1975 INSC 0328
                                   M/S. Murarilal Mahabir Prasad and Others

                                                           Vs

                                             Shri B. R. Vad and Others

                                          Civil Appeal No. 1802 of 1970

                             (Y. V. Chandrachud, A. C. Gupta, R. S. Sarkaria JJ)

                                                      05.09.1975

                                                     JUDGMENT

CHANDRACHUD, J.

1. (for himself and Sarkaria, J.) - The question which arises for decision in this appeal is
whether under the Bombay Sales Tax Act, 1959 a dissolved firm can be assessed or reassessed to
sales tax in respect of its pre-dissolution turnover.

2. The first appellant - M/s. Murarilal Mahabir Prasad - was a partnership firm constituted under a
deed of partnership dated December 3, 1953. It was doing business at 30, Commercial Chambers,
Masjid Bunder Road, Bombay, as importers, commission agents, indenting agents, del credere
agents and financiers and also as wholesale dealers in colours, chemicals, dyes, etc. the firm
consisted of 5 partners : appellants No. 2 to 5 and one other who died in 1965. The firm was
registered as a to 5 and one other who died in 1965. The firm was registered as a dealer under the
Acts of 1953 and 1959.

3. Under diverse orders of assessment passed prior to its dissolution, the firm was assessed to sales
tax for the period July, 1953 to March 31, 1958. On November 10, 1960 the sales Tax Officer
(VIII), Enforcement Branch, Bombay, seized certain documents from the firm's office Notices were
issued to the firm from time to time for attendance explain these documents. Over sixty meetings
took place between the firm's representatives and the authorities, at the end of which, two notice
dated November 20, 1963 came to issued to the firm. By the first of these notices, the firm was
asked to explain certain discrepancies inits books of account. The second notice was issued under
Section 15 of the Act of 1953, by which the firm was asked to show cause why the assessment
already made for the period April 1, 1957 to March 31, 1958 should not be reopened on the ground
that certain sales were suppressed by the firm as a result of which a part of its turnover had escaped
assessment. Respondent No. 1, the Sales Tax Officer (VIII), Enforcement Branch, Greater Bombay,
fixed the hearing of the assessment proceeding on April 1, 1965 but the firm requested by its letter
dated April 3, for an adjournment till May on the ground that one of the partners would be back in
Bombay by May. On May 26, 1965 respondent No. 1 addressed a notice to the firm stating that the
hearing would be taken up from day to day from June 14, 1965 and that the partners should remain
present at the hearings.

4. There was considerable difficulty in serving the aforesaid notice, as another firm by the name of
M/s. Murarilal Balkrishna had apparently started doing business at the place where the assessee firm
was carrying on its business. Intimations were sent to the registered address of the firm and an
Inspector of the department went personally to effect the service. Eventually, on August 31, 1965
respondent No. 1 passed exparte orders of reassessment for the period April 1, 1957 to March 31,
1958 and ex parte orders of assessment for the period April 1, 1958 to March 31, 1961. The
assessment of the firm for the period subsequent to March 31, 1958 was pending ever since, as it
had to await the result of inspection of the incriminating document seized from the firm's office in
November, 1960. On October 2, 1965 demand notices were pasted on the office of the firm at its
Musjid Bunder Road address. M/s. Murarilal Balkrishna who were doing business there are said to
have informed a partner of the firm that demand notices were so pasted.

5. By the revised assessment order, respondent No. 1 held that for the period April 1, 1957 to March
31, 1958, the turnover of suppressed sales which had escaped assessment was Rs. 41,47,090. He
assessed on this turnover an additional tax of Rs. 1,95,582.47. Respondent No. 1 found that for
subsequent periods also a large part of the turnover was suppressed by; the firm. Om that footing.
He assessed the sales tax for the period April 1, 1958 to March 31, 1961, breaking up the period in
four assessments. By the demand notices, the firm was called upon to pay a total tax of Rs.
6,70,969.96, inclusive of the sales tax quantified in the revised assessment. The notices apprised the
firm of its liability to pay penalty if the tax was not paid within the stated period.

6. The assessment for the period April 1, 1957 to December 31, 1959 was made under the Act of
1953. The tax due for this period comes to Rs. 5,63,900 add. The assessment for the period January
1, 1960 to March 31, 1961 was made under the Act of 1959. The tax due for this period comes to
Rs. 92,300 and odd. The firm has filed appeals against the aforesaid orders, which are pending
before the Assistant Commissioner, Sales tax, Bombay. In view of those appeals the recovery
proceeding were stayed by the appellate authority.

7. During the pendency of the assessment proceedings no formal intimation appears to have been
give by or on behalf of the firm to the assessing authority that the firm was dissolved. It was on
December 21, 1964 that in a Letter written to respondent No. 1, one of the partners made a casual
and fleeting reference to that fact : "You will also appreciate that the firm was dissolved 4 years
back". It is however futile to pursue this line of inquiry because, on being called upon to produce
the deed of dissolution the partners did produce a deed showing that the firm was dissolved on May
20, 1962. Respondent No. 1 appears to have accepted the authenticity of the deed of dissolution and
in fact. acting upon it. The sales tax authorities cancelled the restrain of the firm under the Sales Tax
Acts with effect from June 16, 1962. We cannot now go behind the position that the from was
dissolved on May 20, 1962.

8. On November 24, 1965 the appellants filed a writ petition in the High Court of Bombay
challenging the orders of reassessment and assessment on various grounds. In view of the fact that
the appeals filed by the filed before the Assistant Commissioner of Sales Tax were pending, the
High Court did not decide the question whether the procedure prescribed by law was followed in the
assessment proceedings and whether the orders were justified on merits. The only question which
the High Court considered was whether the impugned orders were without jurisdiction as having
been passed against a dissolved firm By its judgment dated December 8, 1969 the High Court
rejected the contention of the firm and held that in view of the provisions contained in the Bombay
Sales Tax of Acts of 1953 and 1959, it was permissible to assess a dissolved firm. The correctness
of that finding is challenged by the appellants in this appeal by special leave.

9. The only question with which we are concerned in this appeal is whether the orders of
reassessment and assessment passed by respondent No. 1 are without jurisdiction by reason of the
fact that assessee firm was dissolved prior to the date on which those orders were passed years were
commenced after the dissolution of the firm. The notice under which those proceedings were started
is dated November 20, 1962. We may mention that in a judgment to which we must immediately
turn, this Court has taken the view that if under a statute a dissolved firm cannot be assessed to sales
tax, it does not make any difference whether the proceeding was initiated before or after the
dissolution. Thus, the true question for decision is whether a dissolved firm can be assessed or
reassessed under the Bombay Sales Tax Act, 1959.

10. A similar question came up for decision before this Court in state of Punjab v. M/s. Jullunder
Vegetables Syndicate ((1966) 2 SCR 457 : AIR 1966 SC 1295 : (1966) 17 STC 326). That was a
case under the East Punjab to sales Tax Act, 1948. The respondent firm therein was assessed to sales
tax in 1953 but that order was set aside for want of jurisdiction. Fresh proceedings were then started
for assessment but the firm was dissolved before the commencement of those proceeding. The firm
was thereafter assessed and the order the of the sales tax officer was confirmed in further proceeding
with some modification. On a reference the Punjab High Court set aside the assessment on the
ground that the east Punjab General Sales Tax Act, 1948 did not provide for a machinery for
assessing a dissolved firm in respect of its pre-dissolution turnover. The judgment of the High court
was confirmed by this Court.

11. Since the learned Counsel for the appellants has relied heavily on the aforesaid decision, if is
necessary to analyse it closely. The Court, speaking through Subba Rao, J. observed at the outset
that the question as regards the validity of the assessment depended upon the outset that the question
as regards the validity of the assessment depended upon the relevant provisions of the particular
Act. On examining the relevant provisions, namely, Sections 2[d], 4[1], 7[1], 16[b], 17 and Rule 40
the Court held that there was no provision in the statute expressly authorising the assessing authority
to assess a dissolved firm. The Court then proceeded to find whether such a power could be
gathered by necessary implication from the other provisions of the Act and held in the negative.
Thus, by reason of the language and scheme of the Punjab Act, a dissolved firm could not be
assessed. Relying on Section 2[d] which defined a dealer to include a firm, The Court held that
though under the partnership law a firm was not a legal entity, the firm was an independent
assessable unit for the purposes of the Punjab Act. If that be so, on dissolution the firm ceased to be
a legal entity and could not be assessed in the absence of a statutory provision permitting the
assessment of a dissolved firm. The Court found that there was a lacuna in the Punjab Act of 1948
which was filled up later by an amendment but that amendment was not retrospective. Finally, the
Court touched upon the conflicting decisions of the High Courts on the point and observed that all
of those decisions were overburdened with the consequences of a contrary construction on the
incidence of taxation and also their mixing up the question of the statutory power of assessing a
dissolved firm with the liability of the partner to pay the tax so assessed on the firm before its
dissolution. The reasons given by some of the High Court in support of a contrary were rejected by
this Court.

12. The Jullunder Vegetables Syndicate case (supra) is a clear and direct authority for the following
propositions : (1)A dissolved firm cannot be assessed to sales tax unless the statute under which the
assessment is made authorises the assessment either expressly or by necessary implication; (2) It by
definition, a firm is a dealer under an Act, it becomes a legal entity or an independent assessable
unit for the purposes of that Act. If that be so, the firm ceases to be a legal entity on dissolution and
thereafter, on principle it cannot be assessed to sales tax unless the statute so authorises expressly or
by necessary implication; (3) Neither a provision requiring a dealer to inform the authorities if it
discontinues its business, nor a provision imposing a joint and several liability on the dealer and its
partners for the payment of tax, penalty or any other amount due under the Act or rules can be
interpreted as conferring jurisdiction to assess a dissolved firm : (4) In interpreting a fiscal statute
the court cannot proceed to make good the deficiencies, if any, in the statute : it shall interpret the
statute as it stands and in case of doubt, it shall interpret it in a manner favourable to the taxpayer.
The language of a taxing Act cannot be strained in order to hold a subject liable to tax.

13. The decision in the Jullunder case (supra) was followed by this Court, without more, 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). Khushi Ram's case (supra) arose under the East
Punjab General Sales Tax act, 1948, the provisions of which were considered by this Court in the
Jullunder case. Gendalal's case (supra) arose under the Central Provinces and Berar Sales Tax Act
1947. The Court did not examine the provisions of that Act seperately, presumably because those
provisions were considered by the M. P. High Court in Lalji v. Assistant commissioner, Sales Tax,
Raipur ((1958) 9 STC 571 (MP)), and the decision of the Madhya Pradesh High Court was
expressly disapproved by this Court in the Jullunder case. The Madhya Pradesh High Court had
relied upon Section 17 of the C.P. and Bere Sales Tax Act, corresponding to Section 16(b) of the
East Punjab Act, to sustain the continuity of the firm as a legal entity; until information of
dissolution was given to the prescribed authority. No other provision of the C.P. Act, apart from
Section 17, appears to have been canvassed before this Court in support of the argument that it was
permissible under that Act to assess a dissolved firm.

14. Applying the ratio in the Jullunder case (supra) we must examine the provisions of the two
Bombay Acts in order to find whether those provisions, expressly or by necessary; implication,
authorise the assessment of a firm.

15. Turning first to the Act of 1953, Sector 2(6) of that Act defines a 'dealer', in so far as relevant, to
mean any 'person' who carries on the business of selling or buying goods. This definition does not
by itself make the firm a distinct assessable entity and the position obtaining under the general law
that a firm is but compendious name for the partners who compose it remains outstanding. But
Section 3(35) of the Bombay General Clauses Act, 1904 defines 'person' as including "any company
or association or body of individuals whether incorporated or not". The provision of the Bombay
General Clauses Act apply to the interpretation of the Bombay Act unless there is anything
repugnant in the subject or context of the Act under review. There is no such repugnancy and
therefore the word 'person' in Section 2(6) of the Act of 1953 must be taken to include a 'body of
individuals' that a firm is. Not only is there nothing in the Act of 1953 which is repugnant to the
notion that the firm could be a dealer, but Section 24 of that Act furnishes a strong indication for
saying that the framers of the Act intended to recognise firms as a legal entity. That section provides
that every dealer who is liable to pay the tax and who is an undivided Hindu family, an association
or a club, society, firm or company, shall send to the prescribed authority a declaration stating the
name of the person who shall be deemed to be the manager of such dealer's business. Section would
24 would be meaningless in its reference to a 'firm', unless the fundamental assumption of the
provision was that a firm as distinct from its partners is an independent assessable entity. That
assumption is made good by the combined operation of Section 2(6) of the Act of 1953 and Section
3(35) of the Act of 1953 and Section 3(35) of the Bombay General Clauses Act.

16. Since the Act of 1953 considers a partnership firm to be a legal entity, on the dissolution of the
firm its legal personality would cease to exist. On the firm ceasing to have existence in the eye of
law, there can be no assessment of the firm as such for, in the absence of an express statutory
intendment, a dead person cannot be assessed.
17. Section 2(2) of the Income-tax Act, 1922 defined as assessee as "a person any whom income-tax
is payable". The Bombay High Court in Ellis C. Reid v. C. I. T. ((1930) 5 ITC 100 (Bom)), held that
the definition in terms applied to living persons only, that the treasury had no power to tax without
the express permission of the Legislature and therefore if an assessee failed to make a return of his
income under Section 22(2), the income tax officer had no power to make an assessment under
Section 23(4) after the assessee's death. Seeing that, originally, in the Income-tax Act, 1922 there
was no reference to the decease of a person on whom the tax was charged, the mind of the
Legislature that whatever privileges the payment of income-tax may confer, the privilege of
immortality is not amongst them, and that it was very difficult to assume that the omission in the
Act as regards the power to tax a dead assessee was unintentional. Section 24B which was
introduced in the Income-tax Act, 1922 to remove the lacuna pointed out in the Bombay judgment
extends the legal personality of a deceased assessee for the duration of a previous year, so that
income received by an assessee during the previous year and the income received by his heirs and
legal representatives after his death but in the previous year can be brought to tax after his death. In
C. I. T., Bombay City v. Amarchand N. Shroff ((1963) 48 ITR 59 : 1963 Supp 1 SCR 699 : AIR
1963 SC 1448) this Court observed that the individual assessee under the Income-tax Act has
ordinarily to be a living person, that there can normally be no assessment of a person after his legal
personality ceases and that, apart from Section 24B, no assessment could be made on a dead person.

18. We must therefore proceed on the basis that the first appellant firm was an independent
assessable entity under the Act of 1953 and that on its dissolution on May 20, 1962 its legal
personality ceased to have existence. Is there then any provision in the 1953 Act which permits or
contemplates the assessment of a firm after it dissolution ? If not, the general rule would apply that
a dead person cannot be assessed.

19. 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 assesses, 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 pa 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
Jullunder 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.

20. Section 5 of the 1953 Act provides that every dealer whose turnover exceeds the limits therein
mentioned shall be liable to pay sales tax. Sub-section (3) of Section 5 says that every dealer who
has thus become liable to pay the tax "shall continue to be so liable until cancellation of his
registration under sub-section (6) of Section 11, and upon such cancellation his liability to pay the
tax, shall cease". This provision shows that if a firm has incurred the liability to pay sales tax, that
liability continues until the cancellation of the registration. There may be a hiatus between the
dissolution of the firm and the cancellation of its registration and during this interregnum the
liability of the firm is expressly kept alive by the statute. Under Section 11(6), the prescribed
authority has to cancel the registration with effect from the prescribed date if inter alia, the business
in respect of which a certificate has been granted under Section 11 has been discontinued or
transferred. On being satisfied that the business has been discontinued or transferred, the authority
concerned has undoubtedly to cancel the registration but the obligation to cancel the registration
would arise not on the statement of an assessee that the business has been discontinued or
transferred but on the satisfaction of the authority that this is truly so. In other words, by virtue of
Section 5(3) the mere fact of dissolution does not by itself bring to an end the firm's liability of be
taxed.

21. Section 15(1) of the 1953 Act has an important bearing on the question under consideration.
That section reads thus :

         15. (1) If in consequence of any information which has come into his possession the
         Collector is satisfied that any turnover in respect of sales or purchases of any goods
         chargeable to the tax has escaped assessment in any year or has been underassessed or
         assessed at a lower rate or any deductions have been wrongly made therefrom, the Collector
         may, in any case where such turnover has escaped assessment or has been underassessed or
         assessed at a lower rate for the reason that the provisions of sub-section (1) of Section 2 of
         the Bombay Sales Tax (validating Provisions) Act, 1957 were not then enacted, at any time,
         within eight years, and in any case where he has reason to believe that the dealer has
         concealed the particulars of such sales or purchase or has knowingly furnished incorrect
         returns, at any time within eight years and in any other case, are any time within five years
         of the end of that year, serve on the dealer liable to pay the tax in respect of such turnover a
         notice containing all or any of the requirement which may be included in a notice under sub-
         section (3) of Section 14 and may proceed to assess or reassess the amount of the tax due
         from such dealer and the provisions of this Act shall apply according as if the notice were a
         notice served under that sub-section :

         Provided that the amount of the tax shall be assessed after making the deductions permitted
         from time to time under the Bombay Sales Tax Act. 1946, the Bombay Sales Tax (No. 2)
         Ordinance, 1952; and this Act, as the case may be at the rates at which it would have been
         assessed had the turnover not escaped assessment or full assessment as the case may be :

         Provided further that where in respect of such turnover or deduction, as the case may be, an
         order has already been passed under Section 30 or Section 31, the Collector shall make a
         report to the appropriate appellate or revising authority, as the case may be which shall
         thereupon after giving the dealer concerned a reasonable opportunity of being heard, pass
         such order as it deems fit.

This provision leaves no doubt that the dissolution of a firm cannot operate as a bar to a fresh
assessment of the turnover which had escaped assessment provided that the action contemplated
therein is taken within the specified period. In substance, Section 15(1) provides that if the Collector
is satisfied that any turnover has escaped assessment or has been under assessed or assessed at a
lower rate or any deductions have been wrongly made therefrom, he can after serving a notice on
the assessee proceed to assess or reassess the amount of the tax due from him. It is clear and
necessary implication of Section 15 (1) that even a dissolved firm can solution cannot operate as a
bar to the exercise by the Collector of his power to reopen an assessment and indeed it is difficult to
a contemplated that liability to reassessment could be avoided by the erring firm by the simple
expedient of winding up its affairs.

22. Section 15(1) contains an important clause that action there under 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 reassess 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.

23. Importantly, the notice dated November 21, 1963 for reopening the assessment for the period
April 1, 1957 to March 31, 1958 was served on the firm under Section 15. On reassessment, the
firm was assessed to a sales tax of Rs. 1,95,582.47 on sales suppressed during that period.

24. Section 15A confers on the Collector analogous powers to assess or reassess 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
firms. Therefore, if a firm was not assessed prior to the reorganisation of States or if any part of its
turnover had escaped assessment, it is competent to the Collector to assess or reassess the firm
notwithstanding its subsequent dissolution. This is the necessary implication of Section 15 A. 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.

25. A difficulty was raised on behalf of the appellants that on the dissolution of the firm the
principle of agency would cease to apply as amongst the partners and therefore no partner would
have the right to represent either the firm or any of the other partners in the proceeding under
Section 15, commenced or continued after the dissolution of the firm. This question does not bear
on the liability of a dissolved firm under Section 15. It may perhaps be that in the assessment of a
dissolved firm, each of the erstwhile partners may have a right to be heard because each of them
would be interested in warding off a liability which may fall on them jointly and severally. But that
is more a matter of procedure which the assessing authority must adopt in the assessment
proceeding in order to give efficacy to the order which may eventually be passed in the proceeding.
Who, in the assessment proceeding against a dissolved firm, has the right to be heard will not
determine whether a dissolved firm, has the right to be heard will not determine whether a dissolved
firm can be assessed under the Act of 1953.

26. Sub-sections 3(i) and 3(ii) of Section 26 provide that when a firm liable to pay the tax is
dissolved, it shall be liable to pay the tax on the goods allotted to any partner "as if" the goods had
been sold to such partner, unless he; holds a certificate of registration or obtains it within the
prescribed period. This provision in terms envisages the assessment of a dissolved firm, though only
to the limited extent and for the limited purpose that the goods allotted to a partner at the time of
dissolution shall be deemed to have been sold to that partner. By the use of the words "as if",
Section 26(3)(ii) creates a fiction that the allotment of goods to a partner on dissolution of the firm
shall be deemed to be a sale made by the dissolved firm to that partner. The fiction cannot be
extended further than the sub-section warrants but there is no fiction in regard to the liability of the
dissolved firm to be assessed to sales tax in respect of the goods thus deemed to be sold. The
imposition of such a liability is in keeping with the general scheme of the Act, the various
provisions of which show that the assessment of a dissolved firm is within the clear intendment of
the statute.

27. The construction which we have placed on these provisions of the 1953 Act does no violence to
the familiar principle which in Cape Brandy Syndicate v. Commissioner of Inland Revenue ((1921)
12 TC 358 : (1921) 2 KB 403 : 90 LJ KB 461) , was expressed thus by Rowlatt, J. :

In a taxing statute one has to look 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 a tax. Nothing is to be read in, nothing
is to be implied. One can only look fairly at the language used.

This Principle was approved and adopted by this Court in several decisions : (A. V. Fernandez v.
State of Kerala ((1957) SCR 837 : AIR 1957 SC 657 : (1957) 8 STC 561); C. I. T., Bombay v.
Provident Investment Co. Ltd. ((1957) SCR 1141 : AIR 1957 SC 664 : (1957) 32 ITR 90); C. I. T.,
Madras v. Ajax Products Ltd. through its Liquidator ((1965) 1 SCR 700 : AIR 1965 SC 1358 :
(1965) 55 ITR 741); C. I. T., Gujarat v. M/s. B. N. Kharwar ((1969) 1 SCR 651 : AIR 1969 SC 812
: (1969) 72 ITR 603); C. I. T., West Bengal v. Vegetables Products Ltd. ((1973) 1 SCC 442 : 1973
SCC (Tax) 282)). The principle is variously expressed by saying that in fiscal statutes one must have
regard to the letter of the law and not to the spirit of the law, that the subject cannot be taxed by
inference or analogy, that in a taxing Act there is no governing principle to look at and one has
simply to go on the Act itself to see whether the tax claimed is that which the statute imposes, that
while construing taxing Act it is not the function of the court to give to the words used a strained
and unnatural meaning and that the subject can be taxed only if the Revenue satisfies the court that
the case falls strictly within the provisions of the law.

28. The principle thus stated has hardly ever been doubted but it is necessary in the application of
that principle to remember that though the benefit of an ambiguity; in a taxing provision must go to
the subject and the taxing provision must receive a strict construction, "that is not the same thing as
saying that a taxing previous should not receive a reasonable construction" (Wealth Tax
Commissioner v. Kirpashankar, ((1971) 2 SCC 570). If the statute contains a lacuna or a loophole, it
is not the function of the court to plug it by a strained construction in reference to the supposed
intention of the Legislature. The Legislature must then step in to resovle the ambiguity and so long
as it does not do so, the tax payer will get the benefit of that ambiguity. But, equally courts ought
not to be astute to hunt out ambiguities by an unnatural construction of a taxing section. Whether
the statute. Even a taxing statute, contains an ambiguity has to be determined by applying normal
rules of construction for interpretation of statutes. As observed by Lord Cairns in Prece v.
Monmouthshire Canal and Railway Companies ((1879) 4 AC 197 : 49 LJ QB 130 : 40 LT 630),
cases which decided that taxing Acts are to be exacted from the subject which is not clearly and
unequivocally required by Act of Parliament to be made, probably meant little more than this, that,
inasmuch as there was not any a priori liability in a subject to pay any particular tax. Nor any
antecedent relationship between the taxpayer and the taxing authority, no reasoning founded upon
the construction of the Act and therefore, the taxpayer had a right to stand upon a literal
construction of the words used, whatever might be the consequences.
29. The true implication of the principle that a taxing statute must be construed strictly is often
misunderstood and the principle is unjustifiably extended beyond the legitimate field of its
operation. Indeed, the more well-expressed the principle as in the Cape Brandy case (supra), greater
the reluctance to see its limitations. In that famous passage marked by a happy turn of phrase,
Rowlatt, J. said, "there is no equity about a tax. There is no presumption as to a tax." There is no
equity about a tax in the sense that a provision by which a tax is imposed has to be construed
strictly, regardless of the hardship that such a construction may cause either to the treasury or to the
taxpayer. If the subject falls squarely within the letter of law he must be taxed, howsoever
inequitable the consequences may appear to the judicial mind. If the Revenue seeking to tax cannot
bring the subject within the letter of law, the subject is free no matter that such a construction may
cause serious prejudice to the Revenue. In other words, though what is called equitable construction
may be admissible in relation to other statures or other provisions of a taxing statute. Such a
construction is not admissible in the interpretation of a charging or taxing provision of a taxing
statute. Speaking for the Court in C. I. T., MADRAS v. Ajax Products Ltd. (supra) Subba Rao, J.
after citing the passage from the judgment of Rowlatt, J. in the Cape Brandy case said : "To put it in
other words, the subject is not to be taxed unless the charging provision clearly imposes the
obligation"

30. We are concerned in this case to determine not whether a particular turnover can be brought to
sales tax but whether if the turnover was liable to be charged to sales tax, the firm can be assessed to
tax after its dissolution. In other words, we are concerned with a provision which prescribes the
machinery for the computation of tax and not with a charging provision of the Sales Tax Acts.

31. In C. I. T., Bengal v. Mahaliram Ramjeedas (67 IA 239, 247 : AIR 1940 PC 124 : 189 IC 154),
it was held by the Privy Council that section 34 of the Income-tax Act, 1922, although a part of
taxing Act, imposed no charge on the subject but dealt merely with the machinery of assessment.
Lord Normand who delivered the judgment of the judicial committee observed : "Interpreting
provisions of this kind the rule is that construction should be preferred which makes the machinery
workable, ut res valeat notius quam pereat." In India United Mills v. Commissioner of Excess Profit
Tax ((1955) 1 SCR 810, 816 : AIR 1955 SC 79 : (1955) 27 ITR 20), this Court held that Section 15
of the Excess Profits Tax Act was not a charging Section but a "machinery section, and a machinery
section should be so construed as to effectuate the charging sections". Section 15 was intended to
vest in the Excess Profits Tax Officer a power to amend the assessment, when it was found that the
relief granted was in excess of what the law allowed. One of the sections under which relief could
be granted was Section 26(3). This Court held that Section 15 must be so interpreted as to confer a
power on the Excess Profits Tax Officer to revise the assessment when relief had been erroneously
granted under Section 26(3). In Gursahai Saigal v. C. I. T., Punjab ((1963) 3 SCR 893 : AIR 1963
SC 1062 : (1963) 48 ITR 1), an assessee was called upon to pay interest under Section 18A(8) of the
Income-tax Act, 1922 for failure to make an estimate of his income and pay tax according to that
estimate under Section 18A(3). The assessee relied on the rule of construction formulated by
Rowlatt, J. in the Cape Brandy case (supra) and contended that he could not be charged with as
interest as it was not possible to calculate interest in accordance with sub-section (6) by reason of
his not having paid tax at all. This Court approved the ratio of the Privy Council in Mahaliram
Ramjeedas's case (supra) and held that it was well-recognised that the rule of constriction on which
the assessee relied applied only to a taxing statute. The Court observed that the rule did not apply to
a provision not creating the charge for the tax but laying down the machinery for its calculation or
procedure for its collection. Sarkar, J., speaking for the Court, said :

The provisions in a taxing statute dealing with machinery for assessment have to be construed by
the ordinary rules of construction, that is to say, in accordance with the clear intention of the
Legislature which is to make a charge levied effective.

Sub-section (6) was accordingly read by the Court in a manner which made it workable, thereby
preventing the clear intention of sub-section (8) from being defeated.

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 provision 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 provision 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 Dundedin in Whitney v.
Commissioners of Inland Revenue ((1925) 10 TC 88) :

A statue is designed to be workable, and the interpretation thereof by a court should be to secure
that object, unless crucial omission or 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.

33. The Bombay Sales Tax act, 1959 presents no difficulty as its provisions are even clearer than
those of the 1953 Act. Section 2(11) of the 1959 Act defines a dealer to mean any "person who
carries on the business of buying or selling gods. . . . .". Under Section 2(19), "person" includes,
inter alia, a firm. There is therefore no doubt that a firm is distinct assessable entity under the 1059
Act also.

34. Section 19(3) of the 1959 Act puts the matter under inquiry beyond all doubt by providing :

Where a dealer, liable to pay tax under this Act, is a firm, and the firm is dissolved, then every
person who was a partner shall be jointly and severally liable to pay to the extent to which he is
liable under Section 18, the tax (including any penalty) due from the firm under this Act or under
any earlier law, up to the time of dissolution, whether such tax (including any penalty) has been
assessed before such dissolution but has remained unpaid, or is assessed after dissolution.

This provision in terms envisages the assessment of a dissolved firm by providing that erstwhile
partners of a dissolved firm shall be liable jointly and severally to pay the tax and penalty due from
the whether the tax, including any penalty, has been assessed before or after the dissolution. The
assessment which the sub-section speaks of is assessment of the firm as such because where the
assessment is made on the partners themselves, it was unnecessary to provide that they shall be
liable jointly and severally to pay the tax assessed on them. The joint and several liability of the
partners in respect of taxes which the firm is liable to pay is provided by Section 18. The purpose of
Section 19(3) is to make the partners jointly as severally liable even if the firm is assessed to sales
tax after its dissolution. Section 19(3) would otherwise be otiose. Thus, Section 19(3) of the 1959
Act makes explicit what was implicit in the Act of 1953.

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. 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 though 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 Stature 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 provision 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 provisions can be found in Sections 35, 35A
and 62 of the Act.

37. The view taken by Full Bench of the Madras High Court in S.T.O. (XIX), Enforcement Branch,
Bombay v. K. M. S. Mari Chettiar ((1975) 35 STC 148 (Mad)), that a dissolved firm can be
assessed under the Act of 1959 is, in our opinion correct though it was wholly unnecessary to say
that the words "is assessed after dissolution" occurring in Section 19(3) should be read as "is
assessed after dissolution as if the firm exists". Such an addition is superfluous and serves to make
the meaning of the sub-section no clearer than it is.

38. For these reasons, we uphold the judgment of the Bombay High Court and dismiss the appeal
with costs.

Gupta, J. (dissenting) - I regret my inability to agree.

40. This appeal by special leave is directed against an order of the Bombay High Court dismissing
the writ petition filed by the appellants before us for quashing certain assessment order and demand
notices issued under the Bombay Sales Tax Acts of 1953 and 1959. Of the five appellants Nos. 2 to
5 are the partners of a dissolved firm, and the name of the dissolved, firm appears as the first
appellant. The firm had another partner who died before the writ petition was filed. The firm, M/s.
Murarilal Mahabir Prasad, constituted on December 3, 1953, used to carry on business at Bombay
as importers and commission agents and also as wholesale dealers in chemicals, dyes and various
other goods. The firm was registered as a dealer both under the Bombay Sales Tax Act. 1953 and
the Bombay Sales Tax Act, 1959 (hereinafter referred to as the 1953 Act and the 1959 Act) and had
been assessed by the sales tax authorities for the period from July 1953 to March 31, 1958 on the
basis of the returns filed by it. On November 10, 1960 the Sales Tax Officer seized a number of
documents from the office of the firm. According to the appellants the firm discontinued its
business from the month of May, 1961. On May 20, 1962 the firm was dissolved. On June 26, 1962
the Sales Tax Officer cancelled the firm's registration certificate under the Central Sales Tax Act as
well as the registration certificate, authorisation and licence under the Bombay Sales Tax Act which
the partners of the firm had surrendered. On November 20, 1963 the Sales Tax Officer issued two
notices to the firm, one asking for elucidation of certain items in the books of accounts seized, and
the other under Section 15 of the 1953 Act calling upon the firm to show cause why the assessment
already made for the period April 1, 1957 to March 31, 1958 should not be reopened. It is not
relevant to the question arising for decision in this case and therefore not necessary to recount all
that happened before August 31, 1965 on which date the Sales Tax Officer passed five orders, all
against the dissolved firm : the first was a reassessment order for the year April 1, 1957 to March
31, 1958 on the ground that certain sales and purchases purchases during that period had been
concealed, and the other four were assessment orders for subsequent years covering the period from
April 1, 1956 to March 31, 1961. On these five orders a total sum of Rs. 6,56,365.47 p. was found
due from the firm. On October 22, 1965 the demand notices issued upon these assessment orders, all
in the name of the dissolved firm, were affixed to the premises in which the firm had its office
before it was dissolved. The partners of the defunct firm filed a writ petition in the Bombay High
Court Challenging as invalid the assessment orders and the demand notices issued in the name of the
dissolved firm which was dismissed. In this appeal the appellant question the correctness of the
order of the High Court dismissing the writ petition.

41. The point that was urged before the High Court and also canvassed in this appeal is that there is
no provision either in the 1953 Act or in the 1959 Act which permits the sales tax authorities to
asses or reassess a dissolved firm. The dates mentioned above disclose that the impugned orders of
the Sales Tax Officer were all made after the firm was dissolved. The respondents' contention is that
"firm" in the context of the 1953 Act or the 1959 Act mean only the partners of the firm, and that
the firm, if at all an assessable unit, continues to be so even after its dissolution in respect of its
predissolution turnovers. The first question therefore is whether a firm is a distinct assessable unit
under either of the two Acts and, if it is so, the next question that arises is, whether it remains so
even after its dissolution. This leads to an examination of the provisions of the two Acts.

42. Taking the 1953 Act first, Section 2(6) of the Act defines a dealer. The relevant part of the
definition is as follows :

Dealer means any person who carries on the business of selling or buying goods. . . and includes. . .
any society, club or association which sells goods to or buys from its members.

This definition of dealer does not specifically include a firm. Under the general law a firm is not a
distinct legal entity but a compendious name for all its partners. The definition includes an
association, but it is limited to such associations only which sell goods to or buy goods from its
members. A firm carrying on the business of selling or buying goods would be a dealer according to
this definition only if it could be called a 'person'. The Bombay General Clauses Act, 1904 defines
'person' in Section 3[35] as including "any company or association or body of individuals, whether
incorporated or not". This definition of'person'will include a firm which is a body of individuals
"unless there is anything repugnant in the subject or context" as the opening words of Section 3 of
the Bombay General Clauses Act indicate. It is thus necessary to find out if there is any provision in
the 1953 Act which repels the notion of a firm being a 'person.'

43. In this case, as stated earlier, the firm was registered as a dealer both under 1953 and 1959 Acts,
but the question remains whether the registration certificate was legally for the benefit of the
partners and not the firm as such. Section 5 of the 1953 Act provides, inter alia, that every dealer
whose turnover exceeds the amount specified in the section is liable to pay tax under this Act on his
turnover. Section 11 requires that a dealer carrying on business and liable to pay tax under the Act
must apply for registration and get a certificate of registration from the prescribed authority. Section
13(6) provides that the prescribed authority shall cancel the registration of a dealer on the
application of the dealer if he has discontinued or transferred his business, or if during any year his
turnover does not exceed the limits specified in Section 5(1). Section 13 requires every registered
dealer to furnish return of his turnover. Section 14 provides, inter alia, that the amount of the tax
due from a registered dealer shall be assessed seperately for each year. Section 15 empowers the
Collector to serve on the dealer within the period specified in the section a notice in case his
turnover had escaped assessment and to assess or reassess the amount of tax due from such dealer.
Section 16 contains provisions for the payment and recovery of tax. None of these section appears
to be repugnant to the firm being a dealer as defined in Section 2(6).

44. It was however argued on behalf of the respondents that the the definition of 'dealer' in Section
2(6) which includes an association that sells goods to or buys goods from its members, by
implication excludes an association of persons, that a firm is, which does not sell goods to or buy
goods its members, and admittedly the firm concerned in this case did not. This contention is similar
to that raised on behalf of the Revenue before the Bombay High Court in State v. R. M. Shah & Co
((1958) 9 STC 683). and in repelling this contention the Bombay High Court observed :

The reference to any society or association, which sells goods to or buys goods from its members in
the definition of the word dealer has a special purpose of its own and that is to include within the
definition of the word "sales" made as mentioned therein which otherwise may not amount to sales
and could not have been intended to excluded the operation of the definition as given in the General
Clauses Act. That also appears to be abundantly clear from the fact that dealings between the
members of the club, society or association, which normally may not amount to sales are intended
to be included in the definition of "sale".

I think that the lines quoted above effectively answer the respondents contention.

45. Apart from the provisions we have referred to so far, there are other sections in the 1953 Act
which indicate positively that a firm could be a dealer under the Act. Section 24 of the 1953 Act
reads as follows :

24. Dealer to declare the name of manager of his business. - Every dealer who is liable to pay the
tax and who is an undivided Hindu family, an association or a club, society, firm or company or
who carries on business as the guardian or trustee or otherwise on behalf of another person, shall
within the prescribed period send to the prescribed authority a declaration in the prescribed manner
stating the name of the person who shall be deemed to be the manager of such dealer's business for
the purposes of this Act. Such declaration may be revised from time to time.

This section requires every dealer who is liable to pay the tax and who is an undivided Hindu
family, an association or a club, a society, a firm or a company to declare in the prescribed manner
the name of the manager of such dealer's business. Section 24 thus makes it clear that a firm can be
a dealer, and does not seem to be limited in its application to such firms that buy goods from or sell
goods to their partners. Section 26(3) which is also relevant in this context provides that when "a
firm liable to pay the tax is dissolved" or when an undivided Hindu family liable to pay the tax is
partitioned,

such firm or family, as the case may be, shall be liable to pay the tax on the goods allotted to any
partner or member thereof as if the goods had been sold to such partner or member unless he holds a
certificate of registration or obtains it within the prescribed period.

This section clearly indicates that a firm as such may be a dealer under the Act.

46. Section 36A appears to put the issue beyond doubt. It is in Chapter VIII which deals with
offences and penalties. The section provides that where an offence under this Act has been
committed by a company, every person who at the time the offence was committed was in charge
of, and was responsible to the company, as well as the company shall be deemed to be guilty of the
offence and shall be liable to be proceeded against and punished accordingly. The section includes
an explanation which states that for the purpose of this section,-(a) "company" means a body
corporate, and includes a firm or other association of individuals; and (b) "director" in relation to a
firm means a partner in the firm. This section making the persons in charge of the business of the
firm when the offence was committed, and the firm as such, both guilty of the offence, is clearest
indication that a firm as distinct from its partners could be a dealer under the 1953 Act.

47. Turning now to the 1959 Act which came into operation from January 1, 1960, "dealer" as
defined in Section 2(11) of this Act is a little differently worded from the definition in the 1953 Act,
but in substance there is no difference between the two. Here also the 'dealer' is a person who carries
on the business of buying and selling goods and it includes, among others, any society, club or other
association of persons which buys goods from or sells goods to its members. Here again the
definition does not specifically mention a firm. But the 1959 Act itself defines 'person' in Section
2(19), and it is not necessary to refer to the Bombay General Clauses Act. 'Person' as defined in
Section 2(19) includes "any company or association or body of individuals whether incorporated or
not, and also Hindu undivided family, a firm and a local authority." Section 18 of the 1959 Act
provides :

Notwithstanding any contract to the contrary, where any firm is liable to pay tax under this Act, the
firm and each of the partners of the firm shall be jointly and severally liable for such payment :

Provided that, where any such partner retires from the firm, he shall be liable to pay the tax and the
penalty (if any) remaining unpaid at the time of his retirement, and any tax due up to the date of
retirement though unassessed at that date.

In plain terms this section recognizes the liability of a firm to pay tax as distinct from the liability of
its partners. Clearly, therefore, a firm can be a dealer also under the 1959 Act.

48. The question that now remains to be answered is whether a firm as such continues to be liable to
pay tax under these Acts even after its dissolution on its pre dissolution turnovers. Section 15 of the
1953 Act provides, inter alia, that in the case of escaped assessment or underassessment or
assessment at a lower rate or where any deductions have been wrongly made from the turnover, the
Collector may within the period specified in the section proceed to assess or reassess the amount of
the tax due after serving notice on the dealer concerned. This is a provision, it was argued, which
shows that it is permissible to proceed against a dissolved firm because under the section the
Collector can proceed to assess or reassess the amount of tax due within the prescribed period, and
no exception has been made for firms which may have been dissolved before the expiry of that time.
This argument overlooks that the foundation of the Collector's jurisdiction is the notice which must
be served on the dealer before the Collector proceed against him, and 'dealer' has been defined in the
Act as a person who carries on the business of selling or buying goods. In a case, as the one before
us, where the dealer was a firm dissolved before the notice was issued, there is no person carrying
on the business of selling or buying goods on whom the notice can be served. If the section admits
of a construction as suggested on behalf of the respondents, then a notice under the section in the
name of a dead man who used to be dealer when alive, would also be effective if issued within the
specified period. I do not think that position can be maintained. The question here is not how and
against whom the dues of a dissolved firm can be realised, but whether the firm as such can be
proceeded against after it has been dissolved. Section 35 of the 1959 Act is in terms similar to
Section 15 of the 1953 Act.

49. Section 18 of the 1959 Act makes the firm as well as each of its partners jointly and severally
liable for the tax payable by the firm. Sub-section (3) of Section 19 of the 1959 Act reads :

Where a dealer, liable to pay tax under this Act, is a firm, and the firm is dissolved, the every person
who was a partner shall be jointly and severally liable to pay to the extent to which he is liable
under Section 18, the tax (including any penalty) due from under this Act or under any earlier law,
up to the time of dissolution, whether such tax (including any penalty) has been assessed before
such dissolution but has remained unpaid, or is assessed after dissolution.

Section 19(3) thus provides that on the dissolution of a firm, every person who was a partner shall
be jointly and severally liable to pay the tax including any penalty due from the firm under the 1959
Act or under any earlier law upto the time of dissolution, whether such tax including penalty has
been assessed before the dissolution of the firm and has remained unpaid, or is assessed after
dissolution."Earlier law" as defined in Section 2(12) of the 1959 Act includes, inter alia, the 1953
Act. Section 19(3) of the 1959 Act makes the erstwhile partners jointly and severally liable for the
tax due from a dissolved firm but does not say that assessment or recovery proceeding may be
initiated or continued against a firm as such even after its dissolution.

50. A Full Bench of the Madras High Court in S. T. O. v. K. M. S. Mari Chettiar (supra) held that
Section 19(3) of the Bombay Sales Tax Act, 1959 provides a procedure for assessing a defunct firm
by deeming it as continuing to exist for purposes of assessment. This is what the Full Bench
observed :

It seems to us that the expression "whether such tax has been assessed before such dissolution but
has remained unpaid or is assessed after dissolution" is clearly indicative of the fact that the
Legislature addressed its mind to assessment and collection of tax not only from an existing firm but
also from a defunct firm in respect of its transactions when the firm existed. There can be no doubt
that charge, assessment and collection, though they are all related, have got to be seperately
provided for. But such provision may be express or implied. The implication must be clear and the
circumstances should warrant it to be necessary. The words "is assessed after dissolution", to out
minds, are not ambiguous and are capable of being understood as "is assessed after dissolution as if
the firm exists." No other construction appears to us to be reasonable. The object of the Legislature
being clear, namely, that where the joint and several liability of the partners of a firm has been
declared, it is followed by a provision to quantify it by laying down the procedure therefor and the
provision so laid down provides both for assessment and collection of tax from a defunct firm.

I do not think Section 19(3) can bear such a construction. It allows the dues of a firm to be assessed
or collected even after its dissolution, but in my opinion it is not permissible to read in this
provision the additional words "as if the firm exists". To provide that the tax due from a firm may be
assessed or collected after its dissolution is not the same thing as allowing the assessment or
recovery proceeding to be started or continued against the dissolved firm. As Subba Rao, J. pointed
out in State of Punjab v. M/s. Jullunder Vegetables Syndicate (supra), to which I shall presently
refer in more detail - "the question of the statutory power of assessing a dissolved firm" is not to be
'mixed up' with the liability of the partners. A firm under the two Acts we are concerned with is a
distinct assessable entity; on the dissolution of the firm that entity ceases to exist, unless the unless
the statue by a fiction of law keeps it alive for any specified purpose. For instance, Section 189(1)
of the Income-Tax Act, 1961 states :

Where any business or profession carried on by a firm has been discontinued or where a firm is
dissolved, the Income-tax officer shall make an assessment of the total income of the firm as if no
such discontinuance or dissolution had taken place, and all the provisions of this Act, including the
provisions relating to the levy of a penalty or any other sum chargeable under any provision of this
Act, shall apply, so far as may be, to such assessment. There is no such provision either in the 1953
or in the 1959 Act. In this context it may be relevant to refer to Section 34 of the 1959 Act which
provides :

where in respect of any tax (including any penalty) due from a dealer under this Act or under any
earlier law, any other person is liable for the payment thereof under Section 19, all the relevant
provisions of this Act or, as the case may be of the earlier law, shall in respect of such liability apply
to such person also, as if he were the dealer himself.

Therefore all the provisions relating to the assessment or recovery of tax including provisions
requiring service of notice on the assessee would, in the case of a dissolved firm, apply to the
erstwhile partners and all proceedings intended against the firm must be taken against them. Neither
the 1953 Act nor the 1959 Act contains any provision permitting assessment or recovery proceeding
being taken against a dissolved firm.

51. The cases cited at the Bar on this question may now be examined. The appellants' case rests on
the decision of this Court in State of Punjab v. M/s. Jullunder Vegetables Syndicate (supra). In this
case the respondent firm liable to pay sales tax under the East Punjab General Sales Tax Act, 1948
was dissolved before assessment was made. The Sales Tax officer however proceeded to complete
the assessment against the dissolved firm. The question therefore arose as to the statutory rights of a
taxing authority to assess a dissolved firm in respect of its pre-dissolution turnover. In the aforesaid
Act 'dealer' was defined as "any person, firm or Hindu joint family, engaged in the business of
selling or supplying goods in East Punjab. . ."Rule 40 of the East Punjab General Sales Tax Rules,
1949 provided that

a dealer and his partner or partners shall be jointly and severally responsible for payment of the tax,
or any amount due under the Act or these Rules.

It was held that thought under the partnership law a firm was not a legal entity but consisted of
individual partners for the time being under the East Punjab General Sales Tax Act, 1948 it was a
legal entity and, that being so, on dissolution the firm ceased to exist. It was observed that unless
there was a statutory provision permitting the assessment of a dissolved firm there was no scope for
assessing the firm which ceased to have a legal existence. Referring to Rue 40 of the East Punjab
General Sales Tax Rules, 1949, it was held that this only imposed a joint and several liability on the
dealer and its partners for the payment of tax, penalty or any amount due under the Act or the Rules
and that it did not "provide for a case of the dissolution of the firm and the assessment of the
dissolved firm. This Court held further that unless there was a provision expressly empowering the
assessing authority to assess a dissolved firm in respect of its turnover before its dissolution of
unless such a power could be gathered by necessary implication from the other provisions of the
Act, the assessment proceeding against the dissolved firm was not maintainable.

52. The decision in Jullunder Vegetables case (supra) was followed by the Court in Khushi Ram
Bihari Lal & Co. v. Assessing Authority, Sangur (supra). This also was a case under the East Panjab
General Sales Tax Act, 1948. It was held that an assessment of a dissolved firm, whether the
proceeding was initiated before or after the dissolution of the firm, was unsustainable.

53. In Additional Tahsildar, Raipur v. Gendalal (supra), this Court in an appeal from the High Court
of Madhya Pradesh, again following the Jullunder Vegetables case (supra) affirmed the decision of
the High Court quashing the orders of assessment against a dissolved firm. In this case firm before
its dissolution was registered as a dealer under the Central Provinces and Berar Sales Tax Act, 1947.

54. It was contended before us on behalf of the respondents that though the 1953 Act and the 1959
Act contained no express provision permitting a dissolved firm to be taxed, it should be held that the
Acts authorised such a course by necessary implication. In answer the appellants relied on A. V.
Fernandez v. State of Kerala (supra) in which it was held that if the Revenue satisfies the court that
the case falls strictly within the provisions of the law, then only the subject can be taxed and that no
tax can be imposed by inference or by analogy or by trying to probe into the intentions of the
Legislature and by considering what was the substance of the matter. This decision Provident
Investment Company Ltd. (supra), where it was held that in construing fiscal statutes and in
determining the liability of the subject to tax, one must have regard to the strict letter of the law and
the true legal position arising out of the transaction in question.

55. Counsel for the respondent pointed out that this Court in Gursahai Saigal v. C. I. T., Punjab
(supra) observed referring to A. V. Fernandez v. State of Kerala (supra) and C. I. T. v. Provident
Investment Company Ltd. (supra), that the rule of construction stated in these two cases applies only
to a taxing provision and has no application to all provision in a taxing statute. It does not. For
example, apply to a provision not creating a charge for the tax but laying down the machinery for its
calculation or procedure for its calculation. The provisions in a taxing statute dealing with the
machinery for assessment have to be construed by the ordinary rules of construction, that is to say,
in accordance with the clear intention of the Legislature which is to make a charge levied effective.

Gursahai's case refers to the judgment of the Privy Council in C.I.T. v. Mahaliram Ramjeedas
(supra) where a similar principle has been stated, and the following observation of Lord Dunedin in
Whitnay v. Commissioners of Inland Revenue ((1925) 10 TC 88,110) :

A statute is designed to be workable, and the interpretation thereof by a court should be to secure
that object, unless crucial omissions or clear direction makes that end unattainable. Now, there are
three stages in the imposition of a tax; there if the declaration of liability, that is the part of the
statute which determines what persons in respect of what property are liable. Next, there if the
assessment. Liability does not depend on assessment. The ex hypothesis, has already been fixed. But
assessment particularises the exact sum which a person liable has to pay. Lastly come the methods
of recovery, if the person taxed does not voluntarily pay.

56. On the authority of Gursahai's case (supra) was submitted that though under the Acts of 1953
and 1959 a firm might be a seperate legal entity and a distinct assessable unit, if its liability to pay
tax arose before it was dissolved, we should interpret the provisions of the Acts in a manner to
effectuate the charging provision, and that we ought to prefer a construction which would make the
machinery of assessment workable. This only means that we should permit a dissolved firm to be
proceeded against because the liability had arisen before the dissolution. I have already said that it is
open to the Legislature by a legal fiction to keep alive a dissolved firm for some definite purpose, I
have also referred to keep the relevant provisions of the dues of the dissolved firm; I have found no
provision like Section 189(1) of the Indian Income Act, 1961 in these Acts, and nothing that
expressly or by implication permits action against the dissolved firm itself.

57. A Dissolved firm may be equated with a dead person; both cease to be assessable units. The
apprehension that the firm may be dissolved voluntarily in order to avoid liability should not, in my
opinion, make any differences in principle; a man who takes his own life is in no worse position
than one who dies of a natural cause, so far as the tax dues are concerned. As for avoidance of
liability, it is up to the Legislature that created the liability to prevent evasion Section 19(3) of the
1959 Act which makes the erstwhile partners of a dissolved firm jointly and severally liable for the
tax (including any penalty) due to from the firm, was obviously enacted with that purpose; but
making the partners liable for the dues of a dissolved firm does not mean that the dissolved firm as
such can be assessed Therefore the assessment orders made and the demand notices issued in the
name of the dissolved firm in the instant case must be held to be invalid.

58. The appeal is accordingly allowed with costs

ORDER

59. In view of the decision of the majority, the appeal is dismissed with costs.

M/S. LAKSHMIRATAN COTTON MILLS CO. LTD., APPELLANT v. ITS WORKMEN,
RESPONDENTS.

Civil Appeal No. 1868 of 1973 (Appeal by Special Leave from the Award dated September 8, 1973
of the Industrial Tribunal (I) U.P., Allahabad in Reference 167 of 1973 published in the U.P. Gazette
dated November 17, 1973), decided on May 2, 1975.

JUDGMENT

The Judgment of the Court was delivered by

BHAGWATI, J. - The appellant is a limited liability company carrying on business of running a
cotton textile mill in Kanpur. The workmen employed by the appellant are affiliated to two unions,
some to Lakshmi Rattan Mazdoor Panchayat others to Lakshmi Rattan Shramik Union. We are
concerned in this appeal with Lakshmi Rattan Mazdoor Panchayat (hereinafter referred to as the
Mazdoor Panchayat) as that is the union which has the membership of the workmen.

2. It appears that there were disputes between the appellant its workmen in regard to various
industrial matters and these disputes were settled by an agreement dated November 25, 1971 made
between the appellant and the Mazdoor Panchayat under Section 6-B of the U.P. Industrial Disputes
Act, 1947 hereinafter referred to as the U.P. Act. Clause (2) of the agreement provided that "the
Union will not give notice for strike for one year from today's date." There were other clauses in the
agreement which imposed on the appellant, but in the view we are taking, it is not necessary to
spend any time in referring to them. Suffice it to state that the dispute between the parties in regard
to bonus for the years 1963-64, 1964-65 and 1965-66 was left to the decision of Mohd. Ahsan,
Deputy Labour Commissioner, Kanpur. But then dispute again arose between the parties as regards
payment of bonus for the years 1967-68, 1968-69 and 1969-70 and this dispute was referred for
adjudication to the Industrial tribunal under section 6(3) of the U.P. Act by an order dated June 8,
1971. The reference was numbered Adjudication Case No. 82 of 1971. On or about June 29, 1972,
it seems, there were negotiations between parties at the intervention of labour Minister and a
formula was evolved for payment of bonus for the years 1967-68, 1968-69, 1969-70. In view of this
arrangement, the Mazdoor Panchayat made an application to the Industrial Tribunal on July 25,
1972 stating that the Union did not want to proceed with the dispute because the matter had been
discussed between the parties in the presence of the State Minister on June 29, 1972 and during
these discussions the State Minister had advised the management to pay four percent bonus to the
workmen for each of the three years. Since the workmen were not prepared to pursue the reference,
the Industrial Tribunal made an award dated August 14, 1972 holding that the workmen were not
entitled to any bonus for the years in question. Though the award was signed on August 14, 1972, it
was not published in the Gazette until October 7, 1972.

3. Even so, the Mazdoor Panchayat gave a notice dated August 18, 1972 stating that the workmen
would go on strike from September 11, 1972 unless their demands were satisfied. The appellant
repeatedly explained to the President and the Secretary of the Mazdoor Panchayat that the
contemplated strike would be illegal and advised them to refrain from it, but that had no effect and
as threatened in the notice, the workmen commenced the strike on September 11, 1972. The modus
operandi followed by the workmen was that they came to the mill and entered the working shed
every day during their shift hours, but did not do any work and instead, held meetings and
demonstrations, shouted slogans and threatened the supervisory and management staff. The strike
was, according to the appellant, illegal for two reasons. One was that the strike was commenced
during the pendency of adjudicate - on Case No. 82 of 1971 before the industrial Tribunal and the
other was that the strike was in breach of clause (2) of the agreement dated November 25, 1971
which was still in operation. All the workmen participated in the illegal strike, but out of them, there
were fifty-three who, according to the appellant, led and incited the illegal strike and some out of
these fiftythree, held meetings inside the mill previous written permission of the appellant and also
should slogans and made demonstrations inside the mill premises These acts amounted to
misconduct within the meaning of clauses (ii), (xx) of Standing Order 25(1)(A).

4. The appellant, therefore, issued charge-sheets against these fifty-three workmen charging all of
them with misconduct under clause (ii) of Standing Order 25(1)(A) and some of them also with
misconduct under clauses (xv) and (xx) of that standing order and calling upon them to appear on
October 3, 1972 to offer their explanation as to why they should not be punished. These charge-
sheets were issued on September 25, 1972 and they were sought to be served personally, but since
these fifty-three workman refused them, they had to be served by registered post and copies were
pasted on the notice board of the mill. None of these fifty-three workmen submitted individual
explanation in answer to the charge-sheets issued against him, but a common explanation was
furnished by the President and the Secretary of the Mazdoor Panchayat and it was signed by all the
fifty-three workmen. It appears that before this common explanation was submitted by the President
and the Secretary of the Mazdoor Panchayat, the Labour Commissioner had already filed criminal
cases against some of the workmen in the Court of the City Magistrate, Kanpur charging them with
the offence of going on illegal strike. The President and the Secretary of the Mazdoor Panchayat,
therefor, in the common explanation submitted by them on behalf of these fifty three workmen,
requested the appellant that the domestic enquiry instituted by the service of the charge-sheets
should be kept in abeyance until the Court gave its decision on the question whether the strike was
illegal. The charges levelled against these fifty-three workmen were also denied in the common
explanation furnished by the President and the Secretary of the Mazdoor Panchayat. The appellant,
however, declined to adjourn the hearing of the domestic enquiry and by an endorsement dated
October 14, 1972, appointed the Labour Officer to hold the domestic enquiry and requested him to
submit his report as early as possible. The illegal strike and these fifty-three work men who had
struck work were sitting inside the working sheds throughout their hours of shifts. The Labour
Officer, therefore, sent for them in order to inform them that he had tentatively fixed the hearing of
the domestic enquiry on October 18, 1972, but they refused to come. The Labour Officer
consequently on October 19, 1972 fixed another date for the domestic enquiry, namely, October 21,
1972 and again sent a word to these fifty-three workmen to come and "know the date and timings
fixed for each of them". They, however, refused to come, though they were inside the working
sheds. The Labour Officer was ultimately constrained to put up a notice on the notice board of the
mill on October 19, 1972 intimating the different timings at which the domestic enquiry would be
held against different groups of persons on October 21, 1972. This notice was also published in the
daily newspaper Dainik Jagran on October 20, 1972. The management of the appellant also passed
orders on the same day suspending these fifty-three workmen with effect from October 20, 1972
pending the domestic enquiry. The domestic enquiry was thereafter commenced by the Labour
Officer at the appointed timings on October 21, 1972, but none of these fifty-three workmen
attended for the purpose of the domestic enquiry and the domestic enquiry was accordingly held ex
parte. Whilst the domestic enquiry against one of the groups of workmen was in progress, at about
11.30 a.m. three workmen attended the office of the Labour Officer and gave him a letter of the
Secretary of the Mazdoor Panchayat and at about 12.30 p.m. one other workman also came and
handed over another letter addressed by the Secretary of the Mazdoor Panchayat to the Labour
Officer. On the view we are taking, it is not necessary to refer to the contents of these two letters.
Suffice it state that the principle complaint made in these two letters was that the charge-sheets
issued by the appellant did not mention the names of the witness proposed to be examined on behalf
of the appellant, nor did they set out the statements of the witnesses of the appellant and the charge-
sheets were, therefore, illegal and invalid. The management of the appellant took the view that the
complaint in these two letters was unfounded and passed appropriate orders. The domestic enquiry
continued and ultimately, after the conclusion of the domestic enquiry, the Labour Officer submitted
to the management seperate reports in respect of each group of workmen finding them guilty of the
misconduct charged against them. The management agreed with the findings recorded in the reports
of the Labour Officer and on the same day, that is October 21, 1972 issued notices to these fifty-
three workmen calling upon them to show cause by 10 a.m. on October 23, 1972 as to why they
should not be dismissed from service. These notices along with the relevant reports of the domestic
enquiry were pasted on the notice board of the mill on the same day, namely, October 21, 1972.
None of these fifty-three workmen submitted an explanation showing cause against the proposed
punished of dismissal and the appellant accordingly passed orders on October 23, 1972 dismissing
these fifty-three workmen from service.

5. It appears that in evening of October 23, 1972 a meeting took place between the representatives
of the Mazdoor Panchayat and the appellant in the presence of the Chief Minister of Utter Pradesh
and in the course of this meeting, it was decided by way of settlement that the workmen should
withdraw the strike unconditionally from October 24, 1972 and the appellant should pay to the
workmen eight days' deducted wages and one year's old bonus before Diwali, that is November 4,
1972, and regards other matters of dispute including dismissal of these fifty-three workmen, the
Chief Minister should give his decision which would be binding on the parties. The strike was
accordingly withdrawn on October 24, 1972. On November 1, 1972 the Chief Minister gave his
decision directions that thirty-one out of these fifty-three workmen who had been dismissed from
service should be reinstated and that so far as the remaining twenty-two workmen were concerned,
their case should be referred to the Industrial Tribunal for adjudication. One of these twenty-two
workmen, however, settled the dispute and accepted his dues in full and final settlement of his claim
against the appellant. That left only twenty-one workmen and with regard to them, a reference was
made to the Industrial Tribunal on November 28, 1972 for adjudication of the dispute whether the
appellant had terminated their services in an improper of illegal way from October 24, 1972 and if
so, to what benefit compensation they were entitled.

6. Whilst this reference was pending before the Industrial Tribunal and before the recording of the
evidence commenced, an application dated March 12, 1973 was made by the appellant to the
Industrial Tribunal that if for any reason the Industrial Tribunal came to the conclusion that the
domestic enquiry culminating in the dismissal of these twenty-one workmen was improper or was
not in accordance with law, the appellant should be given an opportunity to prove its case on merits
before the Industrial Tribunal and in that event it may be allowed to file and prove additional
documents. The Industrial Tribunal passed on the same day the following order on this application :

Both the parties present. They filed their documents. An application was presented by the
Employers on which orders would be passed at appropriate time. 10.4.73 is fixed for final hearing
on which date both parties would produce their witnesses. Both the parties thereafter led evidence
on the question whether the strike was illegal and the domestic enquiry held by the Labour Officer
was in compliance with the principles of natural justice and in conformity with the requirements of
the Standing Orders. Since it was stated by the Industrial Tribunal that an order would be passed on
the application dated March, 12, 1973 at the appropriate time, the appellant preferred to wait until
the passing of the order on that application and did not lead any evidence to show that, in any event,
these twenty-one workmen were guity of the misconduct charged against them and their dismissal
was, therefore, justified. The Industrial Tribunal, however, failed to pass any other on this
application and pro ceeded to make its award dated September 8, 1973 disposing of the reference.

7. The Industrial Tribunal by its award, held that the strike of the workmen was not illegal on either
of the two grounds on which it was claimed to be so. It was not illegal under clause (e) of Section
65 of the U.P. Act because it was commenced after the proceeding in Adjudication Case No. 82 of
1971 had concluded by the making of the award on August 14, 1972, nor was it illegal under clause
(f) of that section because, though clause (2) of the agreement dated November 25, 1971 provided
that the union will not give any notice for strike for one year, the workmen could not be held to this
clause, when the appellant itself had committed breaches of its obligations under that agreement. So
far as the domestic enquiry leading to the dismissal of these twenty-one workmen was concerned,
the Industrial Tribunal held that it was invalid, first, because it did not afford a proper and adequate
opportunity to these twenty-one workmen to repel the charges of misconduct levelled against them;
secondly because the charge-sheets issued against these twenty-one workmen were not in
conformity with the requirements of clause (a) of Standing Order 26 and thirdly, because the notices
issued to these twenty-one workmen after receipt of reports of the enquiry from the Labour Officer
were not served upon them, nor were they given a reasonable opportunity to show cause against the
proposed punishment of dismissal. The Industrial Tribunal also observed that when out of fifty-three
workmen, who were dismissed from service, thirty one were reinstated by the appellant pursuant to
the decision of the Chief Minister, there was no reason for discriminating against these twenty-one
workmen and they were also, therefore, entitled to be reinstated. The Industrial Tribunal
accordingly held that the action of the appellant in terminating the services of these twenty-one
workmen was improper and illegal and directed that these twenty-one workmen should be reinstated
with effect from the date of their suspension and should "be paid full wages for the period of
suspension and from the date of dismissal to the date of their resuming duty". The appellant
thereupon brought the present appeal against the award of the Industrial Tribunal by special leave
obtained from this Court.

8. The first question that arises for consideration is whether the strike which was commenced by the
workmen from September 11, 1972 and in which the twenty-one workmen concerned in this appeal
admittedly participated was an illegal strike. Section 6T of the U.P. Act declares inter alia that a
strike shall be illegal if it is commenced in contravention of Section 6S. Section 6S in its various
clauses sets out the circumstances in which a workmen is prohibited from going on strike. Clauses
(e) and (f) of Section 6S are material as these are the clause on which reliance was placed on behalf
of the appellant in support of its contention that the strike was illegal. We will first refer to clause
(e). That clause, so far as material, provides that no person employed in an industrial establishment
shall go on strike between the commencement and conclusion of the proceeding before a tribunal, if
he is concerned in the dispute which is the subject-matter of such proceeding. The workmen went
on strike from September 11, 1972 and therefore, in order to attract the inhibition of clause (e) it
would have to be shown by the appellant that on September 11, 1972 and subsequent dates on which
the strike continued, a proceeding was pending before the Industrial Tribunal in respect of a dispute
in which the striking workmen were concerned. The appellant contended that the proceeding in
Adjudication Case No. 82 of 1971 commenced on June 8, 1971 when the reference was made and
continued until November 6, 1972 when the award disposing it off became enforceable, and
therefore, the strike which commenced on September 11, 1972 and continued thereafter was illegal
the view taken by the Industrial Tribunal, however, was that since the award was signed on August
14, 1972, the proceeding in adjudication Case No. 82 of 1971 came to an end on that day and
thereafter there could be no impediment in the way of the workmen in going on strike on the ground
of pendency of proceeding in the Industrial Tribunal. We cannot assent to this view which found
favour with the Industrial Tribunal. We think that the contention of the appellant is correct and must
be accepted. Section 6S lays down when a proceeding before a tribunal shall be deemed to have
commenced and when it shall be deemed to have concluded. It says that a proceeding before
tribunal shall be deemed to have commenced on the date of reference of a dispute to adjudication
and such proceeding shall be deemed to have concluded on the date on which the award becomes
enforceable under Section 6A. Sub-section (1) of Section 6A provides that an award shall become
enforceable on the expiry of thirty days from the date of its publication under section 6 Here, the
award in Adjudication Case No. 82 of 1971 was published under Section 6 on October 7, 1972 and
it, therefore, became enforceable on November 6, 1972. The proceeding in Adjudication Case No.
82 of 1971 must in the circumstances be deemed to have commenced on June 8, 1971 when the
reference was made and be deemed to have concluded on November 6, 1972 when the award
became enforceable. The strike was commenced and continued between these two dates and the
striking workmen were admittedly concerned in the dispute which formed the subject-matter of this
proceeding. The strike must, therefore, necessarily be held to be illegal under clause (e) of Section
65 read with Section 6T. Indeed, it must be said in fairness to Mrs. Kapur, learned Counsel on
behalf of the workmen, that she right did not dispute this position. On this view, it becomes
unnecessary to consider whether the action of the workmen in going on strike was in contravention
also of clause (f) of Section 65 and we need not state the facts bearing on that clause nor enter upon
a discussion of that question.

9. We must then proceed to consider whether the domestic enquiry held by the appellant
culminating in the dismissal of these twenty-one workmen was a proper enquiry conducted in
accordance with the principles of natural justice and in conformity with Standing Order 26. If the
domestic enquiry was in breach of the requirements of Standing Order 26 or in violation of the
principles of natural justice, it would be vitiated and the dismissal of these twenty-one workmen
consequent upon it would be invalid. The Industrial Tribunal, as already pointed out, found, in the
main, three infirmities in the domestic enquiry. We need not discuss the first two infirmities -
whether the view of the Industrial Tribunal in regard to them was correct or not - as we find that the
Industrial Tribunal was right in holding that the third infirmity vitiated the domestic enquiry. The
view taken by the Industrial was that the domestic enquiry was invalidated because the notices
issued by the appellant to these twenty-one workmen after receipt of reports of the Labour Officer
finding them guilty of the misconduct charged against them were not served on them, nor were they
given a proper and adequate opportunity to show cause why the punishment of dismissal should not
be imposed on them. The learned Counsel appearing on behalf of the appellant made a heroic
attempt to assail the correctness of this view, but we are afraid this attempt cannot succeed. Clause
(e) of Standing Order 26 provides that where it is proposed to inflict the punishment of dismissal for
any misconduct, the workman shall be given notice in writing to show cause within a specified
period why the proposed punishment may not be awarded and along with such notice. He shall be
given a copy of the findings of the enquiring officer on the charge or charges. This clause clearly
contemplates a notice to be given to the workman for the purpose of enabling him to show cause
within a specified period as to why the proposed punishment of dismissal should not be inflicted on
him the notice is required to be given not as a mere idle formality it has a meaning and a purpose. It
is intended to provide opportunity to the workman to show cause against the proposed punishment
of dismissal. The workman may show that the findings of the enquiring officer are not justified on
the evidence on record or that even if the findings are justified they do not warrant the extreme
penalty of dismissal from service having regard to the nature or gravity of the misconduct, the past
record of the workman and any other extenuating circumstances. The notice must, therefore, give a
reasonable opportunity to the workman. That is a condition precedent which must be satisfied
before an order of dismissal can be validly passed by the employer.

10. Here in the present case, it is obvious from the various timings notified to the erring workmen at
which the domestic enquiry would be held against different groups of workmen, that the domestic
enquiry against the first group of workmen must have commenced at 10 a.m. and against the last
group of workmen, it must have ended not earlier than 9.15 p.m. on October 21, 1972. The Labour
Officer must then have prepared his reports setting out the conclusions reached by him on the
evidence recorded at the domestic enquiry and these reports must thereafter have been forwarded by
the Labour Officer to the Manager of the appellant. The Manager of the appellant, on receipt, of
these reports from the Labour Officer, must have considered the cases of these different groups of
workmen in the light of these reports and the evidence recorded at the domestic enquiry for the
purpose of satisfying himself prima facie that the workmen were guilty of the misconduct charged
against them, before issuing notices calling upon them to show cause why they should not be
dismissed from service. This whole procedure must have taken a certain amount of time and the
show-cause notice inter alia to the twenty-one workmen concerned in this appeal, could, therefore,
have been issued at the earliest not before 10.30 p.m. on October 21, 1972. Now admittedly no
attempt was made to serve the show-cause notices on any of these twenty-one workmen and the
only mode in which service was purported to be effected was by pasting the show-cause notice
board of the mill. We may point out that this mode of service adopted by the appellant was wholly
unjustified and that in itself introduces a serious infirmity in the domestic enquiry, unless it can be
shown by the appellant that these twenty-one workmen were otherwise aware of the contents of the
show-cause notices and no prejudice was occasioned to them by reason of non-service of show-
cause notices. Of that, however, there is no evidence as there is nothing to show that these twenty-
one workmen read the show-cause notices on the workmen of the appellant, including these twenty-
one workmen, were on strike and no presumption can, therefore, be drawn that they would look at
the notice board and read the show-cause notices pasted on it. But even if we assume in favour of
the appellant that these twenty-one workmen must have looked at the notice board and seen what
was pasted there, it is clear from what is stated above that the show-cause notices could not have
been pasted on the notice board before 10.30 p.m. on October 21, 1972. If that be so, the earliest
that these twenty-one workmen could possibly come to know of the show-cause notices would have
been the next day, that is October 22, 1972, but that day happened to be a closed day for the mill
and none of these twenty-one workmen could, therefore, be expected to be present and was in fact
present at the mill, so that he could come to know about the show-cause notices by looking at the
notice board. These twenty-one workmen than October 23, 1972 when the came to the mill in the
morning for the purpose or sit in strike. But the time specified in the notices within which these
twenty-one workmen were required to show cause against the proposed punishment of dismissal
was 10 a.m. on October 23, 1972 and that would mean that they had hardly a couple of hours within
which to show cause against the action proposed to be taken against them. It does not need much
argument to come to the conclusion that this could hardly be regarded as affording a reasonable
opportunity to these twenty-one workmen to show cause against the proposed punishment of
dismissal. There can, therefore, be no doubt that there was not only non-compliance with the
requirements of clause (c) of Standing Order 26 but also infraction of the principles of natural
justice. The orders of dismissal passed against these twenty-one workmen could not, in the
circumstances, be justified on the basis of the domestic enquiry held by the appellant.

11. But that does not mean that the workmen are entitled to succeed in the reference. It is now well
settled as a result of several decisions of this Court, of which we may mention only two, namely,
Oriental Textile Furnishing mills, Amritsar v. Labour Court, Jullundur ((1972) 1 SCR 490 : (1971) 3
SCc 646) and Delhi Cloth & General Mills Co. v. Ludh Budh Singh ((1972) 3 SCR 29 : (1972) 1
SCC 595), that even where it is found that the domestic enquiry held by the employer is due to some
omission or deficieny, not valid, the employer can nonetheless support the order of dismissal by
producing satisfactory evidence and proving misconduct, when the dispute arising out of the order
of dismissal is referred for industrial adjudication. This Court pointed out in Oriental Textile
Finishing Mills, Amritsar v. Labour Court, Jullunder (supra) that in such cases (SCC p. 652, para 9)

the evidence which is produced to substantiate and justify the action taken against the workmen is
not as stringent as that which is required in a court of law.

What is required is "that the evidence should be such a should satisfy the Tribunal that the order of
termination is proper". It was for this reason that in the present case the appellant made the
application dated March 12, 1973 praying that if for any reason the Industrial Tribunal was inclined
to take the view that the domestic enquiry held by the appellant was improper or not according to
law, the appellant should be given an opportunity to prove its case on merits and for that purpose
file and prove additional documents. This was clearly a request to the Industrial Tribunal to try the
issue as to the validity of the domestic enquiry as preliminary issue and if the finding on this
preliminary issue was against the appellant, to give an opportunity to the appellant to adduce;
evidence for the purpose of establishing that the orders of dismissal were justified. Now, the
question as to what is the procedure to be followed by the Industrial Tribunal when such a request is
made by the employer, came up for consideration before this Court in Delhi Cloth & General Mills
Co. Ludh Budh Sing (supra). This Court, after discussing the previous decisions on the subject,
culled out certain principles which, according to it, emerged from a consideration of these decisions.
Theses principles were formulated in the form of seven propositions and of them, the fourth and
fifth propositions are material for our purpose : [SCC pp. 616-617 para]

4. When a domestic enquiry has been held by the management and the management relies on the
same, it is open to the latter to request the Tribunal to try the validity of the domestic enquiry as a
preliminary issue and also ask for an opportunity to adduce evidence before the Tribunal, if the
finding, on the preliminary issue is against the management. However elaborate and cumbersome
the procedure may be, under such circumstances, it is open to the Tribunal to deal in the first
instance, as preliminary issue the validity of the domestic inquiry. If its finding on the preliminary
issue is in favour of the management. But, if the finding on he preliminary issue is against the
management, the Tribunal will have to give the employer an opportunity to cite additional evidence
and also give a similar opportunity to the employee to lead evidence contra, as the request to adduce
evidence had been made by the management to the Tribunal during the course of the proceedings
and before the trial has come to an end. When the preliminary issue is decided against the
management and the letter leads evidence before the Tribunal, the position, under such
circumstances, will be, that the management is deprived of the benefit of having the finding of the
domestic tribunal being accepted as prima a facie proof of the alleged misconduct. On the other
hand, the management will have to prove, by adducing proper evidence, that the workman is guilty
of misconduct and that the action taken by it is proper, It will not be just and fair either to the
management or to the workman that the Tribunal should refuse to take evidence and thereby ask the
management to make a further application, after holding a proper enquiry, and deprive the workman
of the benefit of the tribunal itself being satisfied, on evidence adduced before it, that he was not
guilty of the alleged misconduct.

(5) The management has got right to attempt to sustain its order by adducing independent evidence
before the Tribunal. But the management should avail itself of the said opportunity by making a
suitable request to the Tribunal before the proceedings are closed. If no such opportunity has been
availed of, or asked for by the management, before the proceedings are closed, the employer can
make no grievances that the Tribunal did not provide such an opportunity. The Tribunal will have
before it only the enquiry proceeding and it has to decide whether the proceeding have been held
properly and the findings recorded therein are also proper.

It will, therefore, be seen that when the application dated March 12, 1973 was made by the
appellant, the Industrial Tribunal should have either declined to try the issue as to the validity of the
domestic enquiry as a preliminary issue and directed the appellant to lead its evidence
simultaneously on the issue as to the validity of the domestic enquiry as also in regard to the
misconduct of the workmen so as to justify its action, or divided to deal with the validity of the
domestic enquiry as a preliminary issue and if the finding on the preliminary issue went against the
appellant, then to give an opportunity to the appellant to adduce additional evidence to justify its
action. Strangely enough, however, the Industrial refused to give either of these two directions on
the application of the appellant and merely passed an order that on the application "orders would be
passed at the appropriate time". We fail to see what "appropriate time" the Industrial Tribunal had in
mind. It seems that "appropriate time" never arrived, because in fact no order was made on that
application by the Industrial Tribunal at any time and without passing such an order the award was
made. It would be perfectly intelligible if the Industrial Tribunal did not pass an order on the
application immediately, but there can be little doubt that it should have passed the appropriate
order or the application sufficiently before the recording of the evidence commenced. The cryptic
remark made by the Industrial Tribunal that it would pass an order on the application at "appropriate
time" could well lead the appellant to believe that the Industrial Tribunal would first decide the issue
as to the validity of the domestic enquiry and if its finding went against the appellant, it would give
an opportunity to the appellant to lead further evidence. The award made by the Industrial Tribunal
without giving an opportunity to the appellant to lead addition evidence to establish that the
workmen were guilty of misconduct and that the action of the appellant in dismissing them was
justified, cannot, therefore, be sustained.

12. It may be pointed out that one of the contentions which appealed to the Industrial Tribunal in
setting aside the orders of dismissal against these twenty-one workmen was that originally orders of
dismissal were passed against fifty-three workmen, but out of them, thirty-one were reinstated and
there was no reason why these twenty-one workmen, whose cases were identical, should be treated
differently and denied reinstatement. We do not think there is any force in this contention. Out of
fifty-three workmen against whom orders of dismissal were passed. Thirty-one had to be restated by
the appellant because of the decision of the Chief Minister which, it was agreed by way of
settlement, would be binding on both the parties. But that could not be a ground for reinstatement of
these twenty-one workmen whose cases were differentiated by the Chief Minister himself and in
regard to whom reference was made for industrial adjudication. There would have been no need for
making reference for industrial adjudication in case of these twenty-one workmen, if they were to
treated, straightway, without any further enquiry into their respective cases, on a par with the thirty-
one workmen who were directed to be reinstated.

13. We, therefore, allow the appeal, set aside the award made by the Industrial Tribunal and remand
the matter to the Industrial Tribunal with a direction to allow the appellant and the workmen to lead
such additional evidence as may be relevant on the question whether these twenty-one workmen
were guilty of the misconduct charged against them and the orders of dismissal passed against them
were justified. Mrs. Kanpur on behalf of the workmen appealed to us that even though the award of
the Industrial Tribunal is being set aside by us, we should give a direction to the appellant to
continue these twenty-one workmen, who have been reinstated recently pursuant to the award of the
Industrial Tribunal. But we are afraid we cannot do so. It would indeed by beyond our jurisdiction
to give any such direction when the award under which these twenty-one workmen are reinstated is
set aside by us. So far as the question of costs of this appeal is concerned, we think that a fair and
proper order of costs would be that each party should bear and pay its own costs of the appeal.

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