of Trade Tax, Lucknow Vs. M/S Kanhai Ram Thekedar  Insc
291 (29 April 2005)
Variava & Dr. Ar. Lakshmanan Dr. Ar. Lakshmanan, J.
appeal is filed by the Commissioner of Trade Tax, U.P. challenging the final
order dated 16.9.1999 passed by the High Court of Judicature at Allahabad in the Trade Tax Revision No.3 of
1999 whereby the High Court allowed the revision of the respondent-assessee.
brief facts pertaining to the present appeal are as under:
impugned order, the High Court allowed the revision filed by the respondent and
quashed the order of demand of interest on the ground that no notice in writing
was issued. It was observed in the judgment that even if the dealer was liable
to pay interest on the late payment of amount of tax a notice is necessary for
demand of interest. In the instant case, the assessing authority passed the
order on 30.7.1990 imposing interest against the respondent. The respondent
filed appeal before the Commissioner (Judicial) Sales Tax, now Trade Tax, Allahabad
Region, Allahabad. In the appeal, the respondent
mentioned that ex parte proceedings imposing interest against the respondent
has been passed which is barred by time. The Assistant Commissioner dismissed
the appeal of the respondent on 27.7.1991. The respondent filed second appeal
before the Sales Tax Tribunal which passed the order dated 21.7.1998 remanding
the case to the assessing authority for decision after giving notice to the
respondent. The respondent filed a Trade Tax Revision before the High Court
against the order of the Tribunal and the High Court by the impugned order
dated 16.9.1999 allowed the revision of the respondent. Aggrieved by the
impugned order, the State has preferred the above appeal by way of special
heard Mr. R.G. Padia, learned senior counsel appearing for the appellant and
Mr. Ranbir Singh Yadav, learned counsel appearing for the respondent.
senior counsel appearing for the appellant submitted that the order of the High
Court to the extent that a notice of demand was necessary before passing the
order of interest is legally not sustainable. He further submitted that the
levy of interest is by operation of law and does not require a separate order.
counsel appearing for the respondent submitted that the impugned assessment
order passed by the assessing authority dated 30.7.1990 does not refer to any
notice served upon the dealer before passing the impugned order and, therefore,
the said order has been quashed by the Tribunal in respect of remanding the
matter. It was also submitted that the rectification order could be passed
within three years from the date of the order of the assessment or the order
passed in appeal or revision. The impugned order was passed beyond the period
of three years and, therefore, the said order is not sustainable. In this
background of facts, the following questions of law arise for consideration by
Whether no subsequent proceeding can be initiated against the revisionist as
the subsequent proceeding to the assessment is barred by limitation?
Whether the order of the High Court to the extent that a notice of demand was
necessary before passing the order of interest is legally sustainable? We have
carefully perused the entire pleadings, orders passed by the authorities and
the High Court and the annexure filed along with this appeal.
this case, the assessment order for the assessment year 1977-78 was passed on
6.6.1986 imposing tax liability of Rs.18053.98 paise. The respondent deposited
the tax in two instalments namely, 2,817/- on 26.6.1982 and Rs. 15,236.98 paise
on 30.8.1986. The assessing authority passed another order on 30.7.1990 holding
that on admitted amount of tax it was liable to pay interest at the rate of 24%
p.a. from 1.5.1978 on amount of tax the assessee has not deposited. The
assessing authority held that the dealer was liable to pay interest to the tune
respondent-dealer filed first appeal against the said order which was
that order, the second appeal was filed before the Tribunal, which remanded the
matter to the assessing authority for fresh decision after giving an
opportunity of hearing to the dealer. Feeling aggrieved, the dealer filed a
revision before the High Court. The dealer submitted that the amount of tax was
deposited by 30.8.1986.
liability for payment of interest arises in view of the provisions contained in
Section 8 (1), 8(1-B) and sub-section (2) of Section 8 of the U.P. Sales Tax
Act,1948 (now the U.P. Trade Tax Act, 1948) (for short "the Act").
The relevant portion of Section 8 read as under:
Payment and recovery of tax (1) The tax admittedly payable shall be deposited
within the time prescribed or by the thirty first day of August, 1975,
whichever is later, failing which simple interest at the rate of 2 per cent per
mensem shall become due and be payable on the unpaid amount with effect from
the day immediately following the last date prescribed till the date of payment
of such amount, whichever is later, and nothing contained in section 7 shall
prevent or have the effect of postponing the liability to pay such interest.
- For the purpose of this sub-section, the tax admittedly payable means the tax
which is payable under this Act on the turnover of sales or, as the case may
be, the turnover of purchases, or of both, as disclosed in the accounts
maintained by the dealer, or admitted by him in any return or proceeding under
this Act, whichever is greater, or if no accounts are maintained then according
to the estimate of the dealer, and includes the amount payable under Section
3-B or sub-section (6) of Section 4-B.
The tax assessed under this Act shall be deposited in the manner specified in,
and within thirty days of the service of, the notice of assessment and demand.
If the tax, other than the tax referred to in sub-section (1), assessed by any
Assessing Authority is not paid within the period specified in the notice of
assessment and demand referred to in sub-section (1-A), simple interest at the
rate of one and half per cent per mensem on the unpaid amount calculated from
the date of expiration of the period specified in such notice shall become due
and be payable.
If the tax, assessed under this Act is enhanced in reassessment or otherwise by
any authority, tribunal or court the dealer shall also be liable to pay simple
interest at the rate specified in sub-section (1-B) on the unpaid amount of the
enhanced tax from the date of expiration of the period specified in such notice
of assessment and demand already served on the dealer under sub-section (1-A)
and it shall not be necessary to give a fresh notice of assessment and demand
with respect to the enhanced tax and it shall be deemed that the tax so
enhanced was assessed in the order of assessment made for the first time.
The amount of interest payable under sub-section (1), (1- B) (1-BB) and (2)
shall be without prejudice to any other liability or penalty that the dealer
may incur under this Act or under any other law for the time being in force,
and shall be added to the amount of tax and be also deemed for all purposes to
be part of the tax.
Where realization of any tax remained stayed by any order of any Court or
authority and such order of stay is subsequently vacated, the interest referred
to in sub-section (1-B) shall be payable also for any period during which such
order remained in operation.
Notwithstanding anything contained in sub-section (1), (1-A), (1-B), (1-BB),
(1-C) or (2) the Commissioner may on the application of a manufacturer within
such time and in such manner as may be prescribed grant in lieu of exemption
under section 4-A moratorium for payment of the admitted tax subject to such
conditions as may be prescribed. The Commissioner may withdraw any such
moratorium in the circumstances in which it could have withdrawn the exemption
under section 4-A, but no such withdrawal shall be made with retrospective
that on and after commencement of the Uttar Pradesh Trade Tax (Amendment)
Ordinance, 1997, the Commissioner may on the application of a manufacturer
having a small scale industry, the date of starting production of which falls
on or after April 1, 1990, grant, in lieu of exemption under section 4-A,
moratorium for payment of the admitted tax and the provision of rule 43 of the
Uttar Pradesh Trade Tax Rules, 1948, as amended by the Uttar Pradesh Trade Tax
(Second amendment) Rules, 1993, shall apply for granting such moratorium.
Notwithstanding anything contained in any other provision of this Act and rules
made thereunder, the State Government may grant moratorium from payment of the
admitted tax to a Power Project Industrial Unit, subject to such conditions as
may be prescribed.
Notwithstanding anything contained in any law or contract to the contrary, the
assessing authority may, at any time or from time to time, by notice in
writing, a copy of which shall be forwarded to the dealer at his last address
known to the assessing authority , require
person from whom any amount is due or may become due to the dealer, or
person who holds or may subsequently hold money for or on account of the
dealer, to pay to the assessing authority
upon the money becoming due or being held, or
at or within the time specified in the notice, not being before the money
becomes due or is held, so much of the money as is sufficient to pay the amount
due by the dealer in respect of arrears of tax or other due under this Act, or
the whole of the money when it is equal to or less than that amount.
- For the purpose
of this sub-section, the amount due to a dealer or money held for or on account
of a dealer by any person shall be computed after taking into account such
claims, if any, as may have fallen due for payment by such dealer to such
person and as may be legally subsisting."
High Court was of the view that even if the dealer was liable to pay interest
on delayed payment of amount of tax, a notice in writing before passing the
impugned order was necessary which is not shown to have been done in the
present case. The impugned order dated 30.7.1990 nowhere states that any notice
was sent to the dealer, therefore, such an order could not be sustained.
Consequently, the Tribunal has committed an error in passing the impugned order
dated 21.7.1998 remanding the matter to the assessing authority. Holding so,
the High Court allowed the revision and quashed the order of the Tribunal.
opinion, the order passed by the High Court is absolutely illegal.
case of Commissioner of Sales Tax vs. Qureshi Crucible center , 1993 suppl (3)
SCC 495, the Commissioner of Sales Tax was the appellant. The appeal was
preferred against the judgment of the learned single Judge of the Allahabad
High Court allowing the sales tax revision filed by the assessee. After
referring to Section 8(1), this Court held as under:
to this section, a dealer shall have to deposit the tax admittedly payable
either within the time prescribed or by August 31, 1975 whichever is later. If he fails to
do so, simple interest at the rate of 2% per mensem becomes payable. This levy
of interest is by operation of law. It does not require a separate order as
such by any authority. The explanation defines the expression "tax
admittedly payable". It means the tax which is payable, inter alia,
according to the return filed by the dealer.
this case, the dealer filed a return for the assessment years 1975-76. The
goods in which he was dealing fell within the category of unspecified goods.
For unspecified goods, the rate of tax prior to December 1, 1973 was 3.5%. With effect from the said date, however, the rate
was revised to 7%. In the return filed by the respondent- assessee, he arrived
at the tax admittedly payable on the turnover disclosed by him, by applying
rate of 3.5%. The authorities held that inasmuch as he has not paid the tax
admittedly payable within the meaning of Section 8(1) inasmuch as he has not
calculated and paid the tax at the rate prescribed by law he must be held to
have failed to comply with the requirement of Section 8(1). Accordingly,
interest as prescribed by the said section was levied. The appellate authority
as well as the Tribunal affirmed the said levy. The matter was carried to the
High Court by way of a revision. The learned Judge allowed the revision holding
that "there has been no finding by the Tribunal that the assessee acted mala
fide in not depositing the tax at the rate of 7%.
demand of interest was not justified." Dwarika prasad Sheo Karan Dass,
(1977) 1 SCC 22, this Court has held that the assessee is liable to pay
interest under Section 8(1-A) of the U.P. Sales Tax Act, 1948 on unpaid amount
of tax and that such liability arises automatically by operation of law.
Court also held that fresh notice of demand not necessary where amount of tax
or other dues reduced as a result of the appeal, revision or other proceedings.
Court had an occasion to consider sub-Section (1-A) of Section 8 of the Act in
the case of Haji Lal Mohd. Biri Works vs. State of U.P. , (1974) 3 SCC 137 and held that the liability to
pay interest under Section 8(1-A) of the Act is automatic and arises by
operation of law. It was further observed in that case that it is not necessary
for the Sales Tax Officer to specify the amount of interest in the recovery
Court had also considered the question whether it was necessary for the Sales
Tax Officer to issue a fresh notice of demand to the respondent after the tax
assessed by the Sales Tax Officer was reduced on appeal and further reduced on
revision. This Court after considering sub-Section (9) which has been added in
Section 8 of the Act by the U.P. Sales Tax (Amendment) Act (3 of 1971) held
that it shall not be necessary to the assessing authority to serve upon the
dealer a fresh notice. Similar view was taken by the Allahabad High Court in
the case of Firm Parshuram Rameshwar Lal vs. State of U.P., (1974) 33 STC 540
(All) which has also been referred to in this judgment.
view of the above, this Court accepted the appeal filed by the Sales Tax
Officer and set aside the judgment of the High Court and dismissed the writ
petition filed by the assessee.
case of Prahlad Rai & Ors. vs. Sales Tax Officer, Meerut & Ors., 1991
Supp(2) SCC 612, this Court had an occasion to consider the payment of interest
on arrears of sales tax. In this case, the assessee contended that he had
admittedly paid the entire arrears of sales tax voluntarily and, therefore,
they did not become defaulters and not liable to pay interest. Rejecting the
said argument, this Court held that the accrual of interest is automatic and no
separate notice of demand was required to be served in that respect.
we are of the opinion that the High Court was not justified for deleting the
interest levied by the authorities on the ground that no notice was served. In
this view, the impugned judgment would normally be unsustainable. However, as
already noticed, the respondent-assessee has specifically urged that the
subsequent proceedings to the assessment is barred by limitation and that even
though the order was passed on 6.6.1986 imposing tax liability etc., the
assessing authority had passed another order only on 30.7.1990 holding that on
admitted amount of tax, the assessee was liable to pay interest at 24% p.a.
from 1.5.1978 and, therefore, on the question of delay in demanding interest,
the demand has to be set aside. This argument of the learned counsel appearing
for the respondent merits acceptance. In this case, the assessment relates to
the assessment years 1977-78. The respondent furnished his return to the
assessing authority and the assessing authority passed an assessment order
against the respondent and in accordance with the assessment order, the assessee
has deposited the entire amount of tax amounting to Rs. 15,236.98 paise on
30.8.1986 and Rs.2,817/- on 26.6.1982. However, on 30.7.1990, the assessing
authority passed an order imposing interest against the respondent. Thus the
demand was after nearly four years. There was no demand of interest in the
assessment order which, in our opinion, form part of the assessment order. As
the assessment order did not include a claim for interest, the demand for
interest had to be made within a reasonable period thereafter. To be noted that
for rectification of the assessment order, a limitation period of three years
is laid down. Since the demand of interest was made after almost four years, we
hold that the demand is not within a reasonable period and the assessee is not
liable to pay the interest as demanded. The Department is not entitled to
recover the interest from the assessee-respondent but is at liberty to recover
the amount of interest demanded from the Assessing Officer concerned who have
not taken steps for four years.
in entire agreement with the law laid down by this Court on the interpretation
of Section 8 of the Act in the judgments referred to above. But we, however,
hold that the demand of interest was not justified because of the inordinate
delay on the part of the officers concerned for raising the demand of interest
from the assessee and in the peculiar facts and circumstances of this case.
civil appeal ,accordingly, stands dismissed. However, there shall be no order
as to costs.