pay sales-tax may,
with a little ingenuity, evade its liability by the
voluntary act of dissolution. The dissolution of a firm
could therefore be viewed differently from the death
of an individual and the partners could be denied
the advantage of their own wrong. But we do not
want to strike this new path because the Jullundur
case (supra) and the two cases which follow it have
likened the dissolution of a firm to the death of an
individual. Let us therefore proceed to examine the
other provisions of the 1953 Act.”
It then went on to quote Section 15(1) of the Bombay Sales Tax
Act, 1953 and then arrived at this conclusion:
“22. Section 15(1) contains an important clause that
action thereunder can be taken by the Collector
after giving a notice to the assessee under Section
14(3) of the Act within the prescribed period. Once
such a notice is given, the Collector gets the
jurisdiction to assess or re-assess the amount of tax
due from the dealer and all the provisions of the Act
"shall apply accordingly as if the notice were a
notice served under" Section 14(3). Section
14(3) speaks of the power of the Collector to assess
the amount of tax due from the dealer after giving
notice to him, if the Collector is not satisfied that the
returns furnished are correct and complete. The
jurisdiction to assess or reassess which is conferred
by section 15(1) is thus equated with the original
jurisdiction to assess the dealer under section 14.
By this method, the continuity of the legal
personality of the assessee is maintained in order to
enable the assessment of turnover which has
escaped assessment. It is no answer to a notice
under section 15 that the partners having dissolved
the firm, the assessment cannot be reopened. It
puts a premium on one's credulity to accept that
having created a special jurisdiction to assess or
reassess an escaped turnover, the Legislature
permitted that salutary jurisdiction to be defeated by
the device of dissolution. The argument of the
appellants really comes to this: suppress the
turnover, evade the sales-tax, dissolve the firm and
earn your freedom from taxation.”
The Court then went on to add:
“24. Section 15A confers on the Collector analogous
powers to asses or re-assess a dealer for taxes due
prior to November 21, 1956 when the States were
reorganised, if either no assessment was made for
the prior period or if any turnover had escaped
assessment. This provision, like the one contained
in Section 15, is of general application and makes
no exception in favour of dissolved firm. Therefore,
if a firm was not assessed prior to the
re-organisation of States or if any part of its turnover
had escaped assessment, it is competent to the
Collector to assess or re-assess the firm
notwithstanding its subsequent dissolution. This is
the necessary implication of Section 15A. It must
follow as a corollary that the power to rectify a
mistake apparent from the record can be exercised
by the Collector under Section 35 of the Act of 1953
even after the dissolution of an assessed firm,
though on conditions specified in the section. The
section contains a compelling implication that
evident errors can be corrected no matter whether
the firm is in existence or is dissolved. Dissolution is
not a panacea for liability to pay sales-tax.”
It also added in paragraph 32:
“It is indisputable that the first appellant firm was
liable to be charged to sales tax on its business
turnover. The charging provisions are contained in
Chapter III of the Act of 1953 and Chapter II of the
Act of 1959. In this appeal, we have to construe the
machinery provisions of those Acts. In accordance
with the view taken in the cases cited above, the
machinery sections ought to be construed so as to
effectuate the charging sections. The construction
which we have placed on the machinery provisions
of the 1953 Act will give meaning and content to the
charging sections, in the sense that our construction
will effectuate the provision contained in the
charging sections. The resourcefulness and
ingenuity which go into well-timed dissolution of
firms ought not to be allowed to be used as
convenient instruments of tax evasion. As observed
by Lord Dunedin in Whitney v. Commissioners of
Inland Revenue:
"A statute is designed to be workable,
and the interpretation thereof by a court
should be to secure that object, unless
crucial omission of clear direction makes
that end unattainable."
Far from there being any crucial omission or a clear
direction in the present case which would make the
end unattainable, the various provisions to which we
have drawn attention leave it in no doubt that a
dissolved firm can be assessed on its
pre-dissolution turnover.”
24. It is clear that on a conjoint reading of these paragraphs
this Court found that the machinery provisions contained in the
Bombay Sales Tax Act, 1953, were sufficient to reassess a
dissolved firm in respect of income that had escaped
assessment before its dissolution. A distinction was drawn
between an individual who dies and a firm that is dissolved as a
device to evade tax. The Court laid great stress on the
provision contained in Section 15(1) of the said Act by which
the jurisdiction to assess or reassess under Section 15(1) is
equated with the original jurisdiction to assess the dealer under
Section 14. By this method, the Court found the continuity of
the legal personality of the assessee is maintained in order to
enable the assessment of turnover which has escaped
assessment. The crucial difference, therefore, between Section
15(1) of the Bombay Sales Tax Act, 1953 and Section 11A of
the Central Excises and Salt Act is that Section 11A does not
contain any such provision as is contained in Section 15(1)
which equates the jurisdiction to assess or reassess with the
original jurisdiction to assess the dealer in the very first place.
Further, this Court also construed Section 19 of the Bombay
Sales Tax Act, 1959 which would throw light on the earlier
Bombay Sales Tax Act, 1953, as containing the necessary
machinery provisions to assess dissolved firms in respect of
escaped turnover pre-dissolution. Hence, this Court added:
“35. It is relevant, though we did not refer to this
aspect while dealing with the provisions of the 1953
Act, that section 19(3) of the 1959 Act contains a
clear indication that the legislature intended that a
dissolved firm could be assessed under the 1953
Act also. Section 19(3) speaks of the liability of
partners for the tax due from a dissolved firm and
provides that they shall be jointly and severally
liable to pay the tax due from the firm under the Act
of 1959 or "under any earlier law", whether such tax
has been assessed before or after dissolution.
31Page 32
Section 2(12) of the 1959 Act defines "earlier law" to
mean, inter alia, the Bombay Sales Tax Act, 1953.
Thus, one of the postulates of section 19(3) at any
rate is that a dissolved firm could be assessed
under the 1953 Act. Such a postulate accords with
the principle that if the legislature provided for a
charge of sales-tax, it could not have intended to
render that charge ineffective by permitting the
partners to dissolve the firm, an easy enough thing
to do. Nothing, in fact, would be easier to evade a
tax liability than to declare that the firm, admittedly
liable to pay tax, has been dissolved. Section
19(3) of the 1959 Act not only makes clear what
was necessarily implied in the 1953 Act, but it
throws additional light on the true construction of the
earlier law. But we thought it advisable to keep
section 19(3) of the 1959 Act apart while construing
the 1953 Act because it is the courts, not the
legislature, who have to construe the laws of the
land authoritatively. As said in Craies on Statute
Law:
Except as a parliamentary exposition,
subsequent Acts are not to be relied on
as an aid to the construction of prior
unambiguous Acts. (6th Ed., p. 146).
The limited use which may be made of the language
of section 19(3) of the 1959 Act, though such a
course is unnecessary, is for saying that it serves to
throw some light on the Act of 1953, in case the
argument is that the Act of 1953 is ambiguous.
36. Section 19(3) being quite clear and explicit, it is
unnecessary to dwell on the other provisions of the
Act of 1959 in order to show that a dissolved firm
can be assessed under it. We may only point out
that the Act of 1959 contains provisions similar to
those in sections 15, 15A and 35 of the Act of 1953
on which we have dwelt at some length. Those
32Page 33
provisions can be found in sections 35, 35A and 62
of the Act.”
25. A reading of the ratio of the majority decision contained in
Murarilal’s case (supra) would lead to the conclusion that the
necessary machinery provisions were already contained in the
Bombay Sales Tax Act, 1953 which were good enough to bring
into the tax net persons who wished to evade taxes by the
expedient of dissolving a partnership firm. The fact situation in
the present case is entirely different. In the present case an
individual proprietor has died through natural causes and it is
nobody’s case that he has maneuvered his own death in order
to evade excise duty. Interestingly, in the written submissions
filed by revenue, revenue has argued as follows:-
“It is pertinent to mention that in the present case,
Shri George Varghese (predecessor in interest of
the appellants herein) was doing business in the
name of manufacturing unit namely M/s. Kerala
Tyre & Rubber Company and after the death of Shri
George Varghese, his legal representatives
(appellants herein) might have been in possession
of the plant, machinery, stock etc. and continuing
the same business, but might be in some other
name in order to avoid the excise duty chargeable
to the previous manufacturing unit.”
33Page 34
26. It is clear on a reading of the aforesaid paragraph that
what revenue is asking us to do is to stretch the machinery
provisions of the Central Excises and Salt Act, 1944 on the
basis of surmises and conjectures. This we are afraid is not
possible. Before leaving the judgment in Murarilal’s case
(supra), we wish to add that so far as partnership firms are
concerned, the Income Tax Act contains a specific provision in
Section 189(1) which introduces a fiction qua dissolved firms. It
states that where a firm is dissolved, the Assessing Officer shall
make an assessment of the total income of the firm as if no
such dissolution had taken place and all the provisions of the
Income Tax Act would apply to assessment of such dissolved
firm. Interestingly enough, this provision is referred to only in
the minority judgment in M/s. Murarilal’s case (supra).
27. The argument that Section 11A of the Central Excises and
Salt Act is a machinery provision which must be construed to
make it workable can be met by stating that there is no charge
to excise duty under the main charging provision of a dead
person, which has been referred to while discussing Section
34Page 35
11A read with the definition of “assessee” earlier in this
judgment.
28. Learned counsel for the revenue also relied upon the
definition of a “person” under the General Clauses Act, 1897.
Section 3(42) of the said Act defines “person as under:-
“(42) “Person” shall include any company or
association or body of individuals whether
incorporated or not.”
It will be noticed that this definition does not take us any further
as it does not include legal representatives of persons who are
since deceased. Equally, Section 6 of the Central Excises Act,
which prescribes a procedure for registration of certain persons
who are engaged in the process of production or manufacture
of any specified goods mentioned in the schedule to the said
Act does not throw any light on the question at hand as it says
nothing about how a dead person’s assessment is to continue
after his death in respect of excise duty that may have escaped
assessment. Also, the judgments cited on behalf of revenue,
namely, Yeshwantrao v. The Commissioner of Wealth Tax,
Bangalore, AIR 1967 SC 135 at pages 140, 141 para 18:
35Page 36
(1966) Suppl. SCR 419 at 429 A-B, C.A. Abraham v. The
Income-Tax Officer, Kottayam & Another, AIR 1961 SC 609
at 612 para 6: (1961) 2 SCR 765 at page 771, The State of
Tamil Nadu v. M.K. Kandaswami & Others, Air 1975 SC 1871
(para 26): (1975) 4 SCC 745 (para 26), Commissioner of
Sales Tax, Delhi & Others v. Shri Krishna Engineering Co. &
Others, (2005) 2 SCC 695, page 702, 703 paras 19 to 23, all
enunciate principles dealing with tax evasion in the context of
construing provisions which are designed to prevent tax
evasion. The question at hand is very different – it only deals
with whether the Central Excises and Salt Act contains the
necessary provisions to continue assessment proceedings
against a dead man in respect of excise duty payable by him
after his death, which is a question which has no relation to the
construction of provisions designed to prevent tax evasion.
29. Learned counsel for the revenue also cited Girja Nandini
Devi & Ors. v. Bijendra Narain Choudhury, [1967] 1 S.C.R.
93 at paragraph 15, and Shri Rameshwar Manjhi (deceased)
Through his son Shri Lakhiram Manjhi v. Management of
Sangramgarh Colliery & Ors., (1994) 1 SCC 292 at paragraph
36Page 37
12, in support of the general principle that an action begun in a
court of law by a person does not cease with his death. The
context of both decisions was very different. The first decision
was in the context of proceedings in relation to partition of a
joint family whereas the second was under the Industrial
Disputes Act. Neither judgment has any direct bearing on the
controversy before us.
30. It remains to consider a judgment cited by learned
counsel for the appellants, namely, Commissioner of Central
Excise, Bangalore –III v. Dhiren Gandhi, 2012 (281) E.L.T. 64
(Karnataka). This judgment is correct in its conclusion that
while interpreting the provisions of the Central Excises and Salt
Act, legal heirs who are not the persons chargeable to duty
under the Act cannot be brought within the ambit of the Act by
stretching its provisions. To the extent that this judgment holds
what is set out hereinbelow, it is correct:-
“We do not find any provision in the Act which foists
any such liability in the case of intestate succession.
In other words, there is no provision which
empowers the authorities to recover due from a
deceased assessee by proceeding against his legal
heirs. The way section 11 and 11A are worded, it is
amply clear, the legislature has consciously kept
away the legal heirs from answering to liabilities
under the Act.” (at page 69)
31. The impugned judgment in the present case has referred
to Ellis C. Reid’s case but has not extracted the real ratio
contained therein. It then goes on to say that this is a case of
short levy which has been noticed during the lifetime of the
deceased and then goes on to state that equally therefore legal
representatives of a manufacturer who had paid excess duty
would not by the self-same reasoning be able to claim such
excess amount paid by the deceased. Neither of these reasons
are reasons which refer to any provision of law. Apart from this,
the High Court went into morality and said that the moral
principle of unlawful enrichment would also apply and since the
law will not permit this, the Act needs to be interpreted
accordingly. We wholly disapprove of the approach of the High
Court. It flies in the face of first principle when it comes to
taxing statutes. It is therefore necessary to reiterate the law as
it stands. In Partington v. A.G., (1869) LR 4 HL 100 at 122,
Lord Cairns stated:
“If the person sought to be taxed comes within the
letter of the law he must be taxed, however great
the hardship may appear to the judicial mind to be.
On the other hand, if the Crown seeking to recover
the tax, cannot bring the subject within the letter of
the law, the subject is free, however apparently
within the spirit of law the case might otherwise
appear to be. In other words, if there be admissible
in any statute, what is called an equitable,
construction, certainly, such a construction is not
admissible in a taxing statute where you can simply
adhere to the words of the statute".
32. In Cape Brandy Syndicate v. IRC, (1921) 1 KB 64 at 71,
Rowlatt J. laid down:
“In a taxing Act one has to look merely at what is
clearly said. There is no room for any intendment.
There is no equity about a tax. There is no
presumption as to tax. Nothing is to be read in,
nothing is to be implied. One can only look fairly at
the language used.”
33. This Court has, in a plethora of judgments, referred to the
aforesaid principles. Suffice it to quote from one of such
judgments of this Court in Commissioner of Sales Tax
Commissioner, Uttar Pradesh v. Modi Sugar Mills, 1961 (2)
SCR 189 at 198:-
“In interpreting a taxing statute, equitable
considerations are entirely out of place. Nor can
taxing statutes be interpreted on any presumptions
or assumptions. The court must look squarely at
the words of the statute and interpret them. It must
interpret a taxing statute in the light of what is
clearly expressed; it cannot imply anything which is
not expressed; it cannot import provisions in the
statute so as to supply any assumed deficiency.”
34. We are, therefore, of the view that this appeal must be
allowed and the judgment of the High Court of Kerala is,
accordingly set aside and that of the learned Single Judge
restored.
……………………J.
(A.K. Sikri)
……………………J.
(R.F. Nariman)
New Delhi;
July 29, 2015.
Print Page
upon M/s. Murarilal Mahabir Prasad and others v. Shri B.R.
Vad and others, (1975) 2 SCC 736, a case arising under the
Bombay Sales Tax Act, 1953. Since this judgment has been
relied upon as the sheet anchor of the revenue’s case, it is
important to deal with it in some detail.
23. The question that arose in the aforesaid case was
whether a dissolved firm could be re-assessed to sales tax in
respect of its pre-dissolution turnover. By a two to one (2:1),
decision, this Court held that the Bombay Act contained the
necessary provisions to re-assess such a dissolved firm in
respect of its pre-dissolution turnover. The majority judgment
referred to the definition of “dealer” in the Bombay Act of 1953
and referred to this Court’s judgment in State of Punjab v. M/s
Jullunder Vegetables Syndicate (supra). We find that the
majority judgment of this Court relied heavily on the fact that
dishonest persons may dissolve a firm in order to escape
liability to assessment of taxes legitimately due from them but
which have escaped assessment. In paragraph 19, the
majority held:
“It is plausible that a distinction ought to be made
between the death of an individual and the
dissolution of a firm. Human beings, as assessees,
are not generally known to court death to evade
taxes. Death, normally, is not volitional and it is
understandable that on the death of an individual,
his liability to be assessed to tax should come to an
end unless the statute provides to the contrary. With
firms it is different, because a firm which incurs
during its existence a liability to pay sales-tax may,
with a little ingenuity, evade its liability by the
voluntary act of dissolution. The dissolution of a firm
could therefore be viewed differently from the death
of an individual and the partners could be denied
the advantage of their own wrong. But we do not
want to strike this new path because the Jullundur
case (supra) and the two cases which follow it have
likened the dissolution of a firm to the death of an
individual. Let us therefore proceed to examine the
other provisions of the 1953 Act.”
It then went on to quote Section 15(1) of the Bombay Sales Tax
Act, 1953 and then arrived at this conclusion:
“22. Section 15(1) contains an important clause that
action thereunder can be taken by the Collector
after giving a notice to the assessee under Section
14(3) of the Act within the prescribed period. Once
such a notice is given, the Collector gets the
jurisdiction to assess or re-assess the amount of tax
due from the dealer and all the provisions of the Act
"shall apply accordingly as if the notice were a
notice served under" Section 14(3). Section
14(3) speaks of the power of the Collector to assess
the amount of tax due from the dealer after giving
notice to him, if the Collector is not satisfied that the
returns furnished are correct and complete. The
jurisdiction to assess or reassess which is conferred
by section 15(1) is thus equated with the original
jurisdiction to assess the dealer under section 14.
By this method, the continuity of the legal
personality of the assessee is maintained in order to
enable the assessment of turnover which has
escaped assessment. It is no answer to a notice
under section 15 that the partners having dissolved
the firm, the assessment cannot be reopened. It
puts a premium on one's credulity to accept that
having created a special jurisdiction to assess or
reassess an escaped turnover, the Legislature
permitted that salutary jurisdiction to be defeated by
the device of dissolution. The argument of the
appellants really comes to this: suppress the
turnover, evade the sales-tax, dissolve the firm and
earn your freedom from taxation.”
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.5802 OF 2005
SHABINA ABRAHAM & ORS. … APPELLANTS
VERSUS
COLLECTOR OF CENTRAL EXCISE
& CUSTOMS ...RESPONDENT
R.F. Nariman, J.
Dated;July 29, 2015.
1. “Nothing is certain except death and taxes.” Thus spake
Benjamin Franklin in his letter of November 13, 1789 to Jean
Baptiste Leroy. To tax the dead is a contradiction in terms. Tax
laws are made by the living to tax the living. What survives the
dead person is what is left behind in the form of such person’s
property. This appeal raises questions as to whether the dead
person’s property, in the form of his or her estate, can be taxed
without the necessary machinery provisions in a tax statute.
The precise question that arises in the present case is whether
an assessment proceeding under the Central Excises and Salt
Act, 1944, can continue against the legal representatives/estate
of a sole proprietor/manufacturer after he is dead. The facts of
the case are as follows.
2. One Shri George Varghese was the sole proprietor of
Kerala Tyre and Rubber Company Limited. By October 1985,
this proprietary concern had stopped manufacture and
production of tread rubber. By a show cause notice dated
12.6.1987, for the period January 1983 to December 1985, it
was alleged that the assessee had manufactured and cleared
tread rubber from the factory premises by suppressing the fact
of such production and removal with an intent to evade
payment of excise duty. The provisions of Section 11A, as they
then stood, of the Central Excises and Salt Act were invoked
and duty amounting to Rs.74,35,242/- was sought to be
recovered from the assessee together with imposition of
penalty for clandestine removal.
3. On 14.3.1989, the said Shri George Varghese died. As a
result of his death, a second show cause notice was issued on
18.10.1989 to his wife and four daughters asking them to make
submissions with regard to the demand of duty made in the
2Page 3
show cause notice dated 12.6.1987. By their reply dated
25.10.1989, the said legal heirs of the deceased stated that
none of them had any personal association with the deceased
in his proprietary business and were not in a position to locate
any business records. They submitted that the proceedings
initiated against the deceased abated on his death in the
absence of any provision in the Central Excises and Salt Act to
continue assessment proceedings against a dead person in the
hands of the legal representatives. The said show cause notice
was, therefore, challenged as being without jurisdiction.
4. As the Central Excise Authorities posted the matter for
hearing and refused to pass an order on the maintainability of
the show cause notice alone, the legal heirs approached the
High Court under Article 226 of the Constitution by filing a Writ
Petition in January, 1990. The learned single Judge of the High
Court quashed the proceedings against the legal heirs stating
that the Central Excises and Salt Act did not contain any
provisions for continuing assessment proceedings against a
dead person. Against this, revenue went in appeal. The
3Page 4
Division Bench of the High Court of Kerala reversed the single
Judge’s judgment.
5. Shri Rajshekhar Rao, learned counsel appearing for the
legal heirs made submissions before us with great clarity and
persuasiveness. He submitted that a reading of Sections 2(f),
(3), Section 4(3)(a), Section 11 and 11A as they stood at the
relevant time would show that unlike the provisions of the
Income Tax Act, there is no machinery provision in the Central
Excises and Salt Act for continuing assessment proceedings
against a dead individual. He stressed the fact that an
assessee under the said Act means “the person” who is liable
to pay the duty of excise under this Act and further stressed the
fact that in cases of short levy, such duty can only be recovered
from a person who is chargeable with the duty that has been
short levied. He further invited our attention to the Central
Excise Rules and Rules 2(3) and 7 in particular to buttress his
submission that there is no machinery provision contained
either in the Act or in the Rules to proceed against a dead
person’s legal heirs. He cited certain judgments before us
which we will advert to later on in this judgment.
4Page 5
6. Shri A.K. Panda, learned senior advocate appearing on
behalf of the revenue contended that a close reading of Section
11 of the Central Excises and Salt Act will indicate that sums
are recoverable from an assessee by an attachment and sale of
excisable goods belonging to such assessee and further that if
the amount so recoverable falls short, it can be recovered from
the person himself as an arrear of land revenue. Inasmuch as
a dead man’s property can be attached and sold and
proceeded against, it is clear that the necessary machinery is
contained in the Central Excises and Salt Act. His further
submission is that Section 11A of the said Act is a machinery
provision and, therefore, the rule to be applied is that that
construction should be preferred which makes a machinery
Section workable. He also referred us to the definition of
“person” in Section 3(42) of the General Clauses Act to buttress
his submission that a legal representative would be included
within a “person” as so defined. He referred us to Section 6 of
the said Act dealing with registration and argued that
registration of a person makes him a legal entity liable to be
assessed as such. His other submission is that the general
5Page 6
principle, namely, that a cause of action abates when a person
who institutes a proceeding dies is not applicable in the present
case and cited various judgments before us in support of the
said principle. He also submitted that the position under the
Income Tax Act would be entirely different as income tax is a
tax leviable on a person whereas a duty of excise is leviable on
manufacture of goods. He also cited a number of decisions
which will be dealt with in the course of this judgment.
7. We have heard learned counsel for the parties. Before
entering into a discussion on the merits of the case, it is
necessary to set out the statutory provisions contained in the
Central Excises and Salt Act at the relevant time, which are
given below:-
2(f) "manufacture" includes any process incidental
or ancillary to the completion of a manufactured
product; and
(i) In relation to tobacco includes the preparation
of cigarettes, cigars, cheroots, biris, cigarette
or pipe or hookah tobacco, chewing tobacco
or snuff,
(ia) in relation to manufactured tobacco,
includes the labeling or re-labelling of
containers and repacking from bulk packs to
retail packs or the adoption of any other
treatment to render the product marketable to
the consumer.
6Page 7
(ii) In relation to salt, includes collection, removal,
preparation, steeping, evaporation, boiling, or
any one or more of these processes, the
separation or purification of salt obtained in
the manufacture of saltpeter, the separation of
salt from earth or other substance so as to
produce elementary salt, and the excavation
or removal of natural saline deposits or
efflorescence;
(iii) In relation to patent or proprietary medicines,
as defined in Item No. 14-E of the first
Schedule and in relation to cosmetics and
toilet preparations as defined in Item No.14-F
of that Schedule, includes the conversion of
powder into tablets or capsules, the labeling
or relabeling of containers intended for
consumers and repacking from bulk packs to
retail packs or the adoption of any other
treatment to render the product marketable to
the consumers;
(iv) In relation to goods comprised to Item
No.18-A of the First Schedule, includes sizing,
beaming, warping, wrapping, winding or
reeling, or any one or more of these
processes, or the conversion of any form of
the said goods into another form of such
goods;
And the word “manufacturer” shall be
construed accordingly and shall include not
only a person who employs hired labour in the
production or manufacture of excisable goods,
but also any person who engages in their
production or manufacture on his own
account.”
3. Duties specified in the First Schedule to be
levied. (1) There shall be levied and collected in
such manner as may be prescribed duties of excise
on all excisable goods other than salt which are
produced or manufactured in India and a duty on
7Page 8
salt manufactured in, or imported by land into, any
part of India as, and at the rates set forth in the First
Schedule.
4. Valuation of excisable goods for purposes of
charging of duty of excise. –
(1) Where under this Act, the duty of excise is
chargeable on any excisable goods with reference
to value, such value shall, subject to the other
provisions of this section be deemed to be –
(a) the normal price thereof, that is to say, the price
at which such goods are ordinarily sold by the
assessee to a buyer in the course of wholesale
trade for delivery at the time and place of removal,
where the buyer is not a related person and the
price is the sole consideration for the sale:”
(4) For the purposes of this section, -
(a) “assessee” means the person who is liable to
pay the duty of excise under this Act and includes
his agent;”
11. Recovery of sums due to Government. - In
respect of duty and any other sums of any kind
payable to the Central Government under any of the
provisions of this Act or of the rules made
thereunder, the officer empowered by the Central
Board of Excise and Customs constituted under the
Central Boards of Revenue Act, 1963, to levy such
duty or require the payment of such sums may
deduct the amount so payable from any money
owing to the person from whom such sums may be
recoverable or due which may be in his hands or
under his disposal or control, or may recover the
amount by attachment and sale of excisable goods
belonging to such person; and if the amount
payable is not so recovered he may prepare a
certificate signed by him specifying the amount due
from the person liable to pay the same and send it
to the Collector of the district in which such person
8Page 9
resides or conducts his business and the said
Collector, on receipt of such certificate, shall
proceed to recover from the said person the amount
specified therein as if it were an arrear of land
revenue.
11A. Recovery of duties not levied or not paid or
short levied or short paid or erroneously refunded.-
(1) When any duty of excise has not been levied
or paid or has been short-levied or short-paid or
erroneously refunded, a Central Excise Officer may,
within six months from the relevant date, serve
notice on the person chargeable with the duty which
has not been levied or paid or which has been
short-levied or short-paid or to whom the refund has
erroneously been made, requiring him to show
cause why he should not pay the amount specified
in the notice:
Provided that where any duty of excise has not
been levied or paid or has been short-levied or
short-paid or erroneously refunded by reason of
fraud, collusion or any wilful misstatement or
suppression of facts, or contravention of any of the
provisions of this Act or of the rules made
thereunder with intent to evade payment of duty, by
such person or his agent, the provisions of this
sub-section shall have effect, as if for the words "six
months", the words "five years" were substituted.”
Rule 2(3) and Rule 7 of the Central Excises Rules, 1944, read
as under:
“2. Definitions.—In these rules, unless there is
anything repugnant in the subject or context—
(3) "assessee" means any person who is liable for
payment of duty assessed and also includes any
producer or manufacturer of excisable goods or a
9Page 10
registered person of a private warehouse in which
excisable goods are stored;
7. Recovery of duty.- Every person who produces,
cures or manufactures any excisable goods, or who
stores such goods in a warehouse, shall pay the
duty or duties leviable on such goods, at such time
and place and to such persons as may be
designated, in, or under authority of these rules,
whether the payment of such duty or duties is
secured by bond or otherwise.
Provided that nothing contained in this rule shall
apply to molasses produced in a khandsari sugar
factory.
Provided further that in respect of goods falling
under Chapter 62 of the First Schedule to the
Central Excise Tariff Act, 1985 (5 of
1986), manufactured on job-work, the provisions of
these rules shall apply subject to the provisions of
rule 7AA.”
8. On a reading of the aforesaid provisions, it is clear that
Shri Rajshekhar Rao, learned counsel appearing on behalf of
the appellants is correct – there is in fact no separate
machinery provided by the Central Excises and Salt Act to
proceed against a dead person when it comes to assessing him
to tax under the Act.
9. The position under the Income Tax Act, 1922 was also the
same until Section 24B was introduced by the Income Tax
10Page 11
(Second Amendment) Act of 1933. Prior to the introduction of
the aforesaid Section, the Bombay High Court had occasion to
deal with a similar question in Commissioner of Income Tax,
Bombay v. Ellis C. Reid, A.I.R. 1931 Bombay 333. A Division
Bench of the Bombay High Court noticed the definition of
“assessee” contained in Section 2(2) of the 1922 Act which
definition stated that “‘assessee’ means a person by whom
income tax is payable”. The Division Bench went on to say that
the words “or by whose estate” are conspicuous by their
absence in the said definition. The Division Bench then went
on to say that there appears to be nothing in the charging
Section to suggest that a man who has once become liable to
tax can avoid payment of tax by dying before such tax has been
assessed or paid. However, the Act has to contain appropriate
provisions for continuing an assessment and collecting tax from
the estate of a deceased person which was found to be absent
in the 1922 Act before it was amended by insertion of Section
24B. Having noticed various provisions of the said Act, the
Division Bench went on to say:-
11Page 12
“These are, I think, the only material provisions, of
the Act. It is to be noticed that there is throughout
the Act no reference to the decease of a person on
whom the tax has been originally charged, and it is
very difficult to suppose the omission to have been
unintentional. It must have been present to the mind
of the legislature that whatever privileges the
payment of Income-tax may confer, the privilege of
immortality is not amongst them. Every person
liable to pay tax must necessarily die and in
practically every case, before the last installment
has been collected, and the legislature has not
chosen to make any provisions expressly dealing
with assessment of, or recovering payment from,
the estate of a deceased person. In order that the
Government may succeed and the assessment
made in this case may be held legal I think, one
must do a certain amount of violence to the
language of Section 23(4); I think one must either
do a certain amount of violence - I should say a
considerable amount of violence - to the language
of Section 27, or else hold that the privilege
conferred on a living person assessed under
Section 23(4) of getting the assessment set aside is
not to be enjoyed by the estate of a deceased
person - a distinction for which I can see no logical
reason. One must also construe Section 29 so as to
give to the word "assessee" one meaning in one
place and another meaning in another place.
In my judgment, in construing a taxing Act the
Court is not justified in straining the language in
order to hold a subject liable to tax. If the legislature
intends to assess the estate of a deceased person
to tax charged on the deceased in his lifetime, the
legislature must provide proper machinery and not
leave it to the Court to endeavor to extract the
appropriate machinery out of the very unsuitable
language of the statute. We are not concerned with
the case which may arise of the death of a person
12Page 13
after assessment but before payment.” (at page
335)
10. Given the aforesaid decision of the Bombay High Court,
the legislature was quick to amend the Income Tax Act, 1922 by
inserting Section 24B which reads as follows:-
Section 24B : Tax of deceased person payable
by representative-
(1) Where a person dies, his executor, administrator
or other legal representative shall be liable to pay
out of the estate of the deceased person to the
extent to which the estate is capable of meeting the
charge the tax assessed as payable by such
person, or any tax which would have been payable
by him under this Act if he had not died.
(2) Where a person dies before the publication of
the notice referred to in sub-section (1) of section 22
or before he is served with a notice under
sub-section (2) of section 22 or section 34, as the
case may be, his executor, administrator or other
legal representative shall, on the serving of the
notice under sub-section (2) of section 22 or under
section 34, as the case may be, comply therewith,
and the Income-tax Officer may proceed to assess
the total income of the deceased person as if such
executor, administrator or other legal representative
were the assessee.
(3) Where a person dies, without having furnished
a return which he has been required to furnish
under the provisions of section 22, or having
furnished a return which the Income-tax Officer has
reason to believe to be incorrect or incomplete, the
13Page 14
Income-tax Officer may make an assessment of the
total income of such person and determine the tax
payable by him on the basis of such assessment,
and for this purpose may, by the issue of the
appropriate notice which would have had to be
served upon the deceased person had he survived,
require from the executor, administrator or other
legal representative of the deceased person any
accounts, documents or other evidence which he
might under the provisions of sections 22 and 23
have required from the deceased person.”
11. This judgment of the Bombay High Court has been
affirmed in two judgments of this Court. In Commissioner of
Income Tax, Bombay City I v. Amarchand N. Shroff, [1963]
48 I.T.R. 59, this Court referred with approval to Ellis C. Reid
and held:-
“The correct position is that apart from section 24B
no assessment can be made in respect of the
income of a person after his death. See Ellis C.
Reid v. Commissioner of Income-tax. In that case,
and that was a case before section 24B was
enacted, a person was served with a notice under
section 22(2) of the Income-tax Act but no return
was made within the period specified and he died. It
was held that no assessment could be made under
section 23(4) of the Act after his death. At p.106 it
was observed:-
"It is to be noticed that there is throughout the Act
no reference to the decease of a person on whom
the tax has been originally charged, and it is very
difficult to suppose the omission to have been
unintentional. It must have been present in the
14Page 15
mind of the legislature that whatever privileges the
payment of income-tax may confer, the privilege of
immortality is not amongst them. Every person
liable to pay tax must necessarily die and, in
practically every case, before the last instalment
has been collected, and the legislature has not
chosen to make any provisions expressly dealing
with assessment of, or recovering payment from the
estate of a deceased person".
The individual assessee has ordinarily to be a living
person and there can be no assessment on a dead
person and the assessment is a charge in respect
of the income of the previous year and not a charge
in respect of the income of the year of assessment
as measured by the income of the previous year.
Wallace Brothers & Co. Ltd. v Commissioner of
Income-tax. By section 24B the legal
representatives have, by fiction of law, become
assessees as provided in that section but that fiction
cannot be extended beyond the object for which it
was enacted. As was observed by this Court in
Bengal Immunity Co. Ltd. v. State of Bihar legal
fictions are only for a definite purpose and they are
limited to the purpose for which they are created
and should not be extended beyond that legitimate
field. In the present case the fiction is limited to the
cases provided in the three sub sections of section
24B and cannot be extended further than the liability
for the income received in the previous year.” (at
page 66)
12. Similarly, in Commissioner of Income Tax, Bombay v.
James Anderson, [1964] 51 I.T.R. 345, this Court referred with
approval to the judgment in Ellis C. Reid’s case and further
15Page 16
held that even after Section 24B was enacted tax cannot be
assessed on receipts on the footing that it is the personal
income of the legal representative. This Court held:-
“It was then urged that apart from section 24B, the
legal representatives of a deceased person also
represent his estate in the matter of taxation of
income and it is competent to the taxing authorities
to assess them on income received on behalf of the
estate. Counsel did not rely upon any specific
provision of the Act in support of the contention, and
merely asserted that the Act seeks to tax all
assessable incomes, and income received by a
legal representative of the estate of a deceased
person should not be permitted to escape tax to the
detriment of public revenue. But if the Legislature
has failed to set up the procedure to assess such
income, the Courts cannot supply it. The expression
"assessee" in section 2(2) as substituted by the
Indian Income Tax (Amendment) Act, (25 of 1953),
with effect from April 1, 1952, means a person by
whom income-tax or any other sum of money is
payable under the Act, and includes every person in
respect of whom any proceeding and this Act has
been taken for the assessment of his income or of
the loss sustained by him or of the amount of refund
due to him. By section 3 where income-tax is
chargeable for any year at any rate or rates
prescribed by the Act of the Central Legislature, tax
at that rate shall be charged for that year in
accordance with and subject to the provisions of the
Act in respect of the total income of the previous
year of every individual, Hindu undivided family,
company and local authority, and of every firm and
other association of persons or the partners of the
firm or the members of the association individually.
The charge to income-tax has therefore to be in
16Page 17
accordance with and subject to the provisions of the
Act, and the Legislature has not provided that the
income received by a legal representative which
would, but for the death of the deceased, have been
received by such deceased person, is to be
regarded for the purpose of assessment as the
personal income of the legal representative. To
assess tax on such receipts on the footing that it is
the personal income of the legal representative is to
charge tax not in accordance with the provisions of
the Act.” (at page 352)
13. In Commissioner of Income Tax, Bombay v. Darabsha
Nasarwanji Mehta, A.I.R. 1935 Bombay 167, the Bombay High
Court held that Section 24B of the 1922 Act was not
retrospective and stated that as Avabai N. Mehta died before
the said Act came into force and before she had made any
return, her estate was not liable to be assessed to tax particular
regard being had to the opening words of Section 24B which
state “where a person dies” which are words in the present
tense.
14. Pursuant to the 12th Law Commission Report, a new
Income Tax Act was passed in 1961 which contained elaborate
provisions for assessment of deceased persons after they die.
The anomalies left by Section 24B of the 1922 Act, as pointed
17Page 18
out in the two Supreme Court judgments referred to above,
were sought to be rectified in the new provisions contained in
the 1961 Act. Sections 159 and 168 of the Act are apposite in
this regard and read as follows:-
“159. (1) Where a person dies, his legal
representative shall be liable to pay any sum which
the deceased would have been liable to pay if he
had not died, in the like manner and to the same
extent as the deceased.
(2) For the purpose of making an assessment
(including an assessment, reassessment or
recomputation under section 147) of the income of
the deceased and for the purpose of levying any
sum in the hands of the legal representative in
accordance with the provisions of sub-section (1),—
(a) any proceeding taken against the deceased
before his death shall be deemed to have been
taken against the legal representative and may be
continued against the legal representative from the
stage at which it stood on the date of the death of
the deceased;
(b) any proceeding which could have been taken
against the deceased if he had survived, may be
taken against the legal representative; and
(c) all the provisions of this Act shall apply
accordingly.
(3) The legal representative of the deceased shall,
for the purposes of this Act, be deemed to be an
assessee.
(4) Every legal representative shall be personally
liable for any tax payable by him in his capacity as
legal representative if, while his liability for tax
remains undischarged, he creates a charge on or
disposes of or parts with any assets of the estate of
18Page 19
the deceased, which are in, or may come into, his
possession, but such liability shall be limited to the
value of the asset so charged, disposed of or parted
with.
(5) The provisions of sub-section (2) of section 161,
section 162, and section 167, shall, so far as may
be and to the extent to which they are not
inconsistent with the provisions of this section, apply
in relation to a legal representative.
(6) The liability of a legal representative under this
section shall, subject to the provisions of
sub-section (4) and sub-section (5), be limited to the
extent to which the estate is capable of meeting the
liability.”
“168. (1) Subject as hereinafter provided, the
income of the estate of a deceased person shall be
chargeable to tax in the hands of the executor,—
(a)if there is only one executor, then, as if the
executor were an individual; or
(b)if there are more executors than one, then, as if
the executors were an association of persons;
and for the purposes of this Act, the executor
shall be deemed to be resident or non-resident
according as the deceased person was a resident
or non-resident during the previous year in which
his death took place.
(2) The assessment of an executor under this
section shall be made separately from any
assessment that may be made on him in respect of
his own income.
(3) Separate assessments shall be made under
this section on the total income of each completed
previous year or part thereof as is included in the
period from the date of the death to the date of
complete distribution to the beneficiaries of the
estate according to their several interests.
19Page 20
(4) In computing the total income of any previous
year under this section, any income of the estate of
that previous year distributed to, or applied to the
benefit of, any specific legatee of the estate during
that previous year shall be excluded; but the income
so excluded shall be included in the total income of
the previous year of such specific legatee.”
15. It will be noticed that under Section 159(2), for the
purpose of making any assessment, any proceeding taken
against the deceased before his death is by deeming fiction
deemed to have been taken against his legal representative
and may be continued against the legal representative from the
stage at which it stood on the date of the death of the
deceased. Further, the legal representative under sub-section
(3) of 159 is again by deeming fiction deemed to be an
assessee himself. However, the liability of such representative
is limited only to the extent to which the estate left by the
deceased is capable of meeting the tax liability subject to the
contingencies mentioned in sub-sections (4) and (5) of Section
159.
16. Similarly, under Section 168, where the assessee has left
a Will, the income of the estate of the deceased person
20Page 21
becomes chargeable in the hands of the executor of such will.
This is made clear by Section 168.
17. It will be seen that the definition of “assessee” contained
in Section 4(3)(a) of the Central Excises and Salt Act is similar
to the definition of assessee contained in the Income Tax Act,
1922. Under that Act, as we have already seen, an assessee
means “a person by whom income tax is payable.” Under the
Central Excises and Salt Act, an assessee means “the person
who is liable to pay the duty of excise under this Act”. The
present tense being used, it is clear that the person referred to
can only be a living person as was held in Ellis C. Reid (supra).
Further, the only extension of the definition of “assessee” under
the Central Excises and Salt Act is that it would also include an
assessee’s agent, which has nothing to do with the facts of the
present case. It is well settled that a “means and includes”
definition is exhaustive in nature and that there is no scope to
read anything further into the said definition.
18. As has been correctly pointed out by learned counsel for
the appellants, the notice that is served under Section 11A is
21Page 22
only on the person chargeable with excise duty, which takes us
back to “assessee” as defined.
19. Learned counsel for the revenue relied upon Section 11 of
the Act, which, according to him, indicates that an attachment
and sale of excisable goods can belong to a dead person and
such attachment and sale can continue notwithstanding the
death of such person. Apart from the fact that there is nothing
about dead persons in Section 11, Section 11 is limited only to
recovery of sums that are due to the Government. The very
opening words in Section 11 show that duty and other sums
must first be payable to the Central Government under the Act
or the rules. If such sums are not “payable” then the provisions
of the Section do not get attracted at all. We have seen that the
Act contains no machinery provisions for proceeding against a
dead person’s legal heirs, such as are contained in the Income
Tax Act. Obviously, therefore, duty and other sums do not
become “payable” without such machinery provisions. Further,
Section 11 deals with modes of recovery of tax payable and
does not deal with the subject matter at hand – namely
machinery provisions for assessment in the hands of the estate
22Page 23
of a dead person and, therefore, does not have much bearing
on the matter in issue in the present case. The argument,
therefore, as to the insertion of the proviso to Section 11 by an
Amendment Act of 2004 so as to provide that if a person from
whom some recoveries are due transfers his business to
another person, then the excisable goods in the possession of
the transferee can also be attached and sold again leads us
nowhere. In fact learned counsel for the appellants also relied
on this proviso to argue that the Legislature’s need to add the
proviso shows that nothing can be read into the Central Excises
and Salt Act by implication. As has been stated above, Section
11 deals with an entirely different situation and the addition of
the proviso therein is not of much significance as far as the
question we have to answer is concerned.
20. Learned counsel for the revenue, however, contended
that the principles applied in the case of the Income Tax Act
should not be applied to the Central Excises and Salt Act as the
latter Act is a tax on manufacture of goods and not on persons.
We are afraid this argument cannot be countenanced in view of
this Court’s judgment in State of Punjab v. M/s Jullunder
23Page 24
Vegetables Syndicate, [1966] 2 S.C.R. 457. In that judgment,
the question before this Court was whether a dissolved firm
could be assessed to sales tax under the East Punjab General
Sales Tax Act, 1948, with respect to its pre-dissolution turn over.
After analyzing the East Punjab General Sales Tax Act, this
Court held:-
“The scheme of the Act is a simple one. A firm is a
dealer; the said dealer is assessable to tax on its
turnover, if its turnover exceeds the prescribed limit.
It cannot do business while being liable to pay tax
under the Act without getting itself registered and
possessing a registration certificate. It is assessed
to tax under Section 11 of the Act in the manner
prescribed thereunder. If it discontinues its
business, it shall within the specified time inform the
prescribed authority accordingly. A dealer and its
partners are jointly and severally responsible to pay
the tax assessed on the dealer. But there is no
provision expressly empowering the assessing
authority to assess a dissolved firm in respect of its
turnover before its dissolution. The question is
whether such a power can be gathered by
necessary implication from the other provisions of
the Act.” (at page 461)
The Court went on to say:
“Though under the partnership law a firm is not a
legal entity but only consists of individual partners
for the time being, for tax law, income-tax as well as
sales-tax, it is a legal entity. If that be so, on
dissolution, the firm ceases to be a legal entity.
Thereafter, on principle, unless there is a statutory
24Page 25
provision permitting the assessment of a dissolved
firm, there is no longer any scope for assessing the
firm which ceased to have a legal existence. As in
the present case, admittedly, the firm was dissolved
before the order of assessment was made, the said
order was bad.” (at page 462)
The Court went on to consider various High Court decisions
and ultimately concluded as follows:-
“Strong reliance was placed upon two judgments of
this Court. This Court in C.A. Abraham v.
Income-tax Officer, Kottayam, speaking through
Shah, J., held that S.44 of the Income-tax Act set up
a machinery for assessing the tax liability of firms
which have discontinued their business. This was
followed by this Court again in Commissioner of
Income-tax, Madras v. S.V. Angidi Chettiar. These
two decisions are of no help to the Revenue in the
present case. Indeed, in a sense they are against it.
The Income-tax Act contains an express provision
for assessing a dissolved firm. Indeed, but for that
provision no assessment could be made under that
Act on dissolved firms.
For the foregoing reasons we hold that the High
Court was right in holding that the assessment order
on the dissolved firm could not be supported under
the provisions of the Act. The High Court has given
a correct answer to the question propounded for its
decision.” (at page 464)
21. This judgment is a complete answer to the contention of
learned counsel for the revenue inasmuch as on a parity of
reasoning, sales tax is not a personal tax but a tax on the sale
25Page 26
of goods. Nevertheless, this Court held that in the absence of
any machinery provisions to assess and collect sales tax from a
deceased person – in that case it was a dissolved partnership
firm – all proceedings against such deceased person/dissolved
firm abate. The aforesaid judgment has been followed by this
Court in Khushi Ram Behari Lal & Co. v. Assessing
Authority, Sangrur, (1967) 19 STC 381 and in Additional
Tahsildar, Raipur v. Gendalal, (1968) 21 STC 263.
22. Learned counsel for the revenue, however, strongly relied
upon M/s. Murarilal Mahabir Prasad and others v. Shri B.R.
Vad and others, (1975) 2 SCC 736, a case arising under the
Bombay Sales Tax Act, 1953. Since this judgment has been
relied upon as the sheet anchor of the revenue’s case, it is
important to deal with it in some detail.
23. The question that arose in the aforesaid case was
whether a dissolved firm could be re-assessed to sales tax in
respect of its pre-dissolution turnover. By a two to one (2:1),
decision, this Court held that the Bombay Act contained the
necessary provisions to re-assess such a dissolved firm in
respect of its pre-dissolution turnover. The majority judgment
referred to the definition of “dealer” in the Bombay Act of 1953
and referred to this Court’s judgment in State of Punjab v. M/s
Jullunder Vegetables Syndicate (supra). We find that the
majority judgment of this Court relied heavily on the fact that
dishonest persons may dissolve a firm in order to escape
liability to assessment of taxes legitimately due from them but
which have escaped assessment. In paragraph 19, the
majority held:
“It is plausible that a distinction ought to be made
between the death of an individual and the
dissolution of a firm. Human beings, as assessees,
are not generally known to court death to evade
taxes. Death, normally, is not volitional and it is
understandable that on the death of an individual,
his liability to be assessed to tax should come to an
end unless the statute provides to the contrary. With
firms it is different, because a firm which incurs
during its existence a liability to pay sales-tax may,
with a little ingenuity, evade its liability by the
voluntary act of dissolution. The dissolution of a firm
could therefore be viewed differently from the death
of an individual and the partners could be denied
the advantage of their own wrong. But we do not
want to strike this new path because the Jullundur
case (supra) and the two cases which follow it have
likened the dissolution of a firm to the death of an
individual. Let us therefore proceed to examine the
other provisions of the 1953 Act.”
It then went on to quote Section 15(1) of the Bombay Sales Tax
Act, 1953 and then arrived at this conclusion:
“22. Section 15(1) contains an important clause that
action thereunder can be taken by the Collector
after giving a notice to the assessee under Section
14(3) of the Act within the prescribed period. Once
such a notice is given, the Collector gets the
jurisdiction to assess or re-assess the amount of tax
due from the dealer and all the provisions of the Act
"shall apply accordingly as if the notice were a
notice served under" Section 14(3). Section
14(3) speaks of the power of the Collector to assess
the amount of tax due from the dealer after giving
notice to him, if the Collector is not satisfied that the
returns furnished are correct and complete. The
jurisdiction to assess or reassess which is conferred
by section 15(1) is thus equated with the original
jurisdiction to assess the dealer under section 14.
By this method, the continuity of the legal
personality of the assessee is maintained in order to
enable the assessment of turnover which has
escaped assessment. It is no answer to a notice
under section 15 that the partners having dissolved
the firm, the assessment cannot be reopened. It
puts a premium on one's credulity to accept that
having created a special jurisdiction to assess or
reassess an escaped turnover, the Legislature
permitted that salutary jurisdiction to be defeated by
the device of dissolution. The argument of the
appellants really comes to this: suppress the
turnover, evade the sales-tax, dissolve the firm and
earn your freedom from taxation.”
The Court then went on to add:
“24. Section 15A confers on the Collector analogous
powers to asses or re-assess a dealer for taxes due
prior to November 21, 1956 when the States were
reorganised, if either no assessment was made for
the prior period or if any turnover had escaped
assessment. This provision, like the one contained
in Section 15, is of general application and makes
no exception in favour of dissolved firm. Therefore,
if a firm was not assessed prior to the
re-organisation of States or if any part of its turnover
had escaped assessment, it is competent to the
Collector to assess or re-assess the firm
notwithstanding its subsequent dissolution. This is
the necessary implication of Section 15A. It must
follow as a corollary that the power to rectify a
mistake apparent from the record can be exercised
by the Collector under Section 35 of the Act of 1953
even after the dissolution of an assessed firm,
though on conditions specified in the section. The
section contains a compelling implication that
evident errors can be corrected no matter whether
the firm is in existence or is dissolved. Dissolution is
not a panacea for liability to pay sales-tax.”
It also added in paragraph 32:
“It is indisputable that the first appellant firm was
liable to be charged to sales tax on its business
turnover. The charging provisions are contained in
Chapter III of the Act of 1953 and Chapter II of the
Act of 1959. In this appeal, we have to construe the
machinery provisions of those Acts. In accordance
with the view taken in the cases cited above, the
machinery sections ought to be construed so as to
effectuate the charging sections. The construction
which we have placed on the machinery provisions
of the 1953 Act will give meaning and content to the
charging sections, in the sense that our construction
will effectuate the provision contained in the
charging sections. The resourcefulness and
ingenuity which go into well-timed dissolution of
firms ought not to be allowed to be used as
convenient instruments of tax evasion. As observed
by Lord Dunedin in Whitney v. Commissioners of
Inland Revenue:
"A statute is designed to be workable,
and the interpretation thereof by a court
should be to secure that object, unless
crucial omission of clear direction makes
that end unattainable."
Far from there being any crucial omission or a clear
direction in the present case which would make the
end unattainable, the various provisions to which we
have drawn attention leave it in no doubt that a
dissolved firm can be assessed on its
pre-dissolution turnover.”
24. It is clear that on a conjoint reading of these paragraphs
this Court found that the machinery provisions contained in the
Bombay Sales Tax Act, 1953, were sufficient to reassess a
dissolved firm in respect of income that had escaped
assessment before its dissolution. A distinction was drawn
between an individual who dies and a firm that is dissolved as a
device to evade tax. The Court laid great stress on the
provision contained in Section 15(1) of the said Act by which
the jurisdiction to assess or reassess under Section 15(1) is
equated with the original jurisdiction to assess the dealer under
Section 14. By this method, the Court found the continuity of
the legal personality of the assessee is maintained in order to
enable the assessment of turnover which has escaped
assessment. The crucial difference, therefore, between Section
15(1) of the Bombay Sales Tax Act, 1953 and Section 11A of
the Central Excises and Salt Act is that Section 11A does not
contain any such provision as is contained in Section 15(1)
which equates the jurisdiction to assess or reassess with the
original jurisdiction to assess the dealer in the very first place.
Further, this Court also construed Section 19 of the Bombay
Sales Tax Act, 1959 which would throw light on the earlier
Bombay Sales Tax Act, 1953, as containing the necessary
machinery provisions to assess dissolved firms in respect of
escaped turnover pre-dissolution. Hence, this Court added:
“35. It is relevant, though we did not refer to this
aspect while dealing with the provisions of the 1953
Act, that section 19(3) of the 1959 Act contains a
clear indication that the legislature intended that a
dissolved firm could be assessed under the 1953
Act also. Section 19(3) speaks of the liability of
partners for the tax due from a dissolved firm and
provides that they shall be jointly and severally
liable to pay the tax due from the firm under the Act
of 1959 or "under any earlier law", whether such tax
has been assessed before or after dissolution.
31Page 32
Section 2(12) of the 1959 Act defines "earlier law" to
mean, inter alia, the Bombay Sales Tax Act, 1953.
Thus, one of the postulates of section 19(3) at any
rate is that a dissolved firm could be assessed
under the 1953 Act. Such a postulate accords with
the principle that if the legislature provided for a
charge of sales-tax, it could not have intended to
render that charge ineffective by permitting the
partners to dissolve the firm, an easy enough thing
to do. Nothing, in fact, would be easier to evade a
tax liability than to declare that the firm, admittedly
liable to pay tax, has been dissolved. Section
19(3) of the 1959 Act not only makes clear what
was necessarily implied in the 1953 Act, but it
throws additional light on the true construction of the
earlier law. But we thought it advisable to keep
section 19(3) of the 1959 Act apart while construing
the 1953 Act because it is the courts, not the
legislature, who have to construe the laws of the
land authoritatively. As said in Craies on Statute
Law:
Except as a parliamentary exposition,
subsequent Acts are not to be relied on
as an aid to the construction of prior
unambiguous Acts. (6th Ed., p. 146).
The limited use which may be made of the language
of section 19(3) of the 1959 Act, though such a
course is unnecessary, is for saying that it serves to
throw some light on the Act of 1953, in case the
argument is that the Act of 1953 is ambiguous.
36. Section 19(3) being quite clear and explicit, it is
unnecessary to dwell on the other provisions of the
Act of 1959 in order to show that a dissolved firm
can be assessed under it. We may only point out
that the Act of 1959 contains provisions similar to
those in sections 15, 15A and 35 of the Act of 1953
on which we have dwelt at some length. Those
32Page 33
provisions can be found in sections 35, 35A and 62
of the Act.”
25. A reading of the ratio of the majority decision contained in
Murarilal’s case (supra) would lead to the conclusion that the
necessary machinery provisions were already contained in the
Bombay Sales Tax Act, 1953 which were good enough to bring
into the tax net persons who wished to evade taxes by the
expedient of dissolving a partnership firm. The fact situation in
the present case is entirely different. In the present case an
individual proprietor has died through natural causes and it is
nobody’s case that he has maneuvered his own death in order
to evade excise duty. Interestingly, in the written submissions
filed by revenue, revenue has argued as follows:-
“It is pertinent to mention that in the present case,
Shri George Varghese (predecessor in interest of
the appellants herein) was doing business in the
name of manufacturing unit namely M/s. Kerala
Tyre & Rubber Company and after the death of Shri
George Varghese, his legal representatives
(appellants herein) might have been in possession
of the plant, machinery, stock etc. and continuing
the same business, but might be in some other
name in order to avoid the excise duty chargeable
to the previous manufacturing unit.”
33Page 34
26. It is clear on a reading of the aforesaid paragraph that
what revenue is asking us to do is to stretch the machinery
provisions of the Central Excises and Salt Act, 1944 on the
basis of surmises and conjectures. This we are afraid is not
possible. Before leaving the judgment in Murarilal’s case
(supra), we wish to add that so far as partnership firms are
concerned, the Income Tax Act contains a specific provision in
Section 189(1) which introduces a fiction qua dissolved firms. It
states that where a firm is dissolved, the Assessing Officer shall
make an assessment of the total income of the firm as if no
such dissolution had taken place and all the provisions of the
Income Tax Act would apply to assessment of such dissolved
firm. Interestingly enough, this provision is referred to only in
the minority judgment in M/s. Murarilal’s case (supra).
27. The argument that Section 11A of the Central Excises and
Salt Act is a machinery provision which must be construed to
make it workable can be met by stating that there is no charge
to excise duty under the main charging provision of a dead
person, which has been referred to while discussing Section
34Page 35
11A read with the definition of “assessee” earlier in this
judgment.
28. Learned counsel for the revenue also relied upon the
definition of a “person” under the General Clauses Act, 1897.
Section 3(42) of the said Act defines “person as under:-
“(42) “Person” shall include any company or
association or body of individuals whether
incorporated or not.”
It will be noticed that this definition does not take us any further
as it does not include legal representatives of persons who are
since deceased. Equally, Section 6 of the Central Excises Act,
which prescribes a procedure for registration of certain persons
who are engaged in the process of production or manufacture
of any specified goods mentioned in the schedule to the said
Act does not throw any light on the question at hand as it says
nothing about how a dead person’s assessment is to continue
after his death in respect of excise duty that may have escaped
assessment. Also, the judgments cited on behalf of revenue,
namely, Yeshwantrao v. The Commissioner of Wealth Tax,
Bangalore, AIR 1967 SC 135 at pages 140, 141 para 18:
35Page 36
(1966) Suppl. SCR 419 at 429 A-B, C.A. Abraham v. The
Income-Tax Officer, Kottayam & Another, AIR 1961 SC 609
at 612 para 6: (1961) 2 SCR 765 at page 771, The State of
Tamil Nadu v. M.K. Kandaswami & Others, Air 1975 SC 1871
(para 26): (1975) 4 SCC 745 (para 26), Commissioner of
Sales Tax, Delhi & Others v. Shri Krishna Engineering Co. &
Others, (2005) 2 SCC 695, page 702, 703 paras 19 to 23, all
enunciate principles dealing with tax evasion in the context of
construing provisions which are designed to prevent tax
evasion. The question at hand is very different – it only deals
with whether the Central Excises and Salt Act contains the
necessary provisions to continue assessment proceedings
against a dead man in respect of excise duty payable by him
after his death, which is a question which has no relation to the
construction of provisions designed to prevent tax evasion.
29. Learned counsel for the revenue also cited Girja Nandini
Devi & Ors. v. Bijendra Narain Choudhury, [1967] 1 S.C.R.
93 at paragraph 15, and Shri Rameshwar Manjhi (deceased)
Through his son Shri Lakhiram Manjhi v. Management of
Sangramgarh Colliery & Ors., (1994) 1 SCC 292 at paragraph
36Page 37
12, in support of the general principle that an action begun in a
court of law by a person does not cease with his death. The
context of both decisions was very different. The first decision
was in the context of proceedings in relation to partition of a
joint family whereas the second was under the Industrial
Disputes Act. Neither judgment has any direct bearing on the
controversy before us.
30. It remains to consider a judgment cited by learned
counsel for the appellants, namely, Commissioner of Central
Excise, Bangalore –III v. Dhiren Gandhi, 2012 (281) E.L.T. 64
(Karnataka). This judgment is correct in its conclusion that
while interpreting the provisions of the Central Excises and Salt
Act, legal heirs who are not the persons chargeable to duty
under the Act cannot be brought within the ambit of the Act by
stretching its provisions. To the extent that this judgment holds
what is set out hereinbelow, it is correct:-
“We do not find any provision in the Act which foists
any such liability in the case of intestate succession.
In other words, there is no provision which
empowers the authorities to recover due from a
deceased assessee by proceeding against his legal
heirs. The way section 11 and 11A are worded, it is
amply clear, the legislature has consciously kept
away the legal heirs from answering to liabilities
under the Act.” (at page 69)
31. The impugned judgment in the present case has referred
to Ellis C. Reid’s case but has not extracted the real ratio
contained therein. It then goes on to say that this is a case of
short levy which has been noticed during the lifetime of the
deceased and then goes on to state that equally therefore legal
representatives of a manufacturer who had paid excess duty
would not by the self-same reasoning be able to claim such
excess amount paid by the deceased. Neither of these reasons
are reasons which refer to any provision of law. Apart from this,
the High Court went into morality and said that the moral
principle of unlawful enrichment would also apply and since the
law will not permit this, the Act needs to be interpreted
accordingly. We wholly disapprove of the approach of the High
Court. It flies in the face of first principle when it comes to
taxing statutes. It is therefore necessary to reiterate the law as
it stands. In Partington v. A.G., (1869) LR 4 HL 100 at 122,
Lord Cairns stated:
“If the person sought to be taxed comes within the
letter of the law he must be taxed, however great
the hardship may appear to the judicial mind to be.
On the other hand, if the Crown seeking to recover
the tax, cannot bring the subject within the letter of
the law, the subject is free, however apparently
within the spirit of law the case might otherwise
appear to be. In other words, if there be admissible
in any statute, what is called an equitable,
construction, certainly, such a construction is not
admissible in a taxing statute where you can simply
adhere to the words of the statute".
32. In Cape Brandy Syndicate v. IRC, (1921) 1 KB 64 at 71,
Rowlatt J. laid down:
“In a taxing Act one has to look merely at what is
clearly said. There is no room for any intendment.
There is no equity about a tax. There is no
presumption as to tax. Nothing is to be read in,
nothing is to be implied. One can only look fairly at
the language used.”
33. This Court has, in a plethora of judgments, referred to the
aforesaid principles. Suffice it to quote from one of such
judgments of this Court in Commissioner of Sales Tax
Commissioner, Uttar Pradesh v. Modi Sugar Mills, 1961 (2)
SCR 189 at 198:-
“In interpreting a taxing statute, equitable
considerations are entirely out of place. Nor can
taxing statutes be interpreted on any presumptions
or assumptions. The court must look squarely at
the words of the statute and interpret them. It must
interpret a taxing statute in the light of what is
clearly expressed; it cannot imply anything which is
not expressed; it cannot import provisions in the
statute so as to supply any assumed deficiency.”
34. We are, therefore, of the view that this appeal must be
allowed and the judgment of the High Court of Kerala is,
accordingly set aside and that of the learned Single Judge
restored.
……………………J.
(A.K. Sikri)
……………………J.
(R.F. Nariman)
New Delhi;
July 29, 2015.
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