Khazan Chand Vs. State of Jammu and
Kashmir & Ors [1984] INSC 28 (13 February 1984)
ACT:
Constitution of India 1950, Articles 14 and
265.
Jammu and Kashmir General Sales Tax Act 1962
Section 8 (1) (2) and (3)-Whether valid and constitutional.
Taxing Power of State-What is-Comprehends
power to provide for collection of tax and prescribe methods for recovery.
Jammu and Kashmir General Sales Tax Act
1962-Section 8 Sales Tax -Payment of-After prescribed period-Charging of
interest on sales tax-Whether valid and legal.
Section 8 (2)-tax paid beyond prescribed
period- Interest charged at graduated scale-Permissibility of- Whether
violative of Article 114.
Section 8 (3)-Goods sold on credit
basis-Liability to payment of sales tax by dealer-Whether arises.
HEADNOTE:
The appellants and the petitioners were
assessees registered as dealers under the Jammu and Kashmir General Sales Tax
Act, 1962. They filed their quarterly returns within the time prescribed by the
Act but without paying the tax duo according to such returns. Some of them also
filed revised returns thereafter. The tax due was paid by the assessees after
several months and in some cases by installments. In a few cases, the full
amount of tax was not paid even by the date the assessment orders came to be
made.
In the case of most of the Assessees the
Assessing Authority levied penalty under sub-section (2) of section 8 of the
Act before making any assessment. In other cases, orders requiring interest to
be paid were made along with the assessment orders.
The assessees who were appellants in this
Court, had filed writ Petitions in the High Court challenging the validity of
section 8 of the Act under which interest was sought to be recovered as also
the demand for payment of interest. The High Court dismissed the Writ
Petitions.
In the Appeals and Writ Petitions to this
Court the assessees were:
(a) dealers who had filed their returns but
had not deposited the full amount of tax due according to such returns, and the
Assessing 859 Authority, having accepted the returns, had issued a composite
notice of demand calling up them to pay the amount of tax along with interest
due on it, (b) dealers who had filed their returns but had paid the tax due
according to such returns after the expiry of the prescribed time and in whose
cases the Assessing Authority had accepted the returns and had issued a notice
of demand asking them to pay interest on the amount of tax for the period for
which such payment was delayed, and (c) dealers who had filed their returns but
had not paid the amount of tax due according to such returns by the prescribed
time but had paid it later and notices were issued against them calling upon
them to pay interest for the period of default before making any order of
assessment.
It was contended on their behalf that:
(1) The charging of interest from the
assessees was violative of Article 265 of the Constitution as there was no
legislative power in the State Legislature to make a law providing for payment
of interest if the amount of tax was not paid by the prescribed time, and, for
this reason, the provisions of section 8 of the Act in so far as they provide
for payment of such interest are beyond the legislative competence of the State
Legislature and, therefore unconstitutional.
(2) Sub-section (2) of section 8 of the Act
was void as infringing Article 14 of the Constitution because its provisions
are discriminatory, arbitrary and unreasonable.
(3) The Assessees carried on business on
credit basis and as by the dates when they filed their quarterly returns their
customers had not paid to them the price of goods sold to them, the Assessees
were not bound to pay tax along with their returns but were bound to pay tax in
respect of these transactions of sales only when the amount of sale price was
received by them from their customers.
(4) In some cases, the amount of interest
claimed from the Assessees exceeded the amount of tax paid by them and,
therefore, the demand for such excess amount of interest was bad in law.
(5) The Assessees were not liable to pay
interest on the amount of tax not paid in time without a notice of demand for
payment of tax being first issued.
(6) Interest was levied by the Assessing
Authority for the entire 860 period of default at the maximum rate prescribed
by sub-section (2) of section 8 which was contrary to the provisions of that
sub-section.
HELD : The constitutionality of sub-section
(1), (2) and (3) of section 8 of the Jammu and Kashmir General Sales Tax Act
1962 upheld. The State however restrained from recovering from the Assessees,
interest on the amount of quarterly tax paid after the expiry of the date
prescribed for payment by sub-section (3) of section 8 of the Act at a rate
other than the rate of one per cent per month for the first three months of
default and at the rate of two per cent per month for the next three months of
default and at the rate of three per cent for the period of default exceeding
six months. [881 G-H; 882A]
1. (i) The Constitution of India, does not
apply in its entirety to the State of Jammu and Kashmir because that State
holds a special position in the Constitutional set up of the country. Article
370 makes special provisions with respect to the State of Jammu and Kashmir.
Under sub-clause (c) of clause (1) of Article 370 the provisions of Articles 1
and 370 apply in relation to the State of Jammu and Kashmir and under
sub-clause (d) of clause (1) of Article 370 such of the other provisions of the
Constitution apply in relation to that State subject to such exceptions and modifications
as the President may specify by an order issued with the concurrence of the
Government of the State.
In exercise of the power conferred by clause
(1) of Article 370 the President of India, with the concurrence of the
Government of the State of Jammu and Kashmir, has made the Constitution
(Application to Jammu and Kashmir) Order, 1954 (C. O. 48) which was amended
from time to time. The provisions of the Constitution of India as in force on
June 20, 1964. and as amended by the Constitution Amendment Acts set out in
clause (2) of that Order apply in relation to the State of Jammu and Kashmir
subject to the exceptions and modifications set out in the said clause. By
sub-clause (6) (a) of clause (2) of the said Presidential Order, Clause (1) of
Article 246 of the Constitution of India was made applicable to the State of
Jammu and Kashmir with certain modifications, while clause (3) of Article 246
was not made applicable to the State. Sub-clause (22) of clause 2 of the said
Presidential Order applies List I in the Seventh Schedule to the State of Jammu
and Kashmir with the omissions and modifications mentioned in the said sub-
clause. Entries 92 and 92A of List I apply to the State of Jammu and Kashmir in
an unmodified form. By the same sub- clause, List II in the Seventh Schedule,
namely, the State List does not apply to the State of Jammu and Kashmir.
[870G-H; 871A-B] (ii) Thus under section 5 of
the Constitution of Jammu and Kashmir the executive and legislative power of
the State extends to all matters with respect to which Parliament has power to
make laws for the State under the provisions of the Constitution of India under
the Constitutional provisions applicable to the State of Jammu and Kashmir, the
power of the State Legislature to enact a law relating to taxes on intra-State
sale or purchase of goods is the same as that of the Legislatures of other
States in India. By sub-clause (7) of clause 2 of the said Order, Article 265
is made applicable to the State of Jammu and Kashmir. Section 114 of the
Constitution of 861 Jammu and Kashmir is in terms identical with Article 265 of
the Constitution of India which provides that "No tax shall be levied or
collected except by authority of law." [871B-D] (iii) The power to make a
law with respect to tax comprehends within it the power to levy that tax and to
determine the persons who are liable to pay such tax, the rates at which such
tax is to be paid and the event which will attract liability in respect of such
tax. This is done by the charging sections of the particular tax law. The
taxing power of the state will also comprehend within it the power to provide
for quantification of the liability of persons made liable to pay the tax. This
is done by the provisions relating to assessment. The taxing power will also
comprehend within it the power to provide for collection of tax including
prescribing the methods of recovery of the amount of tax due if the person
liable to pay the tax does not voluntarily pay it. The power to make a law with
respect to a tax includes not only what has been set out above but also a power
to make provisions in the relevant statute with respect to all matters
ancillary and incidental to the levy, assessment, collection and recovery of
tax. Collection of tax by the State may be either after the liability is
quantified by assessment or may be prior to actual assessment by requiring the
assessee to pay before any assessment is made the amount of tax admitted to be
due and payable by him. [872B-E] Whitney v. Commissioners of Inland Revenue,
L.R. 1926 A.C. 37, 51 H. L. 10 T. C. 79, 110; Chatturam and others v. Commissioner
of Income Tax, Bihar (1947) F.C.R.116, 126;
(1947) 15 I.T.R 302, 308; Messrs Chatturam
Horilram Ltd. v. Commissioner of Income Tax, Bihar and Orissa, [1955] 2 S.C.R.
280, 297-8; (1955) 27 I.T.R. 708, 715-6 referred to.
(iv) One of the methods of collection of
revenue adopted by the Act, is to require that tax due according to the
quarterly returns should be paid before filing such returns and it was within
the legislative competence of the Legislature of the State of Jammu and Kashmir
to provide for recovery of the amount of tax due under quarterly returns if
default is made in paying such amount by the prescribed time. [872H; 873A] (v)
Payment of interest in case of default in payment of tax is a means of
compelling an assessee to pay the tax due by the prescribed date. It is a mode
of recovery of tax and well within the legislative power of the State. [873C]
2. (i) Inter-State trade and commerce is a
matter which affects all the States in India and thus the whole country.
It is for this reason that in the Seventh
Schedule to the Constitution the subject of taxes on the sale or purchase of
goods taking place in the course of inter-State trade or commerce has been put
in List I and made a Union subject.
Taxes on the sale or purchase of goods taking
place within the State affect only those who carry on the business of buying
and selling goods within the State and, therefore, this subject has been put in
List II of Seventh Schedule, namely the State List. [874C-D] 862 (ii) Sales tax
is the biggest source of revenue for a State and it is for the State to decide
how and in what manner it will raise this revenue and to determine which
particular transactions of sale or purchase of goods taking place within that
State should be taxed and at what rates.
and which particular transactions of sale or
purchase of goods should be exempted from tax or taxed at a lower rate having
regard to the subject-matter of sale, as for instance, where particular goods
constitute necessities for the poorer classes of people or where the goods in
question are of such a nature as are required to be exempted from tax or taxed
at a lower rate in order to encourage a local industry. Consideration of these
matters must, therefore, differ from State to State. Similarly it is for the
each State to determine the methods it will adopt to collect its revenue from
this source and to decide which methods would be most efficacious for this
purpose. If the provisions of the legislation of every State on a particular
topic are to be identical in every respect, there is no purpose in including
that topic in the State List and it may as well be included in the Union List.
Merely because the provisions of a State law differ from the provisions of
other State laws on the same subject cannot make such provisions
discriminatory. [874D-G] (iii) Interest is payable under sub-section (2) of
section 8 on the amount of tax paid after the expiry of the prescribed date of
payment. The rate of two per cent per month and particularly the rate of three
per cent per month can be said to be on the high side, but this would not
render the provisions of that sub-section void or unconstitutional. Providing
for payment of interest in case of delayed payment of tax is a method usually
adopted in fiscal legislation to ensure that the amount of tax which is due is
paid by the prescribed time and provisions in that behalf form part of the
recovery machinery provided in a taxing statute. It is for the State to provide
by what means payment of tax is to be enforced and a person who does not pay
the amount of tax lawfully and admittedly due by him can hardly complain of the
measures adopted by the State to compel him to pay such amount. [875A-C] (iv)
Under the Act, the same rates of interest apply both to the dealer who has made
default in payment of tax due by him and to the State Government in case of
default made by it in making payment of the amount of tax or penalty which has
become refundable as a result of an appellate or revisional order. The
graduated rate of interest provided by sub-section (2) of section 8 cannot,
therefore be characterised as arbitrary or unreasonable. [875F-G]
3. (i) Under the Act, the liability to pay
sales tax is cast upon the dealer. This is made clear by sections 4,6, and
clauses (G), (L) (1), (L) (II), and (n) of section 2. It is immaterial whether
the price of goods has been paid to the dealer or is payable to him. The fact
that a dealer has sold goods on credit is, therefore, wholly immaterial. This
liability is irrespective of the fact whether the dealer has made profit or
loss in his business and whether he has received the sale price or not. [876H;
877A-B] (ii) Section 64-A of the Sale of Goods Act, 1930 does not deal with the
liability of the seller to pay sales tax to the Government. [878E] 863 In the
instant case, the Assessees were bound to pay the tax due according to the
quarterly returns filed by them before filing such returns and the fact that
their customers had not paid to them the sale price did not exempt them from
their statutory liability. [878G]
4. The recovery provisions of the Act are
meant for speedy and prompt collection of revenue. These provisions are not
meant for the benefit of defaulting tax-payers and such defaulters cannot claim
that the amount of interest payable by them on delayed tax payment should be
scaled down as if they were entitled to claim relief under a debt-relief law.
[879 B-C]
5. Under sub-section 8 (1) the tax assessed
or any other amount demanded is to be paid within the time specified in the
notice of demand. Under sub-section (3), the quarterly tax is to be paid before
furnishing the quarterly return but not later than the date prescribed under
sub-section (2) of section 7. Accordingly the requirement of sub-section (2) of
section 8 that interest will be chargeable from the date specified for payment
in the notice of demand cannot be applied to the payment of quarterly tax and
necessary alterations as required by sub section (8) so section 8 will,
therefore have to be made in the provisions of sub-section (2) in their
application to a default made in payment of quarterly tax and sub-section (2) must
be read as providing that interest under sub-section (2) will become payable
from the date prescribed by sub- section (3) of section 8 for payment of
quarterly tax.
[880B-F] Messrs Royal Boot House etc. v.
State of Jammu and Kashmir and others. C.M.P. Nos. 32413 and 32414 of 1983
decided on January 6, 1984 by P. N. Bhagvati, Ag. C. J. and Venkataramiah and
Varadarajan, JJ. referred to.
6. Sub-section (2) of section 8 of the Act
provides for different rates of interest depending upon the length of the period
of default. [881D] In the instant cases, interest on the amount of quarterly
tax not paid in time has been imposed at a uniform rate for the full period of
default and not according to the scale of rates prescribed by sub-section (2)
of section 8.
[881 B]
ORIGINAL JURISDICTION: Writ Petition Nos.
12695, 13478- 82, 13352 of 1983, 99-100, 133-34, 231, 234-36 of 1984.
[Under article 32 of the Constitution of
India] Civil Appeals Nos. 322-351 of 1984 Appeals by Special leave from the
Judgment and Order dated the 24th June, 1983, 19th August, 1983, 1st September,
1983, & 29th December, 1983 of the Jammu and Kashmir High Court in Writ
Petition Nos. 430 & 886/82, 364/81, 478/81, 132/82, 338/80, 525/80, 485/80,
67/83, 404/82, 681/82, 679/81, 688/82, 472/81, 678/82, 864 230/81, 229/83,
476/81, 228/83, 471/80, 287/83, 682/82, 344/82 621/82, 302/80, 624/80, 46/83,
912/83, 558/82 and 623/83.
K. K. Venugopal and Anil Dev Singh Satish
Vig, S. P. Sharma, L. K. Gupta, Vimal Dave, R. C. Kaushik and Subhash Sharma for
the Petitioners/Appellants.
Altaf Ahmed for the Respondents.
The Judgment of the Court was delivered by
MADON, J. This group of Writ Petitions and Appeals by Special Leave challenges
the constitutional validity of sub- sections (1), (2) and (3) of section 8 of
the Jammu and Kashmir General Sales Tax Act, 1962 (J & K Act XX of 1962)
and seeks to quash the orders directing the Petitioners and Appellants before
us (herein after for the sake of brevity referred to as "the
Assessees") to pay interest on the amount of tax due according to the
quarterly returns filed by them but not paid within the prescribed time.
ALL the Assessees are registered as dealers
under the Jammu and Kashmir General Sales Tax Act, 1962 (hereinafter referred
to as "The Act"). Sub-section (1) of section 7 of the Act requires
every dealer liable to pay tax under the Act to furnish in the prescribed form
a return of his turnover for a year within 120 days from the expiry of that
year. Sub-section (2) of section 7 provides as follows:
"Without prejudice to the provisions of
sub- section (1), every dealer shall also furnish in the prescribed form
quarterly returns for each quarter of the year within thirty days from the
expiry of that quarter. Every such return shall be accompanied by a Treasury
Receipt or any other proof of having paid the tax due on that return."
Thus, the tax due according to a quarterly return is to be paid by the dealer
before filing such return and proof of payment of the tax so due is to
accompany such return. Sub- sections (1), (2), (3), (7) and (8) of section 8,
omitting what is not relevant for our purpose, provide as follows:
"(1) The tax assessed, or any other
amount demanded, under this Act shall be paid in such manner and within 865
such time not being less than fifteen days from the date of the notice of
demand. As may be specified in the notice. In default of such payment the whole
of the amount then remaining due shall become recoverable in accordance with
sections 16 and 16-A.
x x x x x x (2) If the tax or any other
amount due under this Act is not paid by the dealer or any other person, by
whom it is payable, within the period specified in demand notice, the dealer or
such other person shall be liable to pay interest on the tax or other amount
from the date it was payable to the date of actual payment at the following
rates- (a) If the default is for a period of not exceeding three months at 1%
per month;
(b) If the default is for a period exceeding
three months but less than six months at 2% per month;
(c) If the default is for a period exceeding
six months at 3% per month:
Provided that where, as a result of an order
under Sections 11, 12, 24 or an order of the Court, the amount of tax or other
sum on which interest was payable under this sub-section has been reduced, the
interest shall be reduced accordingly and excess interest paid, if any, shall
be refunded.
Explanation-Interest shall be charged for
full month and not for a part of the month.
(3) Quarterly tax shall be paid before
furnishing a quarterly return but not later than the date prescribed under
sub-section (2) of Section 7.
X X X X X (7) Where a dealer furnishes a
revised return under sub-section (4) of Section 7 and the tax payable is more
than the tax paid on the basis of original return, he shall pay the extra tax
payable before furnishing the revised return;
866 Provided that if the tax already paid is
in excess of the tax payable, such excess amount shall be treated to have been
paid towards the tax payable for the quarter next following the date of
furnishing such revised return.
(8) Notwithstanding anything contained in
this Act, if a dealer fails to pay the tax payable under this Section, the
provisions of sub-section (2) of this Section, Section 16 and Section 16-A
shall apply mutatis mutandis to the recovery thereof.
Explanation (1)-Quarterly Tax means the tax
payable on the basis of a quarterly return required to be furnished by
sub-section (2) of Section 7.
Explanation (2)-Interest under sub-section
(2) of this Section on the extra tax payable on the basis of revised return
shall be payable from the date next following the date on which the tax was
payable on the basis of original return." The Assessees filed their
quarterly returns within the time prescribed by the Act but without paying the
tax due according to such returns. Some of them also filed revised returns
thereafter. The tax due was paid by the Assessees after several months and in
some cases by installments. In a few cases, the full amount of tax was not paid
even by the date the assessment order in their cases came to be made. In the
case of most of the Assessees, the Assessing Authority levied penalty under
sub-section (2) of section 8 of the Act before making any assessment. In other
cases, orders requiring interest to be paid were made along with the assessment
orders. It may be mentioned that in cases where the assessment orders were
made, the returns filed by the Assessees were accepted as correct. Those
Assessees who are Appellants before us filed writ petitions in the Jammu and
Kashmir High Court challenging the validity of section 8 of the Act under which
interest was sought to be recovered from them as also the demand for payment of
interest. These writ petitions were heard along with other writ petitions in which
other questions arose. The High Court dismissed all these writ petitions but
made no order as to the costs thereof.
The petitioners before the High Court fell
into four categories, namely- 867 (1) Dealers who had neither filed their
returns nor deposited the tax due from them and the Assessing Authority had
determined the amount of tax payable by them and issued a composite notice of
demand calling upon them to deposit the amount of tax along with interest due
on it.
(2) Dealers who had filed their returns but
had not deposited the full amount of tax due according to such returns and the
Assessing Authority, having accepted the returns, had issued a composite notice
of demand calling upon them to pay the amount of tax along with interest due on
it.
(3) Dealers who had filed their returns but
had paid the tax due according to such returns after the expiry of the
prescribed time and in whose cases the Assessing Authority had accepted the
returns and had issued a notice of demand asking them to pay interest on the
amount of tax for the period for which such payment was delayed.
(4) Dealers who had filed their returns and
had paid the tax due according to such returns by the prescribed time but the
Assessing Authority had not accepted the returns and had enhanced the amount of
tax payable by these dealers and had issued a composite notice of demand
calling upon them to pay the amount of tax so enhanced along with interest on
it.
We are concerned in these Petitions and
Appeals only with dealers who fall under categories (2) and (3) above as also
with those dealers who had filed their returns but had not paid the amount of
tax due according to such returns by the prescribed time but had paid it later
and notices were issued against them calling upon them to pay interest for the
period of default before making any order of assessment, We are not concerned
in these Petitions and Appeals with those dealers who fall under categories (1)
and (4) above.
At the hearing of these Petitions and
Appeals, no arguments whatever were advanced before us in support of the
contention that sub-section (1) of section 8 was unconstitutional and the
challenge 868 to that sub-section must, therefore, fail. The only contentions
which were urged at the hearing were as follows:
(1) The charging of interest to the Asssssees
is violative of Article 265 of the Constitution of India as there was no
legislative power in the State Legislature to make a law providing for payment
of interest if the amount of tax was not paid by the prescribed time and, for
this reason, the provisions of section 8 of the Act in so far as they provide
for payment of such interest are beyond the legislative competence of the State
Legislature and, therefore, unconstitutional.
(2) Sub-section (2) of section 8 of the Act
is void as infringing Article 14 of the Constitution because its provisions are
discriminatory, arbitrary and unreasonable (3) The Assessees carried on
business on credit basis and as by the dates when they filed their quarterly
returns their customers had not paid to them the price of goods sold to them,
the Assessees were not bound to pay tax along with their returns but were bound
to pay tax in respect of those transactions of sale only when the amount of
sale price was received by them from their customers.
(4) In some cases, the amount of interest
claimed from the Assessees exceeded the amount of tax paid by them and,
therefore, the demand for such excess amount of interest was bad in law.
(5) The Assessees were not liable to pay any
interest on the amount of tax not paid in time without a notice of demand for
payment of such amount of tax having been first issued to them.
(6) Interest was levied by the Assessing
Authority for the entire period of default at the maximum rate prescribed by
sub-section (2) of section 8 which was contrary to the provisions of that sub-
section.
We will first examine the correctness of the
contention that the impugned provisions of section 8 of the Act are violative
of Article 265 of the Constitution of India.
Article 265 of the Constitution 869 provides
that "No tax shall be levied or collected except by authority of
law." Thus, Article 265 postulates that before any tax can be levied and
collected there must be a valid law enacted by an appropriate legislature imposing
such tax and providing for its collection. The submission on behalf of the
Assessees was that under the Constitution the Legislature of the State of Jammu
and Kashmir has no legislative power to provide for payment of interest in case
of late payment of tax. It was not the contention of the Assessees, as indeed
it could not be, that the Legislature of the State of Jammu and Kashmir had no
legislative power to enact a law levying a tax on the sale or purchase of goods
taking place within the State and making provisions for the collection of such
tax, because the constitutional position in this behalf is clear and
indisputable. Under clause (1) of Article 246 of the Constitution of India,
Parliament has exclusive power to make laws with respect to any of the matters
enumerated in List I in the Seventh Schedule to the Constitution referred to as
the "Union List" and under clause (3) of the same Article the
Legislature of any State has exclusive power to make laws for such State or any
part thereof with respect to any of the matters enumerated in List II of the
Seventh Schedule to the Constitution referred to as the "State List".
Taxes on the sale or purchase of newspapers and on advertisements published
therein fall under Entry 92 of the Union List and taxes on the sale or purchase
of goods, other than newspapers, where such sale or purchase takes place in the
course of inter-State trade or commerce fall under Entry 92A of the Union List,
while taxes on the sale or purchase of goods, other than newspapers, subject to
the provisions of Entry 92A of List I, fall under Entry 54 of the State List.
Thus, so far as sales tax is concerned, the
Constitution bifurcates the legislative field of taxation between the Union and
the States. As a result of this bifurcation, the subject of taxes on
intra-State sale or purchase of goods (other than newspapers) falls exclusively
within the State power of taxation. The Constitution of India, however, does
not apply in its entirety to the State of Jammu and Kashmir because that State
holds a special position in the constitutional set up of our country. Article
370 of the Constitution of India makes special provisions with respect to the
State of Jammu and Kashmir. Under sub-clause (c) of clause (1) of Article 370
the provisions of Articles 1 and 370 apply in relation to the State of Jammu
and Kashmir and under sub-clause (d) of clause (1) of Article 370 such of the
other provisions of the Constitution apply in relation to that State subject to
such exceptions and modifications as the President may specify by an order
issued with the concurrence of the Government of that State. Thus, by reason of
the application of Article 1 to the State of Jammu and Kashmir by sub-clause
(c) of clause (1) of Article 370 the State of Jammu and Kashmir is one of the
States which from the Union of India and by virtue of sub-clause (d) of clause
(1) of that Article so far as the provisions of the Constitution, other than
those of Articles 1 and 370, are concerned, the President of India has the power,
with the concurrence of the Government of the State of Jammu and Kashmir, to
issue an order specifying which of them shall apply to that State and whether
such provisions shall apply in their entirety or subject to such exceptions and
modifications as may be specified in that order. Article 370 also envisages the
convening of a Constituent Assembly for that State and the framing of a
separate Constitution for it. In exercise of the power conferred by clause (1)
of Article 370 the President of India, with the concurrence of the Government
of the State of Jammu and Kashmir, has made the Constitution (Application to
Jammu and Kashmir) Order, 1954 (C. O. 48).
This order deals with the entire
constitutional position of the State of Jammu and Kashmir within the framework
of the Constitution of India, except only the internal Constitution of the
State Government to be framed by the Constituent Assembly of that State. The
Constituent Assembly of the State of Jammu and Kashmir framed its own
Constitution repealing and replacing its earlier Constitution. This new
Constitution, called the "Constitution of Jammu and Kashmir", was
adopted and enacted by the Constituent Assembly of that State on November 17,
1965.
By the Constitution (Application to Jammu and
Kashmir) Order, 1954 (C. O. 48), as amended from time to time, the provisions
of the Constitution of India as in force on June 20, 1964, and as amended by
the Constitution Amendment Acts set out in clause (2) of that Order apply in
relation to the State of Jammu and Kashmir subject to the exceptions and
modifications set out in the said clause. By sub-clause (6) (a) of clause (2)
of the said Presidential Order, clause (1) of Article 246 of the Constitution
of India is made applicable to the State of Jammu and Kashmir with certain
modifications with which we are not concerned, while clause (3) of Article 246
is not made applicable to that State.
Sub-clause (22) of clause 2 of the said
Presidential Order applies List I in the Seventh Schedule to the State of Jammu
and Kashmir with the omissions and modifications mentioned in the said
sub-clause. These omissions and modifications are, however, irrelevant for our
purpose inasmuch as Entries 95 and 92A of List I apply to the State of Jammu
and 871 Kashmir in an unmodified form. By the same sub-clause, List II in the
Seventh Schedule, namely, the State List, does not apply to the State of Jammu
and Kashmir, Section 5 of the Constitution of Jammu and Kashmir, however,
provides as follows:
"5, Extent of executive and legislative
Power of the State- The executive and legislative power of the State extends to
all matters except those with respect to which Parliament has power to make
laws for the State under the provisions of the Constitution of India."
Thus, under the constitutional provisions applicable to the State of Jammu and
Kashmir, the power of the Stage Legislature to enact a law relating to taxes on
intra-State sale or purchase of goods is the same as that of the Legislatures
of other States in India. By sub-clause (7) of clause 2 of the said Order,
Article 265 is made applicable to the State of Jammu and Kashmir. Further,
section 114 of the Constitution of Jammu and Kashmir is in terms identical with
Article 265 of the Constitution of India and equally provides that "No tax
shall be levied or collected except by authority of law." The question
which we, therefore, have to consider is "Whether in the exercise of its
power to make a law with respect to taxes on the sale or purchase of goods
taking place within the State, the Legislature of that State has the
legislative competence to provide for payment of interest on the amount of tax
due according to the return filed by an assessee but not paid within the
prescribed time?" As was pointed out by Lord Dunedin in Whitney v. Commissioner
of Inland Revenue(1); a passage cited with approval by the Federal Court in
Chatturam and others v. Commissioner of Income Tax, Bihar,(2) and by this Court
in Messrs Chatturam Horilram Ltd. v. Commissioner of Income Tax, Bihar and
Orissa(2):
"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.
872 Liability does not depend on assessment.
That, ex hypothesis, 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 faxed does not voluntarily pay." It would follow
from the above decisions that the power to make a law with respect to a tax
comprehends within it the power to levy that tax and to determine the persons
who are liable to pay such tax, the rates at which such tax is to be paid and
the even which will attract liability in respect of such tax. This is done by
the charging sections of the particular tax law. The taxing power of the State
will also comprehend within it the power to provide for quantification of the
liability of persons made liable to pay the tax. This is done by the provisions
relating to assessment. The taxing power will also comprehend within it the
power to provide for collection of tax including prescribing the methods of
recovery of the amount of tax due if the person liable to pay the tax does not
voluntarily pay it. The power to make a law with respect to a tax includes not
only what has been set out above but also a power to make provisions in the
relevant statute with respect to all matters ancillary and incidental to the
levy, assessment, collection and recovery of tax. Collection of tax by the
State may be either after the liability is quantified by assessment or may be
prior to actual assessment by requiring the assessee to pay before any
assessment is made the amount of tax admitted to be due and payable by him.
This is done by making provisions such as those for advance payment of tax and
for self-assessment contained in the Income Tax Act, 1961. This is also what
sub-section (3) of section 8 of the Act does by requiring that the quarterly
tax payable on the basis of a quarterly return required to be furnished by sub-
section (2) of section 7 shall be paid before furnishing such return. This is a
mode of collection of revenue in advance before quantification of the actual
tax liability and the Legislature would be well within its right and would
competent to provide for recovery of such amount if it is not by the prescribed
time. The Act, as its long title shows is "An to provide for the levy of a
general tax on the sale or purchase goods in the State and for other matters of
connected therewith" a one of the methods of collection of revenue adopted
by it is to require that tax due according to the quarterly returns should be
paid before filing such returns and it was within the legislative competence of
the Legislature of the State of Jammu and Kashmir to provide for recovery of
the amount of tax due under quarterly 873 returns if default is made in paying
such amount by the prescribed time. This has been done by the State Legislature
by enacting subsection (8) of section 8 under which the provisions of
sub-section (2) of section 8 and of sections 16 and 16-A are made applicable
mutatis mutandis to the recovery of tax payable by a dealer if he fails to pay
it.
Sub-section (2) of section 8 provides for
payment of interest, section 16 provides for recovery of tax as arrears of land
revenue, and section 16-A provides for issue of a garnishee notice to a person
from whom money is due, or may become due, to the assessee or to a person who
holds, or may subsequently hold, money for or on account of the assessee to pay
to the Assessing Authority as much of the money as is sufficient to pay the
amount due by the assessee by way of tax. Thus, payment of interest in case of
default in payment of tax is a means of compelling an assessee to pay the tax
due by the prescribed date. It is a mode of recovery of tax and well within the
legislative power of the State.
The challenge to sub-section (2) of section 8
on the ground that the provisions of that sub-section infringe Article 14 of
the Constitution is a twofold one, namely:
(1) That the said sub-section is
discriminatory, and (2) that it is arbitrary and unreasonable.
Sub-clause (4) of clause 2 of the
Constitution (Application to Jammu and Kashmir) Order, 1954, makes Article 14
of the Constitution of India applicable to the State of Jammu and Kashmir. With
respect to the charge of discrimination, it was submitted that such high rates
of interest for non-payment of tax are not to be found in the sales tax law of
any other State and, therefore, by enacting the said sub-section (2) of section
8 and providing for payment of interest at the rate of two per cent per month
when the period of default exceeded three months but did not exceed six months
and for interest at the rate of three per cent per month if the default was for
a period exceeding six months, dealers in the State of Jammu and Kashmir were
hostilely discriminated against as compared with dealers in other States. This
argument wholly overlooks the very basis of the scheme of distribution of
legislative power contained in our Constitution. Our Constitution is federal in
its structure and a salient feature of a federal polity is distribution of
legislative and administrative powers between the federated unit and the
federating units, that is, between the federal government 874 and the State
governments. Thus, matters in respect of which our Constitution-makers felt
that there should be uniformity of law throughout the country have been placed
by them in the Union List (List I in the Seventh Schedule to the Constitution)
conferring exclusive power upon Parliament to make laws with respect thereto,
while matters which they felt were of local concern and may require laws to be
made having regard to the particular needs and peculiar problems of each State
have been assigned to the State Legislatures by placing them in List II of the
Seventh Schedule, that is, the State List. Inter-State trade and commerce is a
matter which affects all the States in India and thus the whole country. It is
for this reason that in the Seventh Schedule to the Constitution the subject of
taxes on the sale or purchase of goods taking place in the course of inter
State trade or commerce has been put in List I and made a Union subject. Taxes
on the sale or purchase of goods taking place within the State affect only
those who carry on the business of buying and selling goods within the State
and, therefore, this subject has been put in List II of the Seventh Schedule,
namely, the State List. Sales tax is the biggest source of revenue for a State
and it is for the State to decide how and in what manner it will raise this
revenue and to determine which particular transactions of sale or purchase of
goods taking place within that State should be taxed and at what rates, and
which particular transactions of sale or purchase of goods should be exempted
from tax or taxed at a lower rate having regard to the subject-matter of sale,
as for instance, where particular goods constitute necessities for the poorer
classes of people or where the goods in question are of such a nature as are
required to be exempted from tax or taxed at a lower rate in order to encourage
a local industry. Consideration of these matters must, from the nature of
things, differ from State to State.
Similarly, it is for each State to determine
the methods it will adopt to collect its revenue from this source and to decide
which methods would be most efficacious for this purpose. The provisions of the
sales tax law of each State must: therefore, necessarily differ in various
respects from the provisions of sales tax laws of other States. If the
provisions of the legislation of every State on a particular topic are to be
identical in every respect, there is no purpose in including that topic in the
State List and it may as well be included in the Union List. Merely because the
provisions of a State law differ from the provisions of other State laws on the
same subject cannot make such provisions discriminatory.
The second part of the challenge under
Article 14 was with 875 respect to the rates at which interest is payable under
sub- section (2) of section 8 on the amount of tax paid after the expiry of the
prescribed date of payment. It is true that the rate of two per cent per month
and particularly the rate of three per cent per month can be said to be on the
high side, but we fail to see how this would render the provisions of that
sub-section void or unconstitutional.
Providing for payment of interest in case of
delayed payment of tax is a method usually adopted in fiscal legislation to
ensure that the amount of tax which is due is paid by the prescribed time and
provisions in that behalf form part of the recovery machinery provided in a
taxing statute. It is for the State to provide by what means payment of tax is
to be enforced and a person who does not pay the amount of tax lawfully and
admittedly due by him can hardly complain of the measures adopted by the State
to compel him to pay such amount. It neither lies in the default's mouth to
protest against the rate of interest charged to him nor is it open to him to
dictate to the State the methods which it should adopt for recovering the
amount of tax due by him. In this connection, it is pertinent to note that
under section 10-B of the Act, where as a result of an order made in appeal or
revision, a refund has become due to the dealer or any other person on account
of tax or penalty found to have been paid in excess, the State Government is
required to pay to such dealer or person simple interest at the rate of 12 per
cent per annum on the amount of such refund from the date such payment was made
upto the date on which such refund was granted and in case of delay in
refunding the excess amount, interest at the rate of 24 percent per annum if
the refund is granted beyond a period of three months out before the expiry of
six months from the date of the appellate or revisional order and at the rate
of 36 per cent per annum if it is granted thereafter. Thus, under the Act, the
same rates of interest apply both to the dealer who has made default in payment
of tax due by him and to the State Government in case of default made by it in
making payment of the amount of tax or penalty which has become refundable as a
result of an appellate or revisional order. The graduated rates of interest
provided by sub-section (2) of section 8 cannot, therefore, be characterized as
arbitrary or unreasonable.
The remaining contentions are directed not
against the constitutionality of the impugned statutory provisions but against
the legality of the impugned orders. The first of these contentions is that the
assessees, having sold goods on credit basis, are not liable to pay the
quarterly tax until they have received from their customers the price of goods
sold to them. This contention is founded upon as assumption that the liability
to pay the tax under the Act is contigent upon receipt of the sale price-an
assumption not warranted by the provisions of the Act. Under the Act, the
liability to pay sales tax is cast upon a dealer. This is made clear by section
4 of the Act which is headed "Liability to tax under this Act." The
relevant provisions of sub-section (1) of section 4 are as follows:
"Subject to the provisions of this Act,
every dealer, except the one dealing exclusively in gods declared tax free
under Section 5, shall pay for each year tax on his taxable turnover at a rate
not exceeding twenty-five per cent of such turnover as may be determined by the
Government and notified by the Government in the Government Gazette and such
tax shall be charged on the sale of goods once only.
X X X X X X" Under section 6, a dealer
who has become liable to pay under section 4 is prohibited from carrying on
business as a dealer until he has been registered in accordance with the
provisions of the Act. Clause (g) of section 2 inter alia defines a 'dealer' as
meaning "any person who carries on (whether regularly or otherwise) the
business of selling, purchasing or distributing goods, directly or indirectly,
for cash or for deferred payment, or for commission, remuneration, or other
valuable consideration". Clause (L) (1) defines the expression
"sale" with all its grammatical variations and cognate expressions as
meaning "any transfer of property in goods, otherwise than by mortgage,
hypothecation, charge or pledge, by any person for cash or deferred payment or
for any other valuable consideration...". Clause (L) (II) defines
"sale price" as meaning inter alia "the amount of valuable
consideration paid or payable to a dealer for any sale made including any sum
paid or payable for anything done by the dealer in respect of the goods at the
time of or before delivery thereof other than the actual cost of outward
freight or delivery or the cost of installation when such cost is separately
charged." Under clause (n) of section 2, "turnover" includes the
aggregate of the amounts of sale and purchase and parts of sale and purchase
made by any dealer whether as principal, agent or in any other capacity. It is
clear from the above statutory provisions that the liability to pay sales tax
is that of the dealer and not of the person who purchases goods from him and
for the purposes of sales tax, it is 877 immaterial whether the price of goods
has been paid to the dealer or is payable to him The fact that a dealer has
sold goods on credit is, therefore, wholly immaterial. This Act imposes the
liability to pay sales tax on dealers. This liability is irrespective of the
fact whether he has made profit of loss in his business and whether he has
received the sale price or not. When the liability to pay sales tax is cast by
the statute on the dealer, he may pass on to his customer the amount of tax
payable by him but he can only do so as a term of the contract of sale. Unless
and until the purchaser agrees to pay to his vendor the amount of sales tax
payable by the vendor, he is not bound to pay it to the vendor. Where, however,
the purchaser agrees to pay such amount, it forms part of the sale price on
which sales tax would be payable to the State. Under the sales tax laws of some
States, a dealer is permitted to recover or collect from the purchaser the
amount of sales tax payable by him.
Even then the dealer can recover or collect
such amount only if the purchaser agrees to pay it. In such cases, under those
sales tax laws the amount so recovered or collected is not treated, either in
whole or in part, as part of the sale price and not taxed, provided the amount
not taxed is paid over to the State or tax on the full amount, that is, including
the amount of tax so recovered or collected, is required to be paid along with
the quarterly or monthly return, as the case may be, and then at the time of
assessment refund of the whole or part of the tax on the amount so collected is
given to the dealer.
In this connection, a reference was made to
section 64- A of the Sale of Goods Act, 1930, (substituted for the original
section 64-A by the Sale of Goods (Amendment) Act, 1963, under which unless a
different intention appears from the terms of the contract, in the event of any
duty of customs or excise on goods or any tax on the sale or purchase of goods
being imposed, increased, decreased or remitted in respect of any goods after
the making of any contract for the sale or purchase of such goods, without
stipulation as to the payment of such duty or tax where duty or tax was not
chargeable at the time of the making of the contract, or for the sale or
purchase of such goods duty paid or tax paid where duty or tax was chargeable
at that time, if such imposition or increase so takes effect that the duty or
tax or increased duty or tax, as the case may be, or any part of such duty or
tax is paid or is payable, the seller may add so much to the contract price as
will be equivalent to the amount paid or payable in respect of such duty or tax
or increase of duty or tax, and is to be entitled to be paid and to sue for and
recover such addition, and if 878 such decrease or remission so takes effect
that the decreased duty or tax only, or no duty or tax, as the case may be, is
paid or is payable, the buyer may deduct so much from the contract price as
will be equivalent to the decrease of duty or tax or remitted duty or tax, and
is not to be liable to pay or be sued for in respect of such deduction. We do not
find Section 64-A of the Sale of Goods Act to have any relevance to the point
before us. That section is subject to a different intention appearing from the
terms of the contract and gives a right to the seller to add the amount of
customs or excise duty or sales tax or purchase tax to the price of goods where
such duty or tax is imposed for the first time after the contract of sale is
made, where the contract does not contain any stipulation as to payment of duty
or tax, or in case the goods are sold duty paid or tax paid, where the rate of
such duty or tax is increased, to add the extra duty or tax to the contract price.
That section also gives a corresponding right to the buyer to deduct so much
from the contract price as will be equivalent to the decrease of duty or tax or
remitted duty or tax where any decrease or remittance in duty or tax takes
place after the making of the contract of sale. Section 64-A thus provides for
the rights and liabilities inter se of a seller and buyer of goods, where any
customs or excise duty or any sales tax or purchase tax is imposed or its rate
increased or decreased, or such duty or tax remitted in whole or in part after
the making of the contract of sale.
This section does not deal with the liability
of the seller to pay sales tax to the Government.
Under section 8-B of the Act, where a
registered dealer realizes any amount by way of tax from the purchaser, he is
required to deposit it in the Government Treasury or in the office of the
Deputy Sales Tax Commissioner within one month of its realization. Where a
dealer so deposits the tax, he would get credit for it against the amount of
tax payable by him, but from this it does not follow that where he has not been
able to recover the amount of tax or sale price from his customers, he is not
bound to comply with the statutory requirements of sub-section (3) of section 8
under which he has to pay tax according to the quarterly return furnished by
him before the date prescribed for filing such return.
The Assessees were, therefore, bound to pay
the tax due according to the quarterly returns filed by them before filing such
returns and the fact that their Customers had not paid to them the sale price
did not exempt them from their statutory liability in this behalf.
The next contention, namely, that the
Assessing Authority was 879 not entitled to impose interest, the amount of
which exceeded the amount of tax in respect of which default had been made in
paying it by the prescribed date, is equally without any substance. No reason
was advanced in support of this contention and we fail to see on what principle
the Hindu Law rule of damdupat can be made applicable to a sales tax
legislation. The recovery provisions of the Act are meant for speedy and prompt
collection of revenue. These provisions are not meant for the benefit of
defaulting tax- payers and such defaulters cannot claim that the amount of
interest payable by them on delayed tax payment should be scaled down as if
they were entitled to claim relief under a debt relief law. In taking up such a
contention, the concerned Assessees have overlooked the fact that the amount of
interest payable by them would not have exceeded the amount of tax not paid by
them by the prescribed date had they paid the tax due earlier as also the fact
that they would not have been liable to pay any amount at all by way of
interest had they paid the tax due by the prescribed date.
We now turn to the contention that the
Assesses were not liable to pay interest unless a notice of demand was first
issued to them calling upon them to pay the amount of quarterly tax due from
them. In support of this submission reliance placed upon subsections (1) and
(2) of section 8 of the Act. In our opinion, reliance placed upon those sub-
sections is misconceived for in doing so the Assessees have overlooked the
other relevant provisions of section 8. Sub- section (1) of section 8 requires
that the tax assessed, or any other amount demand, under the Act is to be paid
in such manner and within such time, not being less than fifteen days from the
date of the notice of demand, as may be specified in the notice and it is when
default is made in making such payment that the whole of the amount then
remaining due becomes recoverable in accordance with sections 16 and 16-A of
the Act. Sub-section (2) of section 8 lays down that if the tax or any other
amount due under the Act is not paid within the period specified in the notice
of demand, the defaulter will become liable to pay interest on the tax or other
amount from the date it was payable to the date of actual payment at the rates
mentioned in the said sub-section. Under sub-section (3) of section 8,
quarterly tax is to be paid before furnishing the quarterly return but not
later than the date prescribed under subsection (2) of section 7. As we have
seen, under sub- section (2) of section 7 quarterly returns are to be furnished
within thirty days from the expiry of the quarter and such return is to be
accompanied by a Treasury Receipt or any other proof of payment of tax due 880
according to that return. This requirement implies that the tax due according
to a quarterly return has to be paid before the filing of that return by the
prescribed date therefor. Under sub-section (8) of section 8, if a dealer fails
to pay the tax payable under that section, the provisions of sub-section (2) of
section 8 and of sections 16 and 16-A are to apply mutatis mutandis to the
recovery thereof. Thus, provisions of sub-section (2) of section 8 apply when
quarterly tax is not paid before furnishing a quarterly return under
sub-section (3) of section 8 but by the express terms of sub-section (8) of section
8, the provisions of sub-section (2) of that section will apply to the recovery
of quarterly tax not in their entirety but "mutatis mutandis". Under
sub-section (1) the tax assessed or any other amount demanded is to be paid
within the time specified in the notice of demand. Under sub-section (3), the
quarterly tax is to be paid before furnishing the quarterly return but not
later than the date prescribed under sub-section (2) of section 7. Thus, by
sub-section (3) the time for payment of quarterly tax is not made dependent
upon the issuance of a notice of demand and the date for payment to be
specified in it but it is statutorily fixed and, as under sub-section (8) of
section 8 the provisions of sub-section (2) are to apply mutatis mutandis to
the recovery of quarterly tax, necessary changes must be made in the provisions
of sub-section (2) in their application to the recovery of quarterly tax
payable under sub-section (3).
Accordingly, the requirement of sub-section
(2) that interest will be chargeable from the date specified for payment in the
notice of demand cannot be applied to the payment of quarterly tax and
necessary alterations as required by sub-section (8) will, therefore, have to
be made in the provisions of sub-section (2) in their application to a default
made in payment of quarterly tax and sub-section (2) must be read as providing
that interest under sub- section (2) will become payable from the date
prescribed by sub-section (3) of section 8 for payment of quarterly tax.
There is thus no substance in this
contention. We may also mention that in the case of certain other orders made
under the Act demanding interest on default being made in payment of quarterly
tax, the challenge thereto on the ground that no interest can be charged unless
a notice has been issued demanding payment of quarterly tax was negatived by
this Court in Messrs Royal Booi House etc. v. State of Jammu and Kashmir and
others.
881 We now turn to the last contention raised
before us, namely, that the Assessing Authority was not entitled to charge
interest at the maximum rate but could only charge interest at the graduated
rate specified in sub-section (2) of section 8.
It appears that in most, if not in all,
orders which have been impugned in these Petitions and Appeals, interest on the
amount of quarterly tax not paid in time has been imposed at a uniform rate for
the full period of default and not according to the scale of rates prescribed
by sub- section (2) of section 8. Thus, where the default was for a period exceeding
three months but not exceeding six months, interest has been levied for the
full period of default at the rate of two per cent per month and where the
default was for a period exceeding six months, interest at the rate of three
per cent per month has been levied for the entire period of default. In our
opinion, this is not warranted by the terms of sub-section, (2) of section 8 of
the Act. Sub- section (2) provides for different rates of interest depending
upon the length of the period of default. If the default was for a period not
exceeding three months, then the interest could only be charged at the rate of
one per cent per month and where the default was for a period exceeding three
months but not exceeding six months, then the interest which could be charged
can only be one per cent month for the first three months of default and two
per cent per month for the remaining period In the same way, if the default was
for a period exceeding six months, interest could be charged only at the rate
of one per cent per month for the first three months of default, at the rate of
two per cent per month for the next three months of default and at the rate of
three per cent per month for the remaining period of default. The grievance
made by the Assessees is justified and their challenge to the impugned orders
on this ground must, therefore, succeed.
In the result, though we uphold the
constitutionality of sub-sections (1), (2) and (3) of section 8 of the Jammu
and Kashmir General Sales Tax Act, 1962, we make the rule issued in each of the
Writ Petitions before us absolute only to the extent that we restrain the State
and Jammu and Kashmir from recovering from the Assessees who are Petitioners
before us interest on the amount of quarterly tax paid after the expiry of the
date prescribed for payment thereof by sub-section (3) of section 8 of the Act
at a rate other than the rate of one per cent per month for the first three
months of default and at the rate of two per cent per month for the next three
882 months of default and at the rate of three per cent per month for the
period of default exceeding six months. We also allow the Appeals filed by the
Assessees who are Appellants before us to the same limited extent by setting
aside the order of dismissal of their writ petitions passed by the Jammu and
Kashmir High Court and making the rule issued in each of those writ petitions
absolute only to the limited extent specified above.
On an application made to us in that behalf,
we grant to the Petitioners and Appellants before us three months' time from
today to make payment of the amount of interest due and payable by them
according to this Judgment and the State of Jammu and Kashmir will not until
the expiry of the said period of three months take any steps to recover such
amount of interest from any of the Petitioners and Appellants.
As the Petitioners and Appellants before us
have partly succeeded in the Writ Petitions and Appeals filed by them, we make
no order as to the costs of these Writ Petitions and Appeals.
N.V.K Appeals & Petitions partly allowed.
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