V.P. Mohan Kuma, J.
1. A common question of law arises for consideration in these writ petitions. It is with respect to the scope of application of Section 12(6)(b) of the Karnataka Sales Tax Act, 1957 hereinafter referred to as the Act.
2. The averments in all the cases are that the assessment is being completed, admittedly beyond the period contemplated under Section 12(5) of the Act. The said section reads thus:
"(5) No assessment under this Section for any year shall be made after a period of three years from the date on which the return under Sub-section (1) for that year is submitted by a dealer:
Provided that assessment proceedings relating to any year ending before the date of commencement of the Karnataka Sales Tax (Amendment) Act, 1985 in respect of which a return under Sub-section (1) has been submitted, before such commencement shall be completed within a period of four years from such commencement:
Provided further that nothing in this sub-section limiting the time within which assessment may be made, shall apply to an assessment made in consequence of, or to give effect to, any findings, directions or orders made under Section 20, 21, 22 or 22-A or any judgment or order made by any Court."
The Section makes it clear that the statutory bar of limitation will debar the completion of assessment on the lapse of three years from the date on which the return was filed by the assessee under Section 12(1) of the Act. !n all these cases, it is not in dispute that three years have lapsed since the last day of filing of the return by the assessee before the assessment was made under Section 12(3) of the Act. The main defence raised by the Department is the plea based on Section 12(6) of the Act and in particular Section 12(6)(b). The said sub-section reads as under:
"(b) the time during which the assessment has been deferred in any case or class of cases by the Commissioner for reasons to be recorded in writing shall be excluded:"
Sub-clause(b) of Section 12(6) in brief postulates a deferment of the assessment at the instance of the authority named therein on the basis of an order made recording reason in that behalf. We are concerned with the scope and ambit of this sub-section.
3. I have heard the learned counsel for the petitioners Mr. R.N. Narasimha Murthy and Mr. B.P. Gandhi. I have also heard Mr. D'Sa, learned Government Advocate.
4. The clear mandate of Section 12(5) is that on the expiry of the period mentioned therein, the assessing authority looses its right to assess the assessee. It means the right to initiate the proceedings under the Act and call upon the assessee to pay the tax gets extinguished. This provision is comparable to Section 3 of the Limitation Act, 1963. With the passage of the time, the right to enforce the statutory right vested with the authority gets extinguished. The only saving that is postulated under the Sales Tax Act is, what is provided under Section 12(6)(a) and (b) of the Act. Section 12(6)(a) enlarges the period of limitation by excluding the period during which the assessment proceedings were 'deferred' due to the intervention of an order of a Court or any other authority; likewise Section 12(6)(b) enlarges the period of limitation by excluding the period during which the assessment proceedings had been 'deferred' in view of deferring of the assessment in respect of a class or classes of cases relating to the assessee by the authority named therein for reasons to be recorded. Sub-section (6)(b) means that where for reasons to be recorded in writing any assessment or class of assessment has been deferred such period will be excluded in reckoning the period under Section 12(5) of the Act.
5. If we examine Section 12(6)(a)and (b) further we will notice that, the said section provides in general a rule to compute the period of limitation. In effect, Clause (a) and (b) operates as a proviso to Section 12(5) of the Act. A reading of this provision would show that the period of limitation made mention of in Section 12(5) do not stop running on the occurring of the contingencies made mention of Section 12(6)(a) and (b). It provides a special rule to reckon the period of two years mentioned in Section 12(5). In other words the period during which the assessment proceedings were stayed will be excluded while reckoning the period of two years; likewise, the period during which assessment proceedings of the class of cases to which the instant assessee belong was deferred by means of an order in writing, would also be excluded. The question then would be, if a unilateral order is passed with respect to a class of cases to which assessee belong, deferring such assessment, would such an order bind the assessee in the absence of notice of such an order?
6. The learned Counsel for the petitioners strenuously submitted that in the absence of a notice of the order, the same will not affect them and Section 12(5) will have its full swing. The learned Government Advocate submits that it is not necessary to pass any such order deferring the assessment with notice to the petitioners. We will now examine the rival contentions in detail.
7. It is not in dispute that, on the lapse of two years made mention of Section 12(5) of the Act the right of no Department to assess an assessee gets extinguished. That extinction confers a very valuable right on the assessee. The rigour of this rule is diluted by existence of the circumstances made mention of in Section 12(6)(a)and (b). In other words, Section 12(6)(a) and (b) stays the operation of Section 12(5) of the Act. Section 12(6)(a) contemplates that any interim order secured by the assessee stopping the assessment proceedings cannot be taken advantage of by him, to invoke the bar under Section 12(5). That is to say, any act of the assessee prejudicing the right of the Department to complete the assessment within the stipulated period cannot be taken advantage of by the assessee. On the same yardstick, the scope of Section 12(6)(b) would be that if the Department wanted to keep alive its right to complete the assessment, even after the period of limitation made mention in Section 12(5) of the Act, it has to put the assessee to notice of its intention to do so to keep alive its right and prevent the running of the period of limitation and prevent the assessee from perfecting his right under Section 12(5) of the Act.
8. No doubt, the said sub-section does not postulate the communication of the order in writing made by the authority deferring the assessment. But it is fundamental that is unilateral decision taken, without notice to the adversary party, cannot be taken advantage of by the maker to acquire certain rights and to destroy the rights of the adversary. The basic requirement of the making a valid assessment, is to make it with notice to the assessee. Every steps therefore, to make a valid assessment, should be with notice; if so, essentially an order to enlarge the period, limitation under Section 12(5) has also to be with notice.
9. In such a situation, it is essential that any order of deferment being made to defer the assessment to the class of assessee to which the petitioner belongs, can stop the operation of the period of limitation under Section 12(5) only if the prejudiced assessee has had notice of the order. Such notice is tantamount to acknowledgment on the part of the assessee in order to save the period of limitation prescribed under Section 12(5) of the Act.
10. Similar view has been taken by this Court in UNION HOME PRODUCTS LTD v. THE ASSISTANT COMMISSIONER OF COMMERCIAL TAXES AND ORS., W.P.No. 22497 of 1991 Therein His Lordship stated as hereunder:
"....In a given case or class of cases it is open to the Commissioner for the reasons to be recorded in writing to defer the cases for, a particular period and such period shall not be included in computing the period of limitation as provided under Section 12(5) of the Act. But that power cannot be exercised arbitrarily by the Commissioner and it must be for good reasons. Every authority that exercises any power administrative or quasi-judicial or judicial cannot make orders which are arbitrary for the same is and them to Article 14 of the Constitution as has been explained in various decisions of the Supreme Court including in the decision rendered in INDIAN EXPRESS NEWS PAPERS (BOMBAY) PRIVATE LIMITED v. UNION OF INDIA . Therefore the question that arises for consideration is whether in the present so whether the Commissioner should have exercise the power or not and whether any notice should have been given to the petitioner before making to order or deferment. There is no material for becoming to show before making the order any notice had been issued to the petitioner nor any communication thereto after the order was made. In the circumstances, I must proceed on the basis that no notice has been issued to the petitioner before making an order of deferment as contemplated under Section 12(6) of the Act.
4. It is well settled that when a party is affected even though the provisions of law may not provide for issue of notice, in order to comply with the principles of natural justice, must issue notice. This proposition of law is laid down in several decisions including in the case of C.B. GOUTAM v. UNION OF INDIA 199 ITR 530).
5. When the period of 3 years expires as provided under Section 12(5) of the Act that a valuable rights accrues to the petitioner cannot be disputed. If that is so before altering that position it is but appropriate that the petitioner should be heard by the Commissioner concerned before making an order under Section 12(6) of the Act. In the present case, that exercise having not been done, the proceedings initiated as per annexure-C shall stand quashed. It is certainly open to the authorities in the law allows to take such action as is permissible..."
The effect of the order of department works to the advantage of the Department. The Department has power to defer the assessment and from the wording of the Section, Section 12(6)(b) the assessee has no right to be heard before passing of such an order. This is apparently because the order of the deferment need not relate to an individual assessee; it may relate to a class of assessees. The statute postulates, specifically, recording of reasons for doing so as well. But the fact that the statute ordains to record reasons for deferring itself indicates that the order of deferment must be based on sound reasons which are sustainable on judicial scrutiny. It is profitable at this stage to advert to the observation of the Supreme Court in FAG PRECISION BEARINGS v. SALES TAX OFFICER (I) AND ANR. made while considering similar questions. Their Lordships stated as under:
"The aforestated power to stay assessment proceedings can be exercised only in extraordinary circumstances and for supervening reasons which cannot be attributed to the default or failure of the assessing authorities. It would be a valid exercise of the power to stay assessment proceedings of a class of assessee, for example, when a point of law involved in such assessments is pending decision in a higher court. It would be a valid "exercise of such power in an individual case where, for example, search and seizure of the assessee's premises has unearthed material which requires to be sifted and analysed before a satisfactory assessment order can be passed. It is not enough that the order should state, as has been done in the present case, that the assessment proceedings were pending and would take "some more time."
Under the terms of Rule 37-A, the Commissioner is required to put in writing the "reasons and circumstances" that necessitate the stay of proceedings. The stay of assessment proceedings has consequences of a civil nature upon an assessee, which the High Court has, as aforesaid, noted. The more the time that elapses the more difficult it is for the assessee to prove his accounts and claim set-off, exemptions and the like. We take the view that, in the circumstances, the power under Rule 37-A may not be exercised by the Commissioner without first giving to the assesee notice to show cause why his assessment proceedings should not be stayed for a stated period. The notice should set out what the reasons and circumstances are which, according to the Commissioner, necessitate such stay so that the assessee has the opportunity of meeting the same. This is a requirement of natural justice that, having regard to the scope of Rule 37-A, requires to be read into it."
The above said observations of the Supreme Court declares that the exercise of the power of stay or deferment could be only after hearing and for valid reasons. If the contention of the State that the affected party is not entitled to be heard in the matter and that he need not be communicated the contents in the order itself is to be accepted, then, the stage does not arise for him to put forward the contention that the exercise of that power by the competent authority is not for valid reasons. Essentially, when a requirement of justifiability in the eye of law is conceded, then, a right to object will accrue to the assessee. Exercise of such a right will be meaningful only if he was communicated the order in question. It follows, therefore, that the vested right acquired by the assessee under Section 12(5) can be taken away only after he is allowed to accept the order or object to the validity of the same. Either of that result would necessarily arise, only if he is heard before passing of the order in question.
11. There is yet another aspect to be borne in mind. The respondent cannot be heard to say that the person who suffers from the adverse order need not be intimated of the said order. Such contention militates against the fundamental rule of natural justice. The order intends to take away a vested civil right of the assessee. That is an individual right of an assessee and not a right shared by him in common with others. Hence, such extinction can be achieved only if the assessee had notice of such an act of the respondent, who intends to benefit by such an order. Even though the statute expressly do not contemplate communicating of the adverse order, it being a fundamental requirement of an adversary lis, the same should be read into the statute. In order to make a valid assessment order, it should be made within the period of limitation, and if the plea of limitation available to the assessee is to be rejected, such adjudication on the plea of limitation should be made only after hearing the assessee. As a corollary, since the order relied on by the department allegedly made under Section 12(6)(b) deferring the assessment, extinguishes the right acquired by the assessee under Section 12(5), the said order could be made only after hearing the assessee. As long as the same has not been so adjudged by the respondent and the decision duly communicated to the party prejudiced, the same at best, can be only in the nature of a provisional order which is not final or binding on him.
12. An argument was addressed by the learned Government advocate that, if during the assessment proceedings which is initiated and continued after the period fixed under Section 12(5) the assessee willingly participates, such conduct on the part of the assessee would amount to acknowledgment of the order of deferment made and is sufficient to attract the rule under Section 12(6)(b). In the light of the working of Section 12(5) and Section 12(6)(b) of the Act as understood, this plea has to be rejected. In the first place, one cannot acknowledge an order, whose existence he is never aware of. The question is not merely whether the assessee had notice of the order of deferment; but as to how the order was made and when it was made. When an order of deferment is made, then the time fixed under Section 12(5) stops to run. Therefore, when such an order of deferment is being made, it should be during the period when the period under Section 12(5) is current. Hence, if such period had already come to an end, and the right to assess stood extinguished, then, the deferment contemplated under Section 12(6)(b) cannot stop running of the period mentioned in Section 12(5). Therefore, it is crucial that such an order should come into existence after hearing the assessee and before the time under Section 12(5) has expired. Mere existance of it in the file and knowledge thereof by the assessee is not equivalent to its being made after hearing the adverse party. And since, it is settled that violation of principles of natural justice itself renders the order null and void, no further prejudice need be proved by the petitioner to invalidate the said order (See: ).
13. Thus, unless the order of deferment is made with notice to the assessee and within the statutory period mentioned in Section 12(5) of the Act and the same is communicated to the assessee within that period, the Department cannot claim exclusion of that period while computing the period of limitation under Section 12(5) of the Act. In such cases, it has to be held that the assessments made are barred. Besides, the order of deferment can be maid only when extraordinary circumstances exist for exercising that power. The said power cannot be invoked to cover the lapse or default of the Assessing Officer. We will now examine each case keeping in mind these principles.
W. P. 12083-12085/97:
(i) These Writ Petitions relate to the assessment years 1.1.1985 to 30.6.1985, 1.7.1985 to 30.6.1986 and 1.7.1986 to 31.3.1987.
(ii) As far as the year 1.1.1985 to 30.6.1985 is concerned, the return was filed on 30.7.1985. The three year period (as per the law then in force) expired with 30.7.1989 (1985 being the year of transaction).
(iii) As far as the year 1.7.1985 to 30.6.1986 the date of filing the return is 30,7.1986. The last date to complete the assessment expired with 30.7.1989.
(iv) In regard to the period 1.7.1985 to 31.3.1987 the return were filed on 30.4.1987. The last day of filing of the return was 30.4.1990.
(v) Annexure A-1 to A-3 notice initiating the assessment proceedings for these years was issued on 24.9.1996. The petitioners pointed out on 16.10.1996 that the proceedings are barred. This contention was reiterated in Annexure-B dated 3.10.1996. On 28.10.1996 the 1st respondent intimated the petitioners the order of deferment made on 24.7.1989, 29.3.1989 and 6.4.1990 respectively (Annexures C-1 to C-3).
(vi) the Petitioners replied by Annexure-D dated 5.11.1996 pointing out that the deferment orders were unilateral and were not communicated.
(vii) On 24.3.1997 the 1st respondent issued proposition notices along with incomplete copies of the deferment orders Annexure E-1 to E-3. The petitioners impugned Annexures C-1 to C-3 and Annexure E-1 to E-3.
(viii) The facts admitted are that, within the period of limitation the deferment order was admittedly not communicated. The petitioners fist ever objection to the proceedings alleging the bar of limitation were on 16.10.1996 and 28.10.1996. Still the 1st respondent discloses the deferment orders only on 24.3.1997. In such circumstances it has to be held that the assessment proceedings are barred by limitation.
13. The petitioner challenges the validity of Annexure-A order as also the constitutional validity of Section 12(6)(b) of the K.S.T. Act. The petitioner filed the return under Section 12(1) of the Act on 9.4.1987, with respect to the year ending with 31.3.1987. The three year contemplated as per Section 12(5) then in force ended with 19.4.1990. Annexure-A order deferring the assessment was made on 3.4.1990, but the order was communicated to the petitioner only on 19.8.1991 (vide endorsement in Annexure-A) the reason for the alleged deferment is as follows:
"The Deputy Commissioner of Commercial Taxes, has therefore requested that these assessment cases be deferred as per the provisions of Section 12(6)(b) of the KST Act 1957 in order to allow the assessing officer to have sufficient time to conclude the assessment.
2. In the circumstances reported by the Deputy Commissioner of Commercial Taxes (Admn), Belgaum Division, Belgaum, it is found necessary to defer conclusion of assessments in all the cases cited above under Section 12(6)(b) of KST Act 1957. Hence the following order:
ORDER NO. MSR.SR.253/89.90. BANGALORE DATED 3.4.1990
In exercise of the powers conferred on me under Section 3A, 12(6)(b) and all other enabling provisions of the KST Act 1957 and the rules framed thereunder, I, A. Ravindra, Commissioner of Commercial Taxes (Karnataka) for the reasons mentioned in the preamble to the order do hereby direct that the assessment relating to all the cases mentioned in the preamble and for the years mentioned therein shal be deferred until further orders."
This order was not made admittedly with notice to the petitioner and after hearing him. The petitioner was not communicated with the order before the expiry of the period of limitation of three years. Besides, the reason alleged for making the deferment is what has been frowned upon by the Supreme Court in the judgment extracted supra. Hence on that short ground Annexure-A is not sustainable and is accordingly quashed. In the light of the relief being granted to the petitioner there is no need to examine the constitutional validity of Section 12(6)(b) raised.
14. The petitioner challenges Annexure-A order as also the constitutional validity of Section 12(6)(b) of the K.S.T. Act. As Annexure-A itself is not sustainable in law the later question need not be gone into.
15. The assessment years in question are 1969-70 (vide Annexure-B) 1.4.1970 to 31.3.1971 (vide Annexure-C) 1.4.1971 to 31.3.1972 (vide Annexure-D) and 1.4.1972 to 31.3.1973 (Annexure-E).
16. The petitioner's late husband was trading in the name and style of M/s Chandra Prabhu Trading Group Agency. He died in 1974. Thereafter on 21.7.1988, Annexure-A proceedings were initiated deferring the assessment proceedings against the said firm under Section 12(6)(b) of the Act. The reason given is as hereunder:
"1. Chandraprabha Trading 1968=69 Certain administrative Group of agencies, Mudhol to difficulties and awaiting a 1972=73 fresh JDN Notification
allowing the file to him or
to transfer the case of
Commercial Tax Officer,
The Deputy Commissioner of Commercial Taxes, has therefore requested that these assessment cases be deferred as per the provisions of Section 12(6)(b) of the KST Act, 1957 in order to allow the assessing Officer to have sufficient time to conclude the assessment.
2. In the circumstances reported by the Assistant Commissioner of Commercial Taxes (Assts) Dharwad Division, Dharwad it is found necessary to defer confusion of assessments in all the cases cited above under Section 12(6)(b) of KST Act, 1957. Hence, the following order:
ORDER NO.MSR.SR.23/88-89. BANGALORE. DTD. 21.7.1988.
In exercise of the powers conferred on me under Section 3A 12(6)(b) and ail other enabling provisions of the KST Act, 1957' and the rules framed thereunder, I, N.A. Muthanna, Commissioner of Commercial Taxes (Karnataka), for the reasons mentioned in the preamble to the order do hereby direct that the assessment relating to all the cases mentioned in the preamble and for the years mentioned therein shall be deferred until further orders."
Obviously, the reasoning given are not valid or reasonable tested in* the light of the decision of the Supreme Court reported in 104 STC 143. That apart, the three year period laid down in Section 12(5) as it stood then expired long prior to Annexure-A. As such, Annexure-A is liable to be quashed. If so, the assessment proceedings for these years are barred by time.
17. The petitioner is a registered dealer. For the year 1982-83, the assessment was made on 23.8.1984 under Section 12(3) of the Act. On 7.6.1990 notice was issued to invoke the power under Section 12-A of the Act re-open the assessment and bring in certain escaped turnover. The petitioner's plea of limitation (at the relevant time, the period was 5 years under Section 12-A) was overruled by Annexure-A and accordingly, the reassessment was effected. This reassessment order is challenged in this proceeding,
18. A proposition notice Annexure-J was issued on 7.6.1990 for assessment years 1983-84 (year ending with 24.10.1984) proposing to reject the return and make best of judgment assessment of the tax payable. The petitioner filed Annexure-K objection inter alia realising the plea of limitation. Over-ruling the objection Annexure-B assessment order was made. The order is challenged in this proceeding.
19. As regards the validity of Annexure-A is concerned, the assessment related to the period from 16.11.1982 to 4.11.1983 and the assessment was made on 23.8.1984. The period of limitation stipulated under Section 12-A at the relevant time was "five year from the expiry of the year to which the tax relates". That period was to expire with 4.11.1988. But with effect from 1.4.1988, the statute stood amended enhancing the period to eight years whereby the period stood extended till 4.11.1991. The notice under Section 12-A of the Act was issued admittedly on 7.6.1990. As such, there is no illegality in the notice issued and the proceeding under Section 12-A proceeded and concluded. The same is not barred by limitation. Annexure-A is therefore not liable to be interfered with W.P.19503/ 97 is hence dismissed.
20. Now as regards the validity of Annexure-B is concerned, admittedly, the period of limitation is sought to be saved on the basis of the deferment order made. Though the order of deferment is not before the Court, the assessment order produce, mentions the reasons for the deferment. In this behalf, the order of assessment states as follows:
"...For this, the assessee has filed the objections within a given time, which are perused and found not acceptable for the reasons that for the say of the assessee that assessment is not made within 4 years from the date of filing the return and the proposal to make assessment over and again is opposed to law is not acceptable, as the extension of time for conclusion of assessment has already been taken from the Commissioner of Comml. Taxes in view of the adjournment for production of books of accounts prayed by the dealer, vide order No. MSR.SR.50/89-90/25.7.89 & revocation Order No. MSR.SR.147/90-91 dtd:28.8.90."
Clearly this reason, is hardly sufficient to invoke the power of deferment. There are, therefore, no valid grounds made out for the invoking of the exclusion available under Section 12(6)(b) of the Act. If so, in view of what is stated in the proceedings paragraphs it has to be held that Annexure-A assessment is barred by time. W.P.No.19504/90 has to be allowed.
21. In the result, W.P.Nos. 12083-85 of 1997, W.P.No. 21319/91, W.P.Nos. 8319-22 of 1991 and W.P.19504/90 are allowed. W.P.19503/ 90 is dismissed. No cost.