Associated Cement Co. Ltd. Vs.
Commercial Tax Officer, Kota & Ors [1981] INSC 156 (2 September 1981)
BHAGWATI, P.N.
BHAGWATI, P.N.
SEN, A.P. (J) VENKATARAMIAH, E.S. (J)
CITATION: 1981 AIR 1887 1982 SCR (1) 563 1981
SCC (4) 578 1981 SCALE (3)1338
ACT:
Rajasthan Sales Tax Act 1954 Ss. 7AA, 10, 11B
and Central Sales Tax Act 1956, S. 9-Scope of.
Assessee not depositing the tax in respect of
amount of freight at the time of filing original return-Revised return filed
and tax deposited-Assessing authority whether competent to impose
penalty-Assessee whether liable to pay interest on the tax due.
HEADNOTE:
The appellant-assessee a company manufactured
cement which was sold partly in the State of Rajasthan and partly outside the
State. The sales tax returns relating to the sales were filed by the assessee
under the Rajasthan Sales Tax Act, 1954 and under the Central Sales Tax Act
1956 before the Assessing Authority for the period August 1, 1973 to July 31,
1974 i.e. for the assessment year 1974-75. In those returns the assessee did
not include in the taxable turnover the freight charges paid in respect of the
goods sold under the bonafide impression that freight charges were not to be so
includible in the taxable turnover in view of certain decisions rendered by the
High Courts and the Supreme Court.
The Supreme Court on August 29, 1978 In Sugar
Mills Limited v. State of Rajasthan and others [1979] 1 SCR 276 held that
freight charges formed part of the sale price and were includible in the
taxable turn-over of an assessee and that sales tax was payable thereon.
Coming to know of the aforesaid decision the
assessee prepared and filed the revised returns in respect of the assessment
year 1974-75 before the Commercial Tax officer on October 20, 1978 including
freight charges in the turn-over and also deposited along with the revised
returns, challans showing payment of the balance of the tax payable under the
State Act as well as under the Central Act.
The assessing authority passed two orders of
assessment one under section 10(3) of the State Act and the other under section
9 of the Central Act. The former order of assessment levied a penalty of Rs.
53,353 under section 7AA of the State Act on account of the delay in depositing
the sales tax payable in respect of the amount of freight charges and also
levied interest of Rs. 85910/under s. 11B of the State Act. In the latter order
of assessment a penalty of Rs.
1,34,205/- was levied under section 7AA of
the State Act read with section 9(2) of the Central Act for the delay in
depositing the tax payable in respect of the freight charges, and interest of
Rs. 2,07,174/- was levied under section 11 of the State Act read with section
9(2) of the Central Act, 564 In the appeals to this Court on the question
whether:
(A) the Assessing Authority was right in
imposing penalty on the assessee under the two assessment orders for not depositing
the tax in respect of the amount of freight at the time of filing of the
original returns under the State Act and the Central Act, and (B) the assessee
was liable under section 11B of the State Act to pay interest on the tax in
respect of the amount of freight for the period between the date of filing of
the original return and the date when such tax was actually paid while filing
the revised return.
^
HELD: [By The Court] (A) The levy of
penalties for not including the freight charges in the taxable turnover in the
original returns and for not paying the tax in respect of such freight charges
is unsustainable and the two orders of assessment in so far as they levy
penalty are liable to be quashed and set aside.
[571 B, 589 B] Cement Marketing Company of
India Limited v. Commissioner of Sales Tax Indore [1980] 1 SCR 1098 referred
to.
[per Bhagwati J. dissenting] B(1) So long as
the assessee pays the amount of tax which according to him is due on the basis
of the return filed by him, there would be no default on his part in complying
with the obligation under sub-section (2) of section 7 and there would be no
liability on him to pay interest under section 11B clause (a), because he would
have paid the amount of tax quantified by him through the process of
self-assessment. The actual amount of tax payable by the assessee would be
determined only when it is assessed by the Assessing Authority under section 10
and that would not be payable until the expiration of the period specified in
the notice of demand or thirty days from the date of service of such notice, as
the case may be. [584 D-E] (2) Since the assessee deposited the amounts of tax
which according to him were due on the basis of the returns actually filed by
him and the returns were accompanied by receipts showing deposit of such
amounts of tax, there was no default on the part of the assessee in paying the
amounts of tax payable under sub-section (2) of section 7 within the actual
period allowed and in the circumstances no interest was payable by the assessee
under section 11B clause (a).
[586 F-G] State of Rajasthan v. Ghasi Lal
[1965] 2 SCR 805 relied on.
3. When the assessment, is made and the tax
payable by an assessee is determined, the tax so determined does not become
payable until after a notice of demand is served by the Assessing Authority
under section 11 sub-section (2) read with Rule 31 of the Rajasthan Sales Tax
Rules 1955. The assessee is allowed time to make payment up to the date
specified in the notice of demand and if no such date is specified, then within
thirty days from the date of service of the notice. So long the assessee pays
up the amount of the tax assessed within the time specified in the notice of
demand or within thirty days from the date of service of the notice, as the
case may be, he would not be in default and hence 565 S. 11B clause (b)
provides that the assessee would be liable to pay interest on the tax assessed
only if the amount of such tax is not paid within the period specified in the
notice of demand or in the absence of such specification, within thirty days
from the date Of service of such notice and then too, the liability to pay
interest would commence not from the date of the assessment, but from the day
commencing after the end of the said period, that is, the period specified in
the notice of demand or thirty days from the date of service of such notice, as
the case may be. Thus even after the assessment is made and the tax payable by
an assessee is determined, the assessee is not liable to pay interest on the
amount of such tax until after the period specified in the notice of demand or
in the absence such specification, thirty days From the date of service of such
notice, have expired. [574 D-H]
4. The language used in sub-section (2) of
section 7 is "full amount of tax due on the basis of return". The
"return" is the return Sled by the assessee under sub- section (1) of
section 7. When sub-section (1) of section 7 requires an assessee to file a
return, the return filed must be correct and proper. If the return is not
correct and proper, the Assessing Authority may not give credence to the return
and may refuse to assess the tax on the basis of the return and if the
Assessing Authority finds that the assessee has concealed any particulars from
the return furnished by him or has deliberately furnished inadequate
particulars in the return the Assessing Authority may levy penalty on the
assessee under section 16, sub-section (1) clause (e) and the assessee may also
be liable to be punished for an offence under Section 16, sub-section (3)
clause (d) for making a false statement in the return.
Whether the return filed be correct or not,
the tax payable by the assessee under sub-section (2) of section 7 would be the
full amount of tax due on the basis of the return. The return actually filed by
the assessee must be looked into in order to see what is the full amount of tax
duo on the basis of such return. It is not the assessed tax nor is it the tax
due on the basis of a return which ought to have been filed by the assessee but
it is the tax due according to the return actually filed that is payable under
sub-section (2) of section 7. This provision is really in the nature of
self-assessment and what it requires is that whatever be the amount of tax due
on the basis of self-assessment must be paid up along with the filing of the
return which constitutes self-assessment. The plain words of sub-section (2) of
section 7 cannot be tortured to mean full amount of tax due on the basis of
return which ought to have been filed but which has not been filed. [576 B-F]
5. The legislature could never have intended
that the assessee should be liable on pain of imposition of penalty, to deposit
an amount which is yet to be ascertained through assessment. How would the assessee
know in advance what view the Assessing Authority would take in regard to the
taxability of any particular category of sales or the rate of tax applicable to
them and deposit the amount of tax on that basis ? Even in regard to the
liability to pay interest, it does not stand to reason that the legislature
should have subjected the assessee to such liability for non-payment of an
amount of which the liability for payment is still to be ascertained. [577 F-G]
6. The tax payable under sub-section (2) of
section 7 dealt with in clause (a) of section 11B cannot, be equated with the
amount of the tax assessed forming the subject matter of clause (b) of section
11B and hence it must 566 be tax due on the basis of the return actually filed
by the assessee and not on the basis of a correct and proper return which ought
to have been filed by him. [578 G-H]
7. The scheme of taxation envisaged in the
State Act clearly shows that it is only when the assessment is made and the
period specified in the notice of demand or in the absence of such
specification, thirty days from the date of service of such notice expires,
that the amount of tax as assessed becomes payable by the assessee and its
payment can be enforced by the Revenue. What becomes payable by the assessee
under sub-section (2) of section 7 is merely the tax due on the basis of the
return actually filed by the assessee that is, on the basis of self-assessment.
[579 F-G]
8. On a true construction of the provisions
of the State Act tax becomes due from the assessee and is payable by him only
when it is ascertained by the Assessing Authority under section 10 or by the
assessee under section 7(2). Till then there is only the liability of the
assessee to be assessed to tax and no tax can be said to be payable by the
assessee. The tax payable is ascertained when the assessment is made by the
Assessing Authority under section 10 or when the assessee himself quantifies it
through the process of self-assessment under subsection (2) of section
7. These two amounts of tax may and in quite
a number of cases would be different because one is ascertained by the
Assessing Authority through the process of assessment and that is why
sub-section (4) of section 7 provides that every deposit of tax made under
sub-section (2) shall be deemed to be provisional subject to necessary
adjustments in pursuance of final assessment of tax made under section 10. This
provision clearly contemplates that the tax payable under sub-section (2) of
section 7 may be different from the tax assessed under section 10 and it
cannot, therefore, obviously be the tax due on the basis of a correct and
proper return but must be the tax due on the basis of the return actually
filed. [580 D-G] 9(i) it is clear from the language of subsection (2) of section
7 that it is only on the filing of the return that the liability to pay the tax
due on the basis of the return arises. If no return is filed within the
prescribed time, it would undoubtedly constitute a default attracting penalty
under section 16, sub-section (1) clause (n) but there would be no liability on
the assessee to pay interest on the amount of the tax, because the liability to
pay the tax due on the basis of the return under sub-section (2) of section 7
can arise only when the return is filed There is no liability on the assessee
to pay any amount by way of tax until the return is filed or the assessment is
made. [581 H- 582 B] (ii) It can neither be held that section 7 sub-section (2)
is attracted even when no return has been filed. It is clear that until the
assessee files a return or assessment is made, no tax is payable by the
assessee, because till then there is only a liability to be assessed to tax.
The conclusion that a registered dealer who does not file any return at all as
required by sub-section (1) of section 7 would still be liable to pay the
amount of tax and if he does not pay the same before the due date for filing
the return, he would be liable to pay interest under section 11(b) clause (a)
cannot be accepted. This would be contrary to the decision of this Court in
State of Rajasthan v. Ghasi Lal [ 1965] 2 SCR 805.
[582 C-F] 567 [per A.P. Sen and
Venkataramiah, JJ] B(1). The statutory liability under section 11B arises
wherever there is default in payment of the tax within the period allowed by
law irrespective of any doubt which an assessee may be entertaining about the
liability to pay the tax. [604 D-E] State of Rajasthan v. Ghasi Lal [1965] 2
SCR 805 distinguished.
2. Tax, interest and penalty are three
different concepts. Tax becomes payable by an assessee by virtue of the
charging provision in a taxing statute. Penalty ordinarily becomes payable when
it is found that an assessee has willfully violated any of the provisions of
the taxing statute. Interest is ordinarily claimed from an assessee who has
withheld payment of any tax payable by him and it is always calculated at the
prescribed rate on the basis of the actual amount of tax withheld and the
extent of delay in paying it. It may not be wrong to say that such interest is
compensatory In character and not penal. [594 D-F]
3. Registered dealers can be classified into
the following different classes: (1) A registered dealer who files his return
showing a higher taxable turnover than the actual turnover which is ultimately
found to be taxable at the time of regular assessment and who pays tax under
section 7(2) of the Act on the basis of the return. (2) A registered dealer who
files a true and proper return and pays tax on the basis of such return within
the time allowed. (3). A registered dealer who does not file any return at all
as required by section 7(1) and pays no tax under section 7(2) of the Act. (4).
A registered dealer who files a true return but does not pay the full amount of
tax as required by section 7(2), and; (5) A registered dealer who files a
return but wrongly claims either the whole or any part of the turnover as not
taxable and pays under section 7(2) of the Act that amount of tax, which
according to him is payable, on the basis of the return. In the case of a
registered dealer falling under class (1) no question of payment of interest
would arise as the amount of tax paid by him at the time of filing the return
is much more than what is actually due and payable by him under the Act. The
extra tax paid by him becomes refundable after the regular assessment is
completed in view of section 7(4) of the Act.
In the case of a registered dealer falling
under clause (2) also no question of payment of interest arises as there is no
shortfall in payment of the tax. [594 F-595D]
4. A fair reading of section 11 of the Act
suggests that the Act expects that all assessees who are liable to pay sales
tax should file a true return within the period prescribed under sub-section
(1) of section 7 and should produce a treasury receipt or a receipt of any bank
authorised to receive money on behalf of the State Government showing that full
amount of tax due from them has been paid. [595 H-596 A ]
5. It is settled law that a distinction has
to be made by court while interpreting the provisions of a taxing statute
between charging provisions which impose the charge to tax and machinery
provisions which provide the machinery for the quantification of the tax and
the levying and collection of the tax so imposed. While charging provisions are
construed strictly, machinery sections are not generally subject to a rigorous
construction. The courts are 568 expected to construe the machinery sections in
such a manner that a charge to tax is not defeated. [596 C-D] India United
Mills Ltd. v. Commissioner of Excess Profits Tax, Bombay [1955] 1 S.C.R. 810,
Gursahai Saigal v. Commissioner of Income-tax Punjab [1963] 3 S.C.R. 893
Commissioner of Income-tax v. Mahaliram Ramjidas, A.I.R.
1940 P.C. 124 and Whitney v. Commissioners of
Inland Revenue [1926] A.C. 37, referred to.
6. If the words 'on the basis of return'
occurring in sub-section (2) of section 7 of the Act are construed as on The
basis of a true and proper return which ought to have been filed under
sub-section (1) of section 7 then all the three classes of persons viz (i)
those who have not filed any return at all and who are later on found to be
liable to be assessed, (ii) those who have filed a true return but have not
deposited the full amount of tax which they are liable to pay and (iii) those
who filed a return making a wrong claim that either the whole or any part of
the turnover is not taxable and who are subsequently found to have made a wrong
claim, would be placed in the same position and they would all be liable to pay
interest on the amount of tax which they are liable to pay but have not paid as
required by sub-section (2) of section 7 of the Act. This view is in conformity
with the legislative intention in enacting section 11B of the Act [599 A-C]
7. In cases to which section 7(2) of the Act
applies interest has to be paid on the tax payable but which has not been paid
from the last date on which the return has to be filed for the assessment year
in question and in cases to which sub-section (2A) is applicable, from the last
date on which the advance tax has to be paid. The amount of interest has
however to be calculated after the actual amount of tax payable is assessed and
necessary adjustments are made. [609 B-C]
8. Either by delaying the filing of the
return or not filing it all or by filing a return wrongly claiming that a
certain part of the turnover is not taxable or by not disclosing a part of the
taxable turnover in the return an assessee cannot escape the liability to pay
interest under section 11B on the amount of tax with held, as a consequence of
his own action or inaction, from the last date on which it had to be paid as
per sub-section (2) or sub-section (2A) of section 7, as the case may be, read
with the Rules. An assessee cannot contend that interest does not accrue under
section 11B on the tax payable by him where the time to file the return has
elapsed until the actually files a return admitting the liability to pay such
talc or until assessment is made. [604 B-D]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 852 of 1980.
From the Assessment orders dated the 30th
January, 1980 of the Commercial Tax officer, Spl. Circle Kota, (Rajasthan) for
the assessment year 1974-75.
Soli J. Sorabji, B.R. Agarwal and P. G.
Gokhale for the Appellants.
S. T. Desai and B. D. Sharma for the
Respondents.
569 The Judgment of A.P. Sen and E. S.
Venkataramiah JJ.
was delivered by Venkataramiah J. P. N.
Bhagwati, J. gave a dissenting opinion.
BHAGWATI, J. I have had the advantage of
reading the Judgment prepared by my learned brother Venkataramiah J., but
despite the great respect which I have for his learning and erudition, I find
myself unable to agree with the view taken by him. The facts giving arise to
this appeal are not very material because the question which arises for
consideration is essentially one of law, but the factual setting does help to
see the question in its proper perspective and hence it would be useful to set
out a few material facts.
The assessee is a public limited company
carrying on business of manufacture and sale of cement. It has a factory for
manufacturing cement at Lakheri in the State of Rajasthan and it effects sales
of cement both inside as well as outside the State of Rajasthan. Since some of
the sales effected by the assessee were inside the State of Rajasthan and some
others were inter-state sales, the assessee filed returns of sales for the
quarters comprised in the period 1st August 1973 up to 31st July 1974 both
under the Rajasthan Sales Tax Act 1954 thereinafter referred to as the Stale
Act) and the Central Sales Tax Act 1956 (hereinafter referred to as the Central
Act). The assessee did not include in the taxable turn-over shown in the
returns the amount of freight paid in respect of the goods sold under the
bonafide impression that the amount of freight did not form part of the sale
price and was not includible in the taxable turn-over of the assessee. This
impression was carried by the assessee in view of certain decisions which had
been given by some High Courts as well as the Supreme Court and particularly
the decision of the Supreme Court in Hyderabad Asbestos Cement Products Limited
v. State of Andhra Pradesh(1). The assessee paid up for each quarter the full
amount of tax calculated on the basis of the return submitted by it and the
receipt for such payment was filed along with the return. The amount of tax
paid by the assessee obviously did not include tax on the amount of freight,
since according to the assessee the amount of freight did not form part of the
sale price and was accordingly not shown in the returns as forming part of the
taxable turn-over. Subsequently however, the question whether the amount of
freight formed part of the sale price and was therefore includible in the
taxable turn-over of the assessee so as to be exigible to tax came up for
consideration before 570 this Court in Hindustan Sugar Mills Limited v. State
of Rajasthan and others(1) and it was held by this Court that by reason of the
provisions of the Cement Control order 1967 which governed the transactions of
sale of cement entered into by the assessee with the purchasers, the amount of
freight formed part of the sale price within the meaning of the first part of
the definition of that term contained in section 2 (p) of the State Act and
section 2 (h) of the Central Act and was includible in the taxable turn-over of
the assessee. As soon as this decision was given by the Court on 29th August
1978, the assessee immediately prepared revised returns in respect of the
period 1st August 1973 up to 31st July 1974 showing the amount of freight as
forming part of the taxable turn-over and filed the same before the Commercial
Tax officer, Special Circle, Kota on 20th October 1978. The assessee also
deposited along with the revised returns challans showing payment of the
balance of the tax on the basis of the revised returns under the State Act as
well as the Central Act. Two orders of assessment were thereafter passed by the
Assessing Authority, one under section 10 sub-section (3) of the State Act and
the other under section 9 of the Central Act. The former order of assessment
levied a penalty of Rs. 53,355 under section 7AA of the State Act and interest
amounting to Rs. 85,910.50 under section 11B of the State Act for the delay in
payment of the tax in respect of the amount of freight under State Act, which
according to the Assessing Authority ought to have been deposited alongwith the
filing of the original returns. Similarly, the latter order of assessment also
levied a penalty of Rs. 1,34,205 under section 7 AA of the State Act read with
section 9 sub-section (2) of the Central Act and interest amounting to Rs.
2,07,174 under section 11B of the State Act read with section 9 sub-section (2)
of the Central Act for the delay in depositing the tax payable in respect of the
amount of freight under the Central Act. The assessee has in the present appeal
preferred with special leave challenged the validity of both these orders of
assessment in so far as they levy penalty and interest on the assessee.
The first question which arises for
consideration before us is whether the Assessing Authority was right in
imposing penalty on the assessee under the two assessment orders for not
depositing the tax in respect of the amount of freight at the time of filing of
the original returns under the State Act and the Central Act. My. learned
brother Venkataramiah has held, following the decision of this Court in Cement
Marketing Company of India Limited v. Commissioner of Sales Tax, Indore(l) that
"the levy of penalties for not including the freight charges in the
taxable turn-over in the original returns and for not paying the tax in respect
of such freight charges, is unsustainable" and that the two orders of
assessment in so far as they levy penalty on the assessee are liable to be
quashed and set aside. I entirely agree with the view taken by him and I do not
think I can usefully add anything to what he has said.
The next question that arises for
consideration is whether the assessee was liable under section II B of the
State Act to pay interest on the tax in respect of the amount of freight for
the period between the date of filing of the original return and the date when
such tax was actually paid while filing the revised return. The contention of
the revenue was that the assessee was so liable and this contention was sought
to be supported by relying on section 2 sub-sections (1) and (2) read with
section 11 of the State Act. The same provisions with section 9 sub-section (2)
of the Central Act were also relied upon for the purpose of sustaining the
Revenue's claim for interest under the Central Act. The determination of the
question before us therefore really turns on the true interpretation of section
7 subsection (1) and (2) read with section II B of the State Act. Section 7 of
the State Act as it stood at the material time was in the following terms:
"7. Submission of returns: (1) Every
registered dealer, and such other dealer, as may be required to do so by the
assessing authority by notice served in the prescribed manner, shall furnish
prescribed returns, for the prescribed periods, in the prescribed forms, in the
prescribed manner and within the prescribed time to the assessing authority;
Provided that the assessing authority may
extend the date for the submission of such returns by any dealer or class of
dealers by a period not exceeding fifteen days in the aggregate.
(2) Every such return shall is be accompanied
by a Treasury receipt or receipt of any bank authorised to receive money on
behalf of the State Government, showing the 572 deposit of the full amount of
tax due on the basis of return in the State Government Treasury of bank
concerned.
(2A) Notwithstanding anything contained in
sub-section (2). the State Government may by notification in the official
Gazette require any dealer or class of dealers specified therein, to pay tax It
intervals shorter than those prescribed under sub-sec[ion (1). In such cases,
the proportionate tax on the basis of the last return shall be deposited at the
intervals specified in the said notification in advance of the return. The
difference if any, of the tax payable according to the return and the advance
tax paid shall be deposited with the return and the return shall be accompanied
by the treasury receipt, or receipts, of any Bank authorised to receive money
on behalf of the State Government, for the full amount of tax due shown in the
return.
(3) If any dealer discovers any omission,
error, or r) wrong statement in any returns furnished by him under sub- section
(1), he may furnish a revised return in the prescribed manner before the time
prescribed for the sub mission of the next return but not later.
Section II B of the State Act during the
relevant period provided inter alia as under:
"11B. Interest on failure to pay tax,
fee or penalty- (a) If the amount of any tax payable under sub- sections (2)
and (2A) of section 7 is not paid within the period allowed, or (b) If the
amount specified in any notice of demand, whether for tax, fee, or penalty, is
not paid within the period specified in such notice, or in the absence of such
specification, within 30 days from the date of service of such notice, the
dealer shall be liable to pay simple interest on such amount at one per cent
per month from the day commencing after the end of the said period for a period
of three months and at one and a half per cent per month thereafter during the
time he continues to make default in the payments;
573 Provided that, where, as a result of any
order under this Act, the amount, on which interest was pay able under this
section, has been reduced, the interest shall be reduced accordingly and the
excess interest paid, if any, shall be refunded:
Provided further that no interest shall be
payable under this section on such amount and for such period in respect of
which interest is paid under the provisions of sections 11 and 14.
These are the two sections which fall for
construction but in order to arrive at their true meaning and legal effect it
is necessary to refer to a few other provisions of the State Act. Section 3 is
the charging section and it creates the liability to pay tax. That is the
normal function of a charging section in a taxing statute. But, of itself, it
does not make the tax payable by an assessee. It is only when the tax which an
assessee is liable to pay is ascertained that becomes payable by the assessee.
Now the normal mode by which the tax payable by an assessee is ascertained is
by the process of assessment which is provided in section 10 Sub-section (I)
clause (a) of section 10 says that assessment and determination of tax due for
any year shall be made after the returns for all the periods of that year have
become due. Section 11 then provides for payment and recovery of tax and its
provisions in so far as material read inter alia as follows:
"11. Payment and recovery of tax: (I)
The tax shall be payable by a dealer on the basis of the assessments. F (2) The
tax paid by a dealer shall be adjusted against the judgment determined as a
result of the assessment under section 10 and the balance of the amount shall
be payable by such dealer by such date as may be specified in the notice of
demand and, where no such date is specified, shall be paid within thirty days
from the date of service of the notice.
Provided that the assessing authority may,
subject to such conditions and restrictions as may be prescribed, in respect of
any particular dealer, and for reasons to be re-corded in writing, extend the
date of such payment and 574 allow such dealer to pay the tax due and the
penalty, if any, by installments.
(3) In default of the payment of tax payable
under sub-section (1) or sub-section (2), the amount of tax shall be
recoverable as an arrear of land revenue.
.... ...... ...... ...... .... ........
........ ..
Provided further that where recovery of tax
or any part thereof is stayed under the preceding proviso, the amount of such
tax shall be recoverable with interest at the prescribed rate on the amount
ultimately found due; and such interest shall be payable on such amount from the
date of tax first become due.'' When the assessment is made and the tax payable
by an assessee is determined, the tax so determined does not become payable
until after a notice of demand is served by the Assessing Authority under
section 11 sub-section (2) read with Rule 31 of the Rajasthan Sales Tax Rules
1955 made by the Government of Rajasthan in exercise of the powers conferred
under section 26 of the State Act and then the assessee is allowed time to make
payment up to the date specified in the notice of demand and if no such date is
specified, then within thirty days from the date of service of the notice. So
long the assessee pays up the amount of the tax assessed within the time
specified in the notice of demand or within thirty days from the date of
service of the notice, as the case may be, he would not be in default and hence
section 11 B clause (b) provides that the assessee would be liable to pay
interest on the tax assessed only if . the amount of such tax is not paid
within the period specified in the notice of demand or in the absence of such
specification, within thirty days from the date of service of such notice and
then too, the liability to pay interest would commence not from the date of
assessment, but from "the day commencing after the end of the said
period" that is, the period specified in the notice of demand or thirty
days from the date of service of such notice, as the case may be. Thus even
after the assessment is made and the tax payable by an assessee is determined,
the assessee is not liable to pay interest on the amount of such tax until
after the period specified in the notice of demand or in the absence such
specification, thirty days from the date of service of such notice, have
expired.
575 Turning now to sub-section (I) of section
7 it requires every A registered dealer to furnish prescribed returns for the
prescribed period, in the prescribed forms, in the prescribed manner and within
the prescribed time to the Assessing Authority. It was not disputed on behalf
of the Revenue that in the present case the prescribed returns in the
prescribed forms were furnished by the assessee in time for the quarter
comprised in the period 1st August 1973 to 31st July 1974, the only grievance
in regard to those returns being that the amount of freight was not shown as
forming part of the taxable turnover. Sub-section (2) of section 7 provides
that every return furnished by the assessee must be accompanied by a receipt
showing the deposit of the full amount of tax due on the basis of the return
and the assessee accordingly deposited the full amount of tax calculated on the
basis of each quarterly return and filed the receipt showing such deposit along
with the return. Since, according to the view taken by the assessee at the time
of filing the original returns, the amount of freight did not form part of the
sale price, it was not included in the taxable turnover shown in the original
returns and hence no tax on the amount of freight was deposited by the assessee
while filing the original returns. It was only after the decision of this Court
in Hindustan Sugar Mills Limited Company's case (supra) that the assessee filed
revised returns including the amount of freight in the taxable turnover and
deposited the balance of the tax on the basis of the revised returns. The
argument of the Revenue was and that is the argument which has appealed to my
learned brother, Venkataramiah, that the words "full amount of tax due on
the basis of return" in sub-section (2) of section 7 meant the full amount
of tax due on the basis of a true and proper return which ought to have been
filed by the assessee and not the full amount of tax due on the basis of the
return actually filed and since the amount of the freight was liable to be
included in the taxable turnover and hence in a true and proper return, the
"full amount of tax due on the basis of return" within the meaning of
sub-section (2) of section 7 included the tax on the amount of freight and the
assessee therefore ought to have deposited the same at the time of filing, the
original returns, and since the assessee failed to do so, section 11 A clause
(a) was attracted and the assessee was liable under that provision to pay
interest on the tax on the amount of freight which remained unpaid until the
filing of the revised returns. This argument, plausible though it may seem, is
in my opinion unsustainable. It is plainly contrary to the language of
sub-section (2) of section 7 read with section 11B and is opposed to the scheme
of the State Act.
It is also inconsistent with the decision of
a Bench of five Judges of this Court in State of Rajasthan v. Ghasi Lal(1).
Indeed I fail to see how in the face of the decision, the Court can possibly
accept the argument of the Revenue.
The language used in sub-section (2) of
section 7 is "full amount of tax due on the basis of return". The
"return" referred to is obviously the return filed by the assessee
under sub-section (1) of section 7. Now it is true that when sub-section (1) of
section 7 requires an assessee to file a return, the return filed must be
correct and proper. If the return is not correct and proper, the Assessing
Authority may not give credence to the return and may refuse to assess the tax
on basis of the return and if the Assessing Authority finds that the assessee
has concealed any particulars from the return furnished by him or has
deliberately furnished inadequate particulars in the return, the Assessing
Authority may levy penalty on the assesssee under section 16 sub-section (1)
clause (e) and the assessee may also be liable to be punished for an offence
under section 16, sub-section (3) clause (d) for making a false statement in
the return. But, whether the return filed be correct or not, the tax payable by
the assessee under sub-section (2) of section 7 would be the full amount of tax
due on the basis of the return. We must look at the return actually filed by
the assessee in order to see what is the full amount of tax due on the basis of
such return. It is not the assessed tax nor is it the tax due on the basis of a
return which ought to have been filed by the assessee but it is the tax due
according to the return actually filed that is payable under sub-section (2) of
section 7. This provision is really in the nature of self-assessment and what
it requires is that whatever be the amount of tax due on the basis of
self-assessment must be paid up along with the filing of the return which
constitutes self-assessment. I fail to see how the plain words of sub-section
(2) of section 7 can be tortured to mean full amount of tax due on the basis of
return which ought to have been filed but which has not been filed.
It may also be noted that the construction
contended for on behalf of the Revenue leads to a serious anomaly. If this
construction were accepted, the tax payable under sub- section (2) of section 7
would be the full amount of tax due on the basis of a correct and proper return
and that would necessarily be the same as the tax assessed by the Assessing
Authority, because what is a correct and 577 proper return would be
determinable only with reference to the A assessment ultimately made. The
assessment when made would show whether the return filed was correct and .
proper, it would be correct and proper if it
accords with the assessment made; if it does not accord with the assessment,
then to the extent to which it differs it would obviously have to be regarded
as incorrect and improper. The consequence of the construction suggested on
behalf of the Revenue would be thus that the tax payable under sub-section (2)
of section 7 would be the full amount of the tax as assessed, because that
would represent the tax due on the basis of a correct and proper return and the
assessee would have t deposit at the time of filing the return, an amount
equivalent to the amount of the tax as assessed. If the assessee fails to do
so, then apart from the liability to pay interest under section I IB clause
(a), the assessee would expose himself to penalty under section 16 sub-section
(1) clause (n) which provides inter alia that any person who fails to comply
with any requirement of the provisions of the State Act, the requirement under
sub-section (2) of section 7 being to deposit the full amount of tax due on the
basis of return, shall be liable to D penalty in "a sum not exceeding Rs.
1,000 and in the case of continuing default, a further penalty not exceeding
Rs. 50 for every day of such continuance." This is a consequence which it
is difficult to believe could ever have been contemplated by the legislature.
The legislature could never have intended that the assessee should be liable,
on pain of imposition of penalty, to deposit an amount which is yet to be
ascertained through assessment. How would the assessee know in advance what
view the Assessing Authority would take in regard to the taxability of any
particular category of sales or the rate of tax applicable to them and deposit
the amount of tax on that basis ? And this would be all the more problematic in
the case of a statute like the sales tax law which is full of complexities and
where it may be difficult to assert dogmatically that a particular view is
right or wrong. Even in regard to the liability to pay interest, it does not
stand to reason that the legislature should have subjected the assessee to such
liability for non-payment of an amount of which the liability for payment is
still to be ascertained. Moreover, on the construction of the Revenue, if the
assessee has not deposited at the time of filing the return an amount
equivalent to the full amount of the tax assessed, the assessee would be liable
to pay interest on amount remaining unpaid from the date of filing of the
return until payment. But, as I have already pointed out above, when the
assessment is made and the tax payable by the 578 assessee is determined, the
assessee is given time for payment of the amount of the tax assessed upto the
period specified in the notice of demand and in the absence of such
specification, within thirty days from the date of service of such notice and
it is only if the assessee fails to make payment within such period that he
becomes liable to pay interest on the amount of the tax assessed to the extent
to which it remains unpaid. There is no liability on the assessee to pay
interest on the amount of the tax assessed until after the expiration of the
period specified in the notice of demand or thirty days from the date of
service of such notice, as the case may be. There would thus be a conflict
between the two provisions, if the construction contended for on behalf of the
Revenue were accepted. Under sub-section (2) of section 7 read with section 11
B clause (a), the assessee would be liable to pay interest on the amount of the
tax assessed to the extent to which it has not been deposited at the time of
filing the return and such interest would run continuously from the date of the
filing of the return until payment, while under section 11 B clause (b) the
assessee would not be liable to pay interest on the amount of the tax assessed
during the period specified in the notice of demand or in the absence of such
non- specification during the period of thirty days from the date of service of
such notice. Such a conflict could never have been intended by the legislature.
It is a well-settled rule of interpretation that a statute must be so construed
as not to create any repugnance between the different provisions, for it is a
basic assumption underlying every interpretational exercise that the
legislature must be supposed not to have intended to contradict itself. The
Court must always prefer that interpretation which avoids repugnancy between
two provisions of a statute and gives full meaning and effect to both.
Therefore, on this principle of interpretation also the construction canvassed
on behalf of the Revenue cannot be accepted, as it would create a direct
conflict between the provisions of clause (a) and (b) of section 11 B. The only
way in which clauses (a) and (b) of section 11 B can be read harmoniously and
full meaning and effect can be given to them is by construing them as dealing
with distinct matters or situations. The tax payable under sub-section (2) of
section 7 dealt with in clause (a) of section 11 B cannot, therefore, be
equated with the amount of the tax assessed forming the subject matter of
clause (be of section l l and hence it must be held to be tax due on the basis
of the return actually filed by the assessee and not on the basis of a correct
and proper return which ought to have been filed by him.
579 There is also another angle from which
the problem can be a considered. Clause (a) of section 11 B postulates tax
which, though payable under sub-section (2) of section 7, is not paid by the
assessee within the time allowed and hence it subjects the assessee to
liability to interest for non- payment of such tax. Now if, as contended by the
Revenue, the tax payable under sub-section (2) of section 7 means the full
amount of tax due on the basis of a correct and proper return which ought to
have been filed by the assessee, and is, therefore, equivalent to the amount of
the tax as assessed, it would be the amount of the tax as assessed which would
be payable under sub-section (2) of section 7 and this amount would be payable
by the assessee at the time of filing the return, even though ex hypothesi no
assessment has taken place. Now it is difficult to appreciate how under the
scheme of taxation embodied in the State Act, the amount of tax which is yet to
be ascertained through the process of assessment can be said to be payable by
the assessee at the time of filing the return. If, as contended by the Revenue,
it is so payable it is difficult to understand why it should have been liable
to bear interest from the date of filing the return upto the date of assessment
and thereafter it should have been freed from the liability of bearing interest
upto the period specified in the notice of demand or thirty days from the date
of service of the notice, as the case may be and the rate of interest also
should have been made to vary from period to period. Moreover, it is, to my
mind, impossible to accept the proposition that the amount of the tax
ultimately assessed, which would represent the tax due on the basis of a
correct and proper return should be payable by the assessee at the time of
filing the return under sub-section (2) of section 7. The scheme of taxation
envisaged in the State Act clearly shows that it is only when the assessment is
made and the period specified in the notice of demand or in the absence of such
specification, thirty days from the date of service of such notice expires,
that The amount of tax as assessed becomes payable by the assessee and its
payment can be enforced by the Revenue. What becomes payable by the assessee
under sub- section (2) of section 7 is merely the tax due on the basis of the
return actually filed by the assessee that is, on the basis of self-assessment.
G This position seems to be clear beyond doubt on an examination of the scheme
of taxation contained in the State Act and no authority is needed in support of
it, but if any authority were needed, it is to be found in the decision of a
Bench of five Judges of this Court in State of Rajasthan v. Ghasi Lal (supra).
There the 580 question was whether the assessee could be said to have failed,
without reasonable cause, to pay the tax due within the time allowed, when he
paid the tax due on the basis of the quarterly returns at the time of filing
those returns, but the returns were filed long after the due dates for filing
the same had expired. The argument of the Revenue was that tax became due from
the assessee under section 3 which is the charging section and the assessee
could not withhold payment of the same by delaying the filing of the quarterly
returns within the time prescribed under the State Act and he was therefore
liable to pay interest on the amount of the tax as assessed from the date the
quarterly returns ought to have been filed and the amount of the tax paid. This
argument of the Revenue was rejected by the Court and Sikri, J. speaking on
behalf of the Bench of five Judges, said:
"Till the tax payable is ascertained by
the Assessing Authority under section 10 or by the assessee under section 7(2),
no tax can be said to be due within section 16(1) (b) of the Act for till then
there is only a liability to be assessed to tax." These observations show
beyond doubt that on a true construction of the provisions of the State Act tax
becomes due from the assessee and is payable by him only when it is
"ascertained by the Assessing Authority under section 10 or by the
assessee under section 7(2)". Until then, there is only the liability of
the assessee to be assessed to tax and no tax can be said to be payable by the
assessee. The tax payable is ascertained when the assessment is made by the
Assessing Authority under section 10 or when the assessee himself quantifies it
through the process of self-assessment under sub-section (2) of section 7.
These two amounts of tax may, and in quite a number of cases would, be
different because one is ascertained by the assessee himself by filing his
return and the other is ascertained by the Assessing Authority through the
process of assessment and that is why sub-section (4) of section 7 provides
that every deposit of tax made under sub-section (2) shall be deemed to be
provisional subject to necessary adjustments in pursuance of final assessment
of tax made under section 10. This provision clearly contemplates that the tax
payable under sub-section (2) of section 7 may be different from the tax
assessed under section 10 and it cannot, therefore, obviously be the tax due on
the basis of correct and proper return (because that would necessarily be the
same as the tax ultimately assessed under section 10) but must be the tax due
on the basis of the return actually filed.
Mr. Justice Venkataramiah has in his Judgment
classified registered dealers into the following five different categories:
1. A registered dealer who files his return
showing a higher taxable turnover than the actual turnover which is ultimately
found to be taxable at the time of regular assessment and who pays tax under
section 7(2) of the Act on the basis of the return.
2. A registered dealer who files a true and
proper return and pays tax on the basis of such return within the time allowed.
3. A registered dealer who does not file any
return at all as required by section 7(1) and pays no tax under section 7(2) of
the Act.
4. A registered dealer who files a true
return but does not pay the full amount of tax as required by section 7(2); and
5. A registered dealer who files a return but
wrongly claims either the whole or any part of the turnover as not taxable and
pays under section 7(2) of the Act that amount of tax, which according to him
is payable, on the basis of the return.
The learned Judge has observed that if the
construction contended for on behalf of the assessee were accepted, registered
dealers falling within categories (3), (4) and (S) would be outside the
provision enacted in sub-section (2) of section 7 read with section 11B clause
(a) and no interest would be payable by them under that provision and that
would make clause (a) of section I I "either unworkable or
meaningless". I must, with the greatest respect, confess my inability to
appropriate the line of reasoning which has prevailed with the learned Judge in
making this observation.
The learned Judge has proceeded on the basis
that the registered dealers falling within all the three categories, namely,
(3), (4) and (S) are required by sub-section (2) of section 7 to pay the tax
chargeable under section 3 of the State Act and if they do not pay the same
within the time allowed, that is, at the time when the returns are filed or in
case the returns are-not filed within the prescribed time, then before the
expiration of the date when they ought to have been filed they would be liable
to pay interest under section 11B clause (a). There, is, in my opinion, a basic
fallacy underlying this assumption, because it is clear from the language of
sub-section (2) of section 7 that it 582 is only on the filing of the return that
the liability to pay the tax due on the basis of the return arises. If no
return is filed within the prescribed time, it would undoubtedly constitutes a
default attracting penalty under section 16, sub-section (1) clause (n), but
there would be no liability on the assessee to pay interest on the amount of
the tax, because the liability to pay the "tax due on the basis of the
return' ' under sub. section (2) of section 7 can arise only when the return is
filed. There is no liability on the assessee to pay any amount by way of tax
until the return is filed or the assessment is made. This is clear from the
decision of this Court in the State of Rajasthan v. Ghasi Lal (supra) where
this Court held in so many terms at page 322 of the Report that since the assessee
in that case did not file returns till December 19, 1959 and January and March
1960, "section 7(2) could not be attracted till then" (Emphasis
supplied). I fail to understand how in the face of these observations made by a
Bench of five judges of this Court, it can ever be held that section 7
sub-section (2) is attracted even when no return has been filed. It is clear
from the observations in this case- observations which have been quoted here as
also in an earlier paragraph-that until the assessee files a return or the
assessment is made, no tax is payable by the assessee, because "till then
there is only a liability to be assessed to tax '. I must therefore regretfully
express my liability to accept the conclusion reached by my learned brother
Venkataramiah that a registered dealer falling within category 3 who does not
File any return at all as required by sub-section (I) of section 7 would still
be liable to pay the amount of tax and if he does not pay the same before the
due date for filing the return has expired, he would be liable to pay interest
under section I IB clause (a). That would be plainly contrary to the decision
in State of p Rajasthan v. Ghasi Lal (supra) which, being a decision of S
Judges of this Court, is binding upon us.
So also with regard to registered dealers
falling within category 4, I cannot agree with the view taken by my learned
brother Venkataramiah. He has reasoned that if a registered dealer files a
return but does not pay the full amount of the tax due on the basis of the
return filed by him, the Assessing Authority would be entitled to ignore the
return under sub-rule (4) of Rule 25 and when the return is not taken
cognizance of, there would be no return on the basis of which interest can be
computed. This reasoning is, in my opinion, fallacious and if I may say so
without meaning the slightest disrespect, it is based on misappreciation of the
effect of sub-rule (4) of Rule 25 vis-a-vis sub-section (2) of section 7. Rule
25 583 sub-rule (4) provides that if a return is not accompanied by a receipt
for the deposit of tax as required by sub-section (2) of section 7, the
Assessing Authority shall not be bound to take any cognizance of the return. If
the assessee does not deposit the amount of tax due on the basis of the return
and files the return without making such deposit, the Assessing Authority is
given the discretion to ignore the return and to proceed to assess the assessee
as if no return were filed. But, the Assessing Authority may, in a given case,
if it so thinks fit, take cognizance of the return for the purpose of
assessment, despite the fact That the tax due on the basis of the return has
not been deposited by the assessee as required by sub-section (2) of section 7.
Where the Assessing Authority chooses to take cognizance of the return, there
can be no doubt, even on the reasoning of Mr. Justice Venkataramiah, that the
assessee would be liable to pay the amount of tax due on the basis of the
return and if he fails to do so, he would have to pay interest under section 11
clause (a). Then merely because the Assessing Authority may, in a given case,
in the exercise of its discretion, decline to take cognizance of the return, it
does not mean that in such a case the assessee would be retrospectively
relieved of his liability to pay the amount of tax due on the basis of the
return, on the ground that the return filed by him has become 'no-return'. The
liability of the assessee to deposit the amount of tax due on the basis of the
return cannot depend upon a future discretionary event. namely, whether the
Assessing Authority chooses to take cognizance of the return or declines to
take cognizance of it. The only correct way of reading sub- section (2) of
section 7 and sub-Rule (4) of Rule 25 is that whenever a return is led by the
assessee, it must under sub- section (2) of section 7 be accompanied by receipt
showing deposit of the full amount of tax due on the basis of the return and if
the assessee fails to deposit the amount of the tax due on the basis of the
return actually filed, the Assessing Authority would have the option under
sub-rule (4) of Rule 25 either to take or not to take cognizance of the return.
If the Assessing Authority chooses not to take cognizance of the return, it
would proceed to assess the assessee as if no return had been filed by him, but
that would not relieve the assessee of the obligation attaching to him under
sub-section (2) of section 7 of depositing, at the time of filing the return,
the amount of the tax due on the basis of the return actually filed nor would
it condone the breach of such obligation. If the assessee does not pay the full
amount of the tax due on the basis of the return as required subsection (2) of
section 7, he would be liable to pay interest under 584 section 11B clause (a),
irrespective of whether the Assessing Authority chooses to act upon the return
or declines to take cognizance of it. The argument which has appealed to my
learned brother Venkataramiah that if the construction put forward on behalf of
the assessee were accepted, sub-section (2) of section 7 would fail in its
application to a registered dealer falling within category 4 is therefore in my
opinion not a valid argument and with the greatest respect, I must confess my
inability to accept it.
On the construction contended for on behalf
of the assessee, the case of a registered dealer falling within category 4 is
clearly covered by sub-section (2) of section 7 and in fact, it is precisely to
cover inter alia a case of this kind that the legislature enacted sub-section
(2) of section 7 read with section 11B clause (a). Similarly the case of a
registered dealer falling within category 5 is also covered by sub-section (2)
of section 7 and if he does not pay the amount of tax which according to him is
payable, on the basis of the return filed by him, he would be liable to pay
interest under section 11B clause (a). So long as the assessee pays the amount
of tax which according to him is due on the basis of the return filed by him,
there would be no default on his part in complying with the obligation under
sub-section (2) of section 7 and there would be no liability on him to pay
interest under section 11B clause (a), because he would have paid the amount of
tax quantified by him through the process of self-assessment The actual amount
of tax payable by the assessee would be determined only when it is assessed by
the Assessing Authority under section 10 and that would not be payable until
the expiration of the period specified in the notice of demand or thirty days from
the date of service of such notice, as the case may be.
I must therefore regret my inability to
accept the view taken by my learned brother Venkataramiah that if the
construction contended for on behalf of the assessee were accepted, section 11
clause (a) would become meaningless or unworkable. That provision would have
full meaning and effect on the construction canvassed on behalf of the assessee
and in fact as pointed out above if the construction which has appealed to my
learned brother Venkataramiah were accepted, the consequence would be directly
contradictory to the decision of this Court in State of Rajasthan v. Ghasi Lal
(supra). My learned brother Venkataramiah has relied strongly on the decision
of this Court in Gurshai Saigal v. Commissioner of Income Tax, Punjab(l) but I
fail to see how this decision can 585 be of any help in the present case where
section 11B clause (a) is not at all rendered meaningless or unworkable on the
construction suggested on behalf of the assessee. The assessee in that case was
sought to be charged with interest under sub-section (8) of section 18A of the
Indian Income Tax Act 1922 which provided that "where, on making the
regular assessment, the Income-tax Officer finds that no payment of tax has
been made in accordance with the foregoing provisions of this section, interest
calculated in the manner laid in sub-section (6) shall be added to The tax as
determined on the basis of the regular assessment." The argument of the
assessee was that since sub-section (6) of section 18A provided that where in
any year an assessee has paid tax under sub-section (2) or sub-section (3) on
the basis of his own estimate and the tax so paid is less than 80% of the tax
determined on the basis of the regular assessment, simple interest at the rate
of 6% per annum from the first day of January in the financial year in which
the tax WAS paid upto the date of such regular assessment shall be payable by
the assessee and since no payment of tax had been made by the asses n e r, at
all in that case it, was not possible to calculate interest in tile manner laid
down in sub-section (6) and no interest could therefore be charged to the
assessee under sub-section (8) of section 18A. This argument was rejected by
the Court on the ground that if the words "from the first day of January
in the financial year in which the tax was paid" occurring in sub- section
(6) of section 18A were to be literally applied in a case falling within
sub-section (8) of section 18A where no tax would have been paid, sub-section
(8) would be rendered totally meaningless and futile. The Court therefore with
a view not to rendering sub-section (8) of section 18A a dead letter construed
the words in sub-section (6) to mean "from the first day o, January in the
financial year in which the tax ought to have been paid." This liberty was
taken by the Court with the language of sub-section (6) of section 18A, because
the Court proceeded on the hypothesis that the legislature could not have
intended that sub-section (8) of section 18A should be meaningless and
unworkable. But here in the present case there is no compelling necessity to
modify the words used in sub-section (2) of section 7, because sub-section (2)
of section 7 read with section 11B clause (a) is not rendered meaningless or
futile on a plain natural construction of the language used in that provision.
It is interesting to compare section 140A
sub-section (I) of the Income Tax Act, 1961 with section 7 sub-section (2) of
the State Act. Sub-section (I) of section 140A provides that where any tax is
586 payable on the basis of any return required to be furnished under section
139 or under sec. 148, after taking into account the amount of tax, if any,
already paid under any provision of the Act, the assessee shall be liable to
pay such tax before furnishing the return and the return shall be accompanied
by proof of payment of such tax. Sub-section (3) of section 140A then proceeds
to state that if any assessee fails to pay the tax or any part thereof in
accordance with the provision of sub-section (1), the Income Tax officer may
direct that a sum equal to two percent of such tax or part thereof, as the case
may be, shall be recovered from him by way of penalty for every month during
which the default continues. Can it possibly be contended that these two
sub-sections of section 140A refer to tax payable on the basis of a proper and
correct return or in other words the tax assessed ? It is obvious that these
two sub-sections refer only to tax payable on the basis of self- assessment and
require such tax to be paid before the filing of the return and if that is not
done, the assessee becomes liable to pay penalty for every month n during which
the default continues. So also section 21 j of Income-tax Act, 1961 which
provides for payment of interest on under-payment of advance tax does not
impose liability for payment of interest in case or every deficiency but
provides for payment of interest only if the advance tax paid is less than 75
per cent of the assessed tax. In the world of human affairs, it is hardly
possible that the advance tax paid by the assessee or the tax payable on the
basis of self- assessment would always be equivalent to the tax ultimately
assessed by the authorities. There is no reason to interpret section 7 sub-section
(2) differently from similar provisions in the Income-Tax Act, 1961.
I am therefore of the view that since the
assessee deposited the amounts of tax which according to him were due on the
basis of the returns actually filed by him and the returns were accompanied by
receipts showing deposit of such amounts of tax, there was no default on the
part of the assessee in paying the amounts of tax payable under sub- section
(2) of section 7 within the actual period allowed and in the circumstances no
interest was payable by the assessee under section I IB clause (a). I would
accordingly allow the appeal and set aside the orders passed by the Assessing
Authority imposing penalty and levying interest on the assessee under the Slate
Act as well as the Central Act.
The Revenue will pay the costs of the appeal
to the assessee.
587 VENKATARAMIAH, J. The assessee M/s.
Associated Cement Companies Limited has filed this appeal by special leave
under Article 136 of the Constitution against the orders dated January 30, 1980
passed by the Commercial Tax officer, Special Circle, Kota in the State of
Rajasthan imposing on it a penalty of Rs. 53,335 under section 7AA of the
Rajasthan Sales Tax Act, 1954 (hereinafter referred to as 'the Act') and
levying interest under section 11B of the Act amounting to Rs. 85,910.50 and a
further penalty of Rs.
1,34,205 under section 7AA of the Act read
with section 9(2) of the Central Tax Act and levying interest of Rs.
2,07,174/- under section 11B of the Act read
with section 9(2) of the Central Sales Tax Act in respect of the assessment
year 1974-75.
The circumstances under which the above
orders came to be passed are these: The assessee has a cement manufacturing factory
in the State of Rajasthan at Lakheri. The cement manufactured at that factory
is sold partly in the State of Rajasthan and partly outside that State. The
invoices of sales are however, made and issued at Ahmedabad and other places.
The sales tax returns relating to the sales were filed under the Act and under
the Central Sales Tax Act at Kota before the assessing authority for the period
between August 1, 1973 and July 31, 1974 i e. the assessment year 1974-75. In
those returns, the assessee had not included in the taxable turnovers the
freight charges paid in respect of the goods in question in the bonafide belief
that the freight charges were not liable to be included in the taxable turnover
in view of certain decisions which had been rendered by some of the High Courts
and of the Supreme Court and in particular the decision of this Court in
Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh.(l) But in,
Hindustan Sugar Mills etc. v. State of Rajasthan & Ors.(2) this Court held
that on a true construction of the scheme of the Cement Control order, 1967 and
the relevant provisions of the Act and of the Central Sales Tax Act, the
freight charges formed part of the sale price and that sales tax was payable
thereon. The above decision was rendered on August 22, 1978. On coming to know
of the said decision, the assessee prepared and filed the revised returns in
respect of the assessment year in question i.e. 1974-75 before the Commercial
Tax officer, Special Circle, Kota on October 20, 1978 including the freight
charges in the taxable turnover.
The assessee also deposited along with the
revised returns 588 the balance of the sales tax payable under the Act and
under the Central Sales Tax Act. Thereafter the assessing authority passed the
two impugned orders of assessment-one under section 10(3) of the Act and
another under section 9 of the Central Sales Tax Act. In the order of
assessment passed under the Act, the assessing authority levied a penalty of
Rs. 53,335/- under section 7AA of the Act on account of the delay in depositing
a sum of Rs. 1,06,671/- towards sales tax payable in respect of the freight
charges and also levied interest of Rs. 85,9l0.50 under section I IB of the
Act. Similarly in the assessment order passed under the Central Sales Tax Act,
a penalty of Rs. 1,34,205/- was levied under section 7AA of the Act read with
section 9(2) of the Central Sales Tax Act for the delay in depositing the tax
payable in respect of the freight charges and levied interest of Rs. 2,07,174
under section 11B of the Act read with section 9(2) of the Central Sales Tax
Act. In this appeal, we are only concerned with the correctness of the impugned
orders in so far as they levy penalty and interest.
The first question canvassed before us
relates to the levy of penalties on the assessee under the assessment orders
for not paying the sales tax payable under the Act and under the Central Sales
Tax Act in respect of the freight charges which were declared as components of
sale price by this Court in Hindustan Sugar Mill's case (Supra) on August 22,
1978. The explanation of the assessee for not including the freight charges in
the taxable turnover was, as mentioned earlier, that there was a doubt about its
liability to pay sales tax thereon as the very same question was pending
adjudication before this Court and that on the facts and in the circumstances
of the case, the assessee could not be held guilty of filing false returns
before the assessing authority. It was pleaded that since the non- inclusion of
the freight charges in the taxable turnover was a result of bonafide belief of
the assessee that they were not liable to be included in the taxable turnover,
the assessing authority should have in its discretion not imposed the penalties
particularly having regard to the fact that within two months after the
judgment of this Court in Hindustan Sugar Mills' case (supra), the assessee had
filed the revised returns including the freight charges in the taxable turnover
and paid the sales tax payable in respect of them even before the assessing
authority had passed the orders of assessment. We are of the view that This
part of the case of the assessee has got to be accepted in view of the decision
of this Court in Cement Marketing Co. Of India Ltd. v. Asstt. Commissioner of
Sales Tax, 589 Indore & Ors.(1) where under similar circumstances, this
Court held A that the assessee therein which was also manufacturer and dealer
in cement was not liable to pay a penalty under section 43 of the Madhya
Pradesh General Sales Tax Act, 1958 read with section 9(2) of the Central Sales
Tax Act. For the reasons mentioned therein, we hold that the levy of penalties
for not including the freight charges in the taxable turnover in the original
returns and for not paying the tax in respect of such freight charges is
unsustainable and that the impugned penalties are liable to be quashed.
The next question which arises for
consideration relates to the liability of the assessee to pay interest under
section 11B of the Act on the tax paid in respect of the freight charges for
the period S between the date on which it was payable under section 7(2) of the
Act and the date of payment and the liability to pay interest on the tax
payable in respect of the freight charges under the Central Sales Tax Act in
accordance with section 9(2) thereof read with section 11B of the Act. The
claim of the department is based on subsections (1) and (2) of section 7 read
with section 11B of the Act in the case of interest claimed under the Act and
on the aforesaid provisions of the Act read with section 9(2) of the Central
Sales Tax Act in respect of the interest payable under the Sales Tax Act.
Section 7 of the Act at the relevant point of time read as follows:
"7. Submission of returns.-(1) Every
registered dealer and such other dealer, as may be required to do so by the
assessing authority by notice served in the prescribed manner, shall furnish
prescribed returns, for the prescribed periods, in the prescribed forms, in the
prescribed manner and within the prescribed time to the assessing authority:
Provided that the assessing authority may
extend the date for the submission of such returns by any dealer or class of
dealers by a period not exceeding fifteen days in the aggregate.
(2) Every such return shall be accompanied by
a Treasury receipt or receipt of any bank authorised to receive money on behalf
of the State Government, showing the deposit of the full amount of tax due on
the basis of return in the State Government Treasury or bank concerned.
590 (2A) Notwithstanding anything contained
in sub section (2), the State Government may by notification in the official
Gazette require any dealer or class of dealers specified therein, to pay tax at
intervals shorter than those prescribed under sub-section (1). In such cases,
the proportionate tax on the basis of the last return shall be deposited at the
intervals specified in the said notification in advance of the return. The
difference, if any, of the tax payable according to the return and the advance
tax paid shall be deposited with the return and the return shall be accompanied
by the treasury receipt, or receipts of any Bank authorised to receive money on
behalf of the State Government, for the full amount of tax due shown in the
return (3) If any dealer discovers any omission, error, or wrong statement in
any returns furnished by him under sub-section (1), he may furnish a revised
return in the prescribed manner before the time prescribed for the submission
of the next return but not later.
(4) Every deposit of tax made under
sub-section (2) shall be deemed to be provisional subject to necessary
adjustments in pursuance of the final assessment of tax made for any year under
section 10." Section 11B of the Act during the relevant, period read as
under:- 11 B. Interest on failure to pay tax, fee or penalty,- (a) If the
amount of any tax payable under subsections (2) and (2A) of section 7 is not
paid within the period allowed, or (b) if the amount specified in any notice of
demand, whether for tax, fee, or penalty, is not paid within the period
specified in such notice, or in the absence of such specification, within 30
days from the date of service of such notice, the dealer shall be liable to pay
simple interest on such amount at one percent per month from the day commencing
after the end of the said period for a period of three months and at one and a
half percent per month 591 thereafter during the time he continues to make
default in the payments;
Provided that, where, as a result of any
order under this Act, the amount, on which interest was payable under this
section, has been reduced, the interest shall be reduced accordingly and the
excess interest paid, if any, shall be refunded;
Provided further that no interest shall be
payable under this section on such amount and for such period in respect of
which interest is paid under the provisions of sections 11 and 14." We are
principally concerned in this case with sub- sections (1) and (2) of section 7
of the Act. Sub-section (1) of section 7 of the Act requires every registered
dealer and such other dealer, as may be required to do so by the assessing
authority in the prescribed manner to furnish returns in a prescribed form in
respect of the n prescribed periods within the prescribed time furnishing
necessary particulars regarding his turnover. The proviso to sub- section (1)
of section 7 of the Act authorises the assessing authority to extend the date
for the submission of such returns by a period not exceeding 15 days in the
aggregate.
Sub-section (2) of section 7 of the Act
insists that every such return shall be accompanied by a 1 Treasury receipt or
receipt of any bank authorised to receive money on behalf the State Government
showing the deposit of the full amount of tax due on the basis of return in the
State Government Treasury or bank concerned. Sub-section (4) of section 7 of
the Act, it may be noticed, provides that every deposit of tax made under
sub-section (2) shall be deemed to be provisional subject to necessary
adjustments in pursuance of the final assessment of tax made for any year under
section
10. Clause (a) of section 11B of the Act authorises
the levy of interest on the amount of tax not paid in accordance with
sub-sections (2) and (2A) of section 7 of the Act. The expression 'prescribed'
is defined in section 2(1) of the Act. It states that in the Act unless the
context otherwise requires "prescribed" means prescribed by rules
made under the Act. Section 26 of the Act empowers the State Government to make
rules to carry out the purposes of the Act and in particular and without
prejudice to the generality of the foregoing power, such rules may provide for
all matters expressly required or allowed by the Act to be prescribed.
We have seen earlier that section 7(1) 592 of
the Act requires the returns to be filed in the prescribed manner, in respect
of the prescribed periods and within the prescribed time. Sub-section (5) of
section 26 of the Act lays down that all rules made under that section shall be
published in the official Gazette and upon such publication shall have effect
as if enacted in the Act Chapter VII of the Rajasthan Sales Tax Rules, 1955
(hereinafter referred to as 'the Rules') framed by the State Government in
exercise of its power under the Act deals with the topic "Return of
turnover and other returns and statements". The relevant part of Rule 25
of the Rules which appears in Chapter VII reads as follows:
"25. Return of turnover.-(1) The return
referred to in sub-section (1) of section 7 shall be in form S.T. 5 and shall
be signed by the dealer himself or his agent, and shall be verified in the
manner indicated therein and shall be submitted to the assessing authority
concerned.
(2) The return may be presented personally or
may be sent by post.
(3) The said return shall be filed for such
of the quarters ending with the last day of the month of June, September,
December and March of every assessment year if the 'previous year' of the
dealer ends on the 31st day of March of any year, and in other cases for each
of the quarters of the year of accounts of the dealer, and shall be filed not
later than 30 days after the end of the quarter to which it relates:
Explanation.-The quarters of the year of
accounts of a dealer shall be as follows:
First quarter-The period of three months
commencing on the first day of the year of accounts.
Second quarter-The period of three months commencing
on the day next after the end of the first quarter.
Third quarter-The period of three months
commencing on the day next after the end of the second quarter.
Fourth quarter-Rest of the year of account.
The months shall be calculated according to
the usage of the dealer whose year of account is in question.
593 (4) If a return is not accompanied by a
receipt for the deposit of tax as required by sub-section (2) of section 7, the
assessing authority shall not be bound to take any cognisance of the
return." Sub-rule (1) of Rule 25 of the Rules provides that the return
referred to in sub-section (1) of section 7 of the Act shall be in form S.T. 5
and sub-rule (3) of Rule 25 prescribed the time within which quarterly returns
should be filed by a dealer. Sub-rule (4) of Rule 25 of the Rules provides that
if a return is not accompanied by a receipt for the deposit of tax as required
by sub-section (2) of section 7 of the Act, assessing authority shall not be
bound to take any cognisance of the return. Rule 25 of the Rules which is
framed under the Act should be read as a part of the Act itself in view of the
express provision contained in sub-section (5) of section 26 of the Act, which
declares that all rules made under section 26 shall on publication in the
official Gazette have effect, as if enacted in the Act.
That should be the effect of a rule framed
under statute containing a provision similar to the provision in section 26(5)
of the Act can be gathered from a decision of the House of Lords in Institute
of Patent Agents & Ors. v.
Joseph Lockwood in which Lord Herschell, L.C.
Observed at page 360 thus:
"I own I feel very great difficulty in
giving to this provision, that they "shall be of the same effect as if
they were contained in this Act," any other meaning than this, that you
shall for all purposes of construction or obligation or otherwise treat them
exactly as if they were in the Act. No doubt there might be some conflict
between a rule and a provision of the Act. Well, there is a conflict sometimes
between two sections to be found in the same Act. You have to try and reconcile
them as best you may. If you cannot, you have to determine which is the leading
provision and which the subordinate provision, and which must give way to the
other. That would be so with regard to the enactment and with regard to rules
which are to be treated as if within the enactment." The contention of the
assessee in the present case is that as it had deposited the full amount of tax
due on the basis of the returns filed under sub-section (1) of section 7 of the
Act at the time when 594 they were filed, it had compiled with sub-section (2)
of section 7 of the Act and that the question of levying interest on the amount
of tax which it deposited on the basis of the revised returns for the period
prior to the date of the revised returns did not arise. On behalf of the
department it is urged before us that the words "on the basis of
return" occurring in sub-section (2) of section 7 of the Act must be read
as on the basis of a true and proper return in the context in which those words
appear in the statute and if they are so read, the assessee is liable to pay
interest on the deficit amount of tax which was made good on October 20, 1978
for the period between the date on which such deposit or deposits had to be
made under section 7(1) of the Act read with Rule 25 of the Rules and the date
on which they were actually made.
We are concerned in this case with the
liability of the assessee to pay interest on the amount of tax which had
remained unpaid Tax, interest and penalty are three different concepts. Tax
becomes payable by an assessee by virtue of the charging provision in a taxing
statute.
Penalty ordinarily becomes payable when it is
found that an assessee has willfully violated any of the provisions of the
taxing statute. Interest is ordinarily claimed from an assessee who has
withheld payment of any tax payable by him and it is always calculated at the
prescribed rate on the basis of the actual amount of tax withheld and the
extent of delay in paying it. It may not be wrong to say that such interest is
compensatory in character and not penal.
In order to understand the case of the
assessee, we may classify the registered dealers into the following different
classes:
1. A registered dealer who files his return
showing a higher taxable turnover than the actual turnover which is ultimately
found to be taxable at the time of regular assessment and who pays tax under
section 7(2) of the Act on the basis of the return.
2. A registered dealer who files a true and
proper return and pays tax on the basis of such return within the time allowed.
3. A registered dealer who does not file any
return at all as required by section 7(1) and pays no tax under section 7(2) of
the Act.
4. A registered dealer who files a true
return but does not pay the full amount of tax as required by section 7(2) and
5. A registered dealer who files a return but
wrongly claims either the whole or any part of the turnover as not taxable and
pays under section 7(2) of the Act that amount of tax, which according to him
is payable, on the basis of the return.
In the case of a registered dealer falling
under class (1) no question of payment of interest would arise as the amount of
tax paid by him at the time of filing the return is much more than what is
actually due and payable by him under the Act. The extra tax paid by him
becomes refundable after the regular assessment is completed in view of section
7(4) of the Act. In the case of a registered dealer falling under class (2)
also no question of payment of interest arises as there is no shortfall in
payment of the tax.
If the contention of the assessee urged in
this case is accepted, no interest becomes payable even by registered dealers
falling under classes 3,4 and 5 because (a) in the case of a registered dealer
falling under class (3) who has not filed any return at all, no occasion would
arise to claim interest on any tax 'due on the basis of return' as there is no
return at all. (b) in the case of a registered dealer falling under class (4)
who files a true return but does not pay full amount of tax under section 7(2)
the assessing authority is entitled to ignore it under sub-rule (4) of Rule 25
of the Rules and when the return is not taken cognisance of, there will be no
return on the basis of which interest can be computed and (c) in the case of a
registered dealer coming within the purview of class (S) who has filed a return
but has wrongly claimed either the whole or any part of the turnover as not
taxable and paid under section 7(2) of the Act only that amount of tax which
according to him is payable as tax as he would have paid whatever is payable on
the basis of the return. The resulting position would be that clause (a) of
section 11B of the Act which clearly imposes the liability on the assessee who
has not paid the tax due by him within the period allowed by law becomes either
unworkable or meaningless. A fair reading of section I IB of the Act suggests
that the Act expects that all assessees who are liable to pay sales tax should
file a true return within the period prescribed under sub-section (I) of
section 7 and should 596 produce a treasury receipt or a receipt of any bank
authorised to receive money on behalf of the State Government showing that full
amount of tax due from them has been paid.
The argument pressed before us on behalf of
the assessee is that since section 7 of the Act does not expressly say that a
registered dealer who has not filed any return or a person who has claimed that
his turnover or any part thereof is not taxable and has not paid tax due in
respect of such disputed turnover should also pay interest on the tax which is
legitimately due to the Government but withheld by him, no interest can be
claimed under section 11B of the Act in such cases. Section 7 of the Act which
deals with the submission of returns is not a charging section but a machinery
section. It is settled law that a distinction has to be made by court while
interpreting the provisions of a taxing statute between charging provisions
which impose the charge to tax and machinery provisions which provide the
machinery for the quantification of the tax and the levying and collection of
the tax so imposed.
While charging provisions are construed
strictly, machinery sections are not generally subject to a rigorous
construction. The courts are expected to cons true the machinery sections in
such a manner that a charge to tax is not defeated. The above rule of
construction of a taxing statute has been adopted by this Court in India United
Mills Ltd. v. Commissioner of Excess Profits Tax, Bombay in which section 15 of
the Excess Profits Tax Act came up for consideration. The Court observed in
that case thus:
"That section is, it should be
emphasised, not a charging section, but a machinery section. And a machinery
section should be so construed as to effectuate the charging section." The
above principle was followed by this Court in Gursahai Saigal v. Commissioner
of Income-tax, Punjab in which is was observed thus:
"Now it is well recognised that the rule
of construction on which the assessee relies applies only to a taxing provision
and has no application to all provisions in a taxing statute. It does not, for
example, apply to a provision not 597 creating a charge for the tax but laying
down the machinery for its calculation or procedure for its collection. 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." In deciding Gursahai Saigal's case (supra) the Court followed
the observations made by the Privy Council in Commissioner of Income-tax v.
Mahaliram Ramjidas and by the House of Lords in Whitney v. Commissioners of
Inland Revenue. In the case of Mahaliram Ramjidas (supra) the Privy Council
observed:
"The section, although it is a part of a
taxing Act, imposes no charge on the subject, and deals merely with the machinery
of assessment. In interpreting provisions of this kind the rule is that
construction should be preferred which makes the machinery workable utres
valeatpotius quam Pereat." In Whitney's case (supra), Lord Dunedin made
the following observations:
"My Lords, I shall now permit myself a
general observation. Once that it is fixed that there is liability, it is
antecedently highly improbable that the statute should not go on to make that
liability effective. A statute 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. Now, there are
three stages in the imposition of a tax: there is the declaration of liability,
that is the part of the statute which determines what persons in respect of
what property are liable. Next, there is the assessment. Liability does not
depend on assessment.
That, exhypothesi, has already been fixed.
But assessment particularizes the exact sum which a person liable has to pay.
Lastly, come the methods of recovery, if the person taxed does not voluntarily
pay," The circumstances under which the above principle was applied by
this Court in Gursahai Saigal's case (supra) are interesting. That 598 was a case
in which an assessee who was charged with interest under sub-section (8) of
section 18A of the Indian Income-tax Act, 1922 has questioned his liability to
pay interest His contention was that interest payable under sub- section (8) of
section 18A of that Act had to be calculated in the manner laid down in
sub-section (6) thereof. Since sub-section 6 of. s. 18A of the Act provided
that where in any year an assessee had paid tax under sub-section (2) or
sub-section (3) thereof on the basis of his own estimate and the tax so paid
was less than eighty per cent of the tax determined on the basis of regular
assessment simple interest at the rate of six per cent per annum from the 1st
day of January in the financial year in which the tax was paid upto the date of
the said regular assessment should be payable by the assessee and as he had not
paid any tax at all, it was urged that it was not possible to calculate
interest in the manner laid down in sub-section (6). The Court rejected the
contention of the assessee following the decision of the Privy Council and the
House of Lords referred to above that the words "from the 1st day of
January in the financial year in which the tax was paid" obviously could
not literally be applied to a case where no tax had been paid but since on a
true construction those words meant "from the 1st day of January in the
financial year in which the tax ought to have been paid", the assessee was
liable to pay interest. This Court observed:
"It would not be doing too much violence
to the words used to read them in this way The tax ought to have been paid on
one or other of the dates earlier mentioned. The intention was that interest
should be charged from January 1 of the financial year in which the tax ought
to have been paid. Those who paid the tax but a smaller amount and those who
did not pay tax at all would then be put in the same position substantially
which is obviously fair and was clearly intended. Which is the precise
financial year in any case would depend on its facts and this would make no
difference in the construction of the provision." We are in respectful
agreement with the method of approach adopted by this Court in Gursahai
Saigal's case (supra). It is the duty of the Court while interpreting the
machinery provisions of a taxing statute to give effect to its manifest purpose
having a full view of it. Wherever the intention to impose liability is clear
courts ought to have no hesitation in giving what we may call a common sense
interpretation to the machinery sections so that the charge does not fail.
599 In the present case if we construe the
words "on the basis of return" occurring in sub-section (2) of
section 7 of the Act as on the basis of a true and proper return which ought to
have been filed under sub-section (1) of section 7 then all the three classes
of persons viz. (i) those who have not filed any return at all and who are
later on found to be liable to be assessed, (ii) those who have filed a true
return but have not deposited the full amount of tax which they are liable to
pay and (iii) those who have filed a return making a wrong claim that either
the whole or any part of the turnover is nat taxable and who are subsequently
found to have made a wrong claim, would be placed in the same position and they
would all be liable to ply interest on the amount of tax which they are liable
to pay but have not paid as required by sub-section (2) of section 7 of the
Act. We are of opinion that this view is in conformity with the legislative
intention in enacting section 11B of the Act.
We have carefully gone through the decision
of five learned judges of this Court in State of Rajasthan and Ors.
v. Ghasi Lal and we are humbly of opinion
that it is distinguishable from the present case. In Ghasi Lal case (supra),
this Court was concerned with the question of sustainability of penalties
imposed under the Act and not interest leviable under section 11B. The relevant
facts in that case were these: Thee respondent therein who was a dealer within
the meaning of the Act filed a writ petition in the High Court of Rajasthan
challenging the making of assessment 13 on his turnover for the year 1955-56 on
the ground that the Rules which had been published on March 28, 1955 were
invalid. On January 9, 1958 the High Court passed an interim order stating that
"the petitioner will keep proper accounts and file the prescribed returns
but shall not be assessed till further orders". While the petition was
pending in the High Court, ordinance No. 5 of 1959 was promulgated on November
6, 1959 validating the Rules.
Thereupon the respondent therein withdrew the
writ petition.
On December 17, 1959, the Rajasthan Sales Tax
Validation Act (Rajasthan Act 43 of 1959) replaced the Ordinance. The effect of
the ordinance and the Validation Act was to validate the Rules even if any
defect existed in the making of the Rules. On December 4, 1959, the Sales Tax
Officer called upon the respondent therein to pay tax due by him within a week
as the writ petition had been withdrawn and dismissed. The respondent had filed
his returns earlier and also had deposited certain amounts towards tax. On
April 25, 1960, the Sales Tax 600 Officer made an assessment in respect of the
accounting period November 3, 1956 to October 22, 1957 and also proceeded to
impose a penalty of Rs. 400/- under section 16(1) (b) of the Act. Justifying
the imposition of penalty, he observed thus:
"The assessee has not deposited tax of
the quarters on the due date, the tax deposited for 4th quarter is very late,
i.e., after two years the assessee was given a notice and in reply to which he
referred the stay order of the Hon'ble High Court granted to him in a writ
petition filed challenging the validity of sales tax rules made under the Act.
The stay order of the Hon'ble High Court does not say that the assessee is
allowed to withhold the tax. On the contrary, it directs that the petitioner
(assessee) will keep proper accounts and file prescribed returns but shall not
be assessed. This clearly shows that the assessee should have filed returns in
time and according to section 7(2) the treasury challan of the deposit should
have accompanied them. This amounts to contravention of the mandatory
provisions. The writ was dismissed on 23-4-58 sic (23-11 59), even the amount
was not deposited till 17-12-59. This shows that the assessee withheld the tax
intentionally".
The Deputy Commissioner of Sales Tax
(Appeal), Kota dismissed the appeal upholding the above penalty. Similarly on
December 6, 1960, the Sales Tax Officer assessed the respondent in respect of
accounting period October 23, 1957 to November 10, 1958 and imposed a penalty
of Rs. 1,000/- for not depositing the tax in time on the same grounds. The
respondent questioned the penalties in respect of the aforesaid two years
before the High Court. The High Court quashed them. Against the orders of the
High Court, the State of Rajasthan filed two appeals which were disposed of by
this Court by the judgment rendered in the above case.
The judgment of this Court depended upon the
true construction of clause (b) section 16(1) of the Act which read:
"16.(1)-If any Person- (a)
............................; or (b) has without reasonable cause failed to pay
the tax due within the time allowed; or 601 (c) has without reasonable cause
failed to furnish the return of his turnover, or failed to furnish it within
the time allowed; or ... ... ... ...
... ... ... ...
the assessing authority may direct that such
person shall pay by way of penalty, in the case referred to in clause (a) in
addition to the fee payable by him, a sum not exceeding Rs. 50/- and in the
case referred to in clause (b), in addition to the amount payable by him, a sum
not exceeding half of that amount, and that in cases referred to in clauses (c)
and (d), in addition to the tax payable by him, a sum not exceeding half the
amount of tax, determined; in the case referred to in clause (e), in addition
to the tax payable by him, a sum not exceeding double the amount of tax, if any
which would have been avoided if taxable turnover as returned by such person had
been accepted as correct turn over and in the cases referred to in clauses (f),
(ff) and (g), a sum not exceeding Rs 100/-".
Sikri, J. (as he then was) who delivered the
judgment of this Court observed thus :
"In our opinion, there has been no
breach of s. 16(1) (b) of the Act, and consequently, the orders imposing the
penalties cannot be sustained. According to the terms of section 16(1) (b),
there must be a tax due and there must be a failure to pay the tax due within
the time allowed. There was some discussion before us as to the meaning of the
words 'time allowed', but we need not decide in this case whether the words
'time allowed' connote time allowed by an assessing authority or time allowed
by a provision in the Rules or the Act, or all these things, as we are of the
view that no tax was due within the terms of s.
16(1) (b) of the Act. Section 3, the charging
section, read with s. 5 makes tax payable, i.e. creates a liability to pay the
tax. That is the normal function of a charging section in a taxing statute. But
till the tax payable is ascertained by the assessing authority under s. 10, or
by the assessee under s. 7(2), no tax can be said to be due within s. 16(1) (b)
of the Act, for till then there is only a liability to be assessed to tax."
(underlining by us).
A careful reading of the above passage shows
that this Court held that section 16(1) (b), which provided for the imposition
of 602 penalty when an assessee had without reasonable cause failed to pay the
tax due within the time allowed, was not attracted as no tax was due, within
the terms of section 16(1) (b) even though it was payable by virtue of section
3 read with section 5 of the Act. Now section 11B (a) which provides for
levying interest on failure to pay tax, states that if the amount of any tax
payable under sub-sections (2) and (2A) of section 7 is not paid within the
period allowed the dealer shall be liable to pay interest at the prescribed
rate during the time he continues to make default in the payments Section
11B(a) of the Act does not refer to any tax due.
At this stage it is necessary to refer to
certain legislative changes that have taken place since the decision in
Ghasilal's case (supra) was delivered. Section 16(1) (c) as it stood then has
been amended and section 7AA providing for levy of penalty for failure to
furnish returns has been inserted in the Act by Rajasthan Act 11 of 1969.
Section 7AA reads thus:- "7AA. Penalty for failure to furnish returns-If
the assessing authority in the course of any proceedings under this Act is
satisfied that any dealer has without reasonable cause failed to furnish the
return under sub-section (1) of section 7 within the time allowed, he may
direct that such dealer shall pay by way of penalty, in addition to the amount
of the tax, if any, payable by him, a sum equal to two per cent of the tax, for
every month during which the default continued but not exceeding in the
aggregate fifty per cent of the tax." Section 16(1) as it now stands does
not deal with levy of penalty for not filing the prescribed return as it is
provided by section 7AA set out above. It is also to be pointed out that sub
section (2A) was inserted in section 7 by Rajasthan Act 13 of 1963 providing
that notwithstanding anything contained in sub-section (2) of section 7 the
State Government may by notification in the official Gazette require any dealer
or class of dealers specified therein to pay tax at intervals shorter than
those prescribed under section 7(1). In such cases the proportionate tax on the
basis of the last return has to be deposited at the intervals specified in the
said notification in advance.
These features clearly show that the tax that
is payable under section 3 read with section 5 of the Act has to be paid along-
603 with the return within the time allowed for that purpose and if section
7(2) applies it has to be paid in advance at stated intervals. Section 11B with
which we are concerned was added by Rajasthan Act 11 of 1969. Clause (a) of
section 11 states that if the amount of any tax payable under sub- sections (2)
and (2A) of section 7 is not paid within the period allowed interest at the
prescribed rate has to be paid on that amount from the day commencing after the
end of the said period. 'Period allowed' means period allowed by the Act and
the Rules or such extended period under the proviso to section 7(1). It is thus
clear that in cases to which section 7(2) of the Act applies interest has to be
paid on the tax payable but which has not been paid from the last date on which
the return has to be filed for the assessment year in question and in cases to
which subsection (2A) is applicable, from the last date on which the advance
tax has to be paid. The amount of interest has no doubt to be calculated after
the actual amount of tax payable is assessed and necessary adjustments are
made. We do not think that in taking the above view we have in any way
disregarded the decision in Ghasilal's case (supra) in which the question of
payment of interest under section 11B did not at all arise for consideration.
Our learned Brother Bhagwati, J. in his
opinion while dealing with the applicability of section 11B(a) has observed
that the scheme of taxation envisaged in the Act clearly shows that it is only
when the assessment is made and specified in the notice of demand or in the
absence of such specification thirty days from the date of service of such
notice expires that the amount of tax as assessed becomes payable by an
assessee. With great respect, we have to state that we depend upon Ghasilal's
case (supra) itself to hold that for purposes of section 11B(a) the tax becomes
payable before assessment is made by virtue of section 3 read with section 5
and sub-sections (2) and (2A) of section 7 of the Act and the Rules framed
thereunder, even though, it becomes due when return is filed under section 7(2)
or ascertained under section 10. That a tax can become payable even before
assessment is also clear from the observations of Sikri, J. (as he then was) in
Ghasilal's case (supra) to the effect that "section 3, the charging
section read with section 5, makes tax payable i.e.. creates a liability to pay
the tax .... But, till the tax payable is ascertained by the assessing
authority under section 10 or by the assessee under section 7(2), no tax can be
said to be due 604 within section 16(1) (b) of the Act for till then there is
only a liability to be assessed to tax".
(emphasis added) We are of opinion that
either by delaying the filing of the return or not filing it all or by filing a
return wrongly claiming that a certain part of the turnover is not taxable or
by not disclosing a part of the taxable turnover in the return an assessee
cannot escape the liability to pay interest under section 11 B(a) on the amount
of tax withheld, as a consequence of his own action or inaction, from the last
date on which it had to be paid as per sub- section (2) or sub-section (2A) of
section 7, as the case may be, read with the Rules. An assessee cannot contend
that interest does not accrue under section 11B (a) on the tax payable by him
where the time to file the return has elapsed until he actually files a return
admitting the liability to pay such tax or until assessment is made.
We are of the view that the statutory
liability under section 11B(a) arises wherever there is default in payment of
the tax within the period allowed by law irrespective of any doubt which an
assessee may be entertaining about the liability to pay the tax.
It is not disputed in this case that freight
charges had to be included in the taxable turnover of the assessee mentioned in
the returns that were filed within the prescribed time under section 7(1) of
the Act and that the tax payable in respect of freight charges should have been
paid as required by sub-section (2) of section 7 before the returns were filed.
The fact that the question relating to the liability of the assessee to pay
sales tax in respect of the freight charges was decided by the Supreme Court
subsequently does not in any way affect the question which arises for
consideration in this case. The decision of this Court did not create any new
liability. It only declared that such a liability was existing at the relevant
point of time. Since it is clear that the amount of tax due in respect of the
freight charges which was payable under sub- section (2) of section 7 was not
paid within the period allowed, section 1 IB is clearly attracted and the
liability to pay interest as required by it arises.
On behalf of the State Government, an
alternative contention was urged in support of the levy of interest on the tax
payable in 605 respects of the freight charges relying upon the new section 11
which was substituted by the Rajasthan Sales Tax (Amendment) Act, 1979 in the
place of section 11 which was in force during the relevant period. The relevant
part of the new section 11B reads thus:
"11B Interest on failure to pay tax, fee
or penalty .
(1) (a) Where any registered dealer or any
other dealer has furnished returns but has not paid the tax as per return or
within the time allowed by or under the provisions of this Act, he shall be
liable to pay interest on the whole or that part of the amount of tax which was
not paid as per returns within the time as aforesaid, at the rate of one and a
quarter per cent per month from the date by which he was required to pay the
tax by or under the provisions of this Act for a period of three months and at
one and a half per cent per month thereafter until the date of payment:
(b) Where any registered dealer or any other
dealer has furnished a revised return as provided under sub-section (3) of
section 7, which revised return shows that amount of tax larger than that
already paid is payable, such dealer shall be liable to pay interest on the
excess amount of tax at such rate and for such period as provided in clause (a)
of this sub-section as if such amount of tax payable as per the revised return
was the amount of tax payable according to the original return; ... ... .. ...
lt was contended that as clauses (a) and (b)
of sub- section (1) of section 11B extracted above were declaratory in
character and merely explained what the Legislature meant by enacting section
11B as it stood before the substitution, the assessee was liable to pay
interest on the amount of tax payable in respect of freight charges under clause
(b) of sub-section (1) of the new section 11B. Since we are of the view that
the assessee was liable to pay interest on the tax in question under section
11B of the Act as it stood prior to tile amendment, we do not find it necessary
to express any opinion on this alternative contention urged on behalf of the
State Government.
In the result, we allow the appeal in part
and set aside the impugned orders to the extent they direct the assessee to pay
the penalties. The appeal in so far as the levy of interest under the impugned
orders is concerned is dismissed. In view of the circumstances of the case, the
parties shall pay and bear their own costs.
606 ORDER In accordance with the opinion of
the majority, the appeal is allowed in part. The penalties imposed on the
assessee under the impugned orders of assessment are set aside. The appeal in
so far as the levy of interest is concerned is dismissed. The parties shall
bear their own costs.
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