Full Judgment Text
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CASE NO.:
Appeal (civil) 3414 of 1982
PETITIONER:
J.K.SYNTHETICS LTD.
RESPONDENT:
COMMERCIAL TAXES OFFICER
DATE OF JUDGMENT: 09/05/1994
BENCH:
M.N.VENKATACHALLIAH CJI & A.M.AHMADI & JAGDISH SARAN VERMA & G.N.RAY & S.P.BHARUCHA
JUDGMENT:
JUDGMENT
Delivered by
A.M. Ahmadi, J
AHAMADI, J.
These appeals by special leave are directed
against certain assessment order made by the Commercial
Taxes Officer relating to the Assessment Years 1975-76,
1976-77 and 1977-78 under the Rajasthan Sales
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Tax Act, 1954 (hereinafter called ’the Act’) and the Central
Sales Tax Act, 1956 (hereinafter called ’the Central Act’).
The question relates to payment of interest on tax on the
amount of freight charged in respect of sale of cement under
the relevant Cement Control Order. The returns were filed
by the appellant on the premiss that the amount of freight
charged in respect of sale of cement under the said Control
Order did not form part of the sale price for the payment of
sales tax. The appellant contends that it had raised the
contention bona fide but the same was rejected by this Court
by its judgment and order dated 22-8-1978 in the case of
Hindustan Sugar Mills Ltd. v. State of Rajasthan & J.K.
Synthetics Ltd. v. CTO, Kota’. By the said decision this
Court held that the freight element formed part of the price
of cement and sales tax was leviable on the sale price
inclusive of the freight amount. The appellant was,
therefore, required to pay sales tax on the sale price
inclusive of the freight. There is now no dispute on the
question of computation of the sale price for calculating
the sales tax. The dispute now is limited to whether the
appellant is required to pay interest on the additional
sales tax which had to be paid on the inclusion of the
freight amount in calculating the sale price. According to
the appellant interest under Section 11 -B of the Act can
only be charged for the period subsequent to the
determination of sales tax under the final assessment and
that too after the expiry of the period allowed under the
Notice of Demand issued on finalisation of the assessment.
This contention of the assessee is countered by the Revenue.
According to the latter, interest becomes payable from the
date on which the original return was filed under Section
7(2) or 7(2-A) of the Act, as the case may be. The assessee
supports its contention on the decision of this Court in
State of Rajasthan v. Ghasilal2 whereas the Revenue places
reliance on the decision rendered by this Court in
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Associated Cement Co. Ltd. v. CT03 wherein it was held that
where a return is filed under Section 7(2) of the Act,
interest runs from the date of filing of the return. The
assessee, however, seeks to distinguish it on the ground
that the case related to deposit of differential tax tinder
Section 7(2-A) oil’ the Act. We will, therefore, be
required to interpret Sections 7(2), 7(2-A) read with
Section 11 -B of the Act and Section 9(2) of the Central Act
and the ratio of the decisions on which reliance has been
placed.
2. Under the Act by virtue of the charging Section 3 the
liability to pay tax arises. Section 5 prescribes the rate
of tax. Section 7(1) provides that every dealer liable to
pay tax shall furnish returns of his turnover for the
prescribed periods in the prescribed form and in the
prescribed manner within the prescribed time, to the
assessing authority. Section 7(2) says that every such
return shall be accompanied by a treasury receipt or receipt
of any authorised bank showing the deposit of the full
amount of tax due on the basis of the return in the
government treasury or bank concerned.
1 Hindustan Sugar Mills Ltd. v. State of Rajasthan,
(1978) 4 SCC 271: 1978 SCC (Tax) 225: (1 979) 43 STC 13
2 (1965) 16 STC 318: AIR 1965 SC 1454: (1965) 2 SCR 805
3 (1981) 4 SCC 578: 1982 SCC (Tax) 3: (1981) 48 STC 466
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Sub-section (2-A) added to Section 7 by Rajasthan Act 13 of
1963 with effect from 29-4-1963, empowers the State
Government notwithstanding sub-section (2) to require any
dealer or class of specified dealers to pay tax at intervals
shorter than those prescribed under sub-section (1) in which
case the dealer will deposit the tax at such shorter
intervals. Such deposit of tax shall, under Section 7(4),
be deemed to be provisional, subject to necessary
adjustments in pursuance of the final assessment of tax.
Section 7-A enjoins the making of a provisional assessment
on best-judgment basis if the dealer fails to submit a
return or fails to deposit tax as required by Section 7(2-
A). Section 7-AA prescribes the penalty for failure to
furnish the returns. According to Section 10 the 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 -B makes provision for charging
interest on failure to pay tax, fee or penalty. Clauses (a)
and (b) of the said Section 11 -B before its substitution by
Act 4 of 1979 w.e.f. 7-4-1979, read as under :
"11 -B. Interest on failure to pay tax, fee
or penalty.- (a) If the amount of any tax
payable under sub-sections (2) and (2-A) 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."
(The two provisos are not material for our
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purpose.)
3. The Rajasthan Sales Tax Rules, 1955, hereinafter called
’the Rules’, provide in Chapter VII for the filing of
returns, etc. Rule 25 provides that the return referred to
in Section 7(1) shall be in Form ST 5 and shall be signed by
the dealer or his agent. The said return has to be filed
for such quarters ending with the last day of the months of
June, September, December and March of every assessment year
if the ’previous year’ of the dealer ends on 31st March of
any year, and in other cases for each of the quarters of the
year of accounts of the dealer. The rule further provides
that if the return is not accompanied by a receipt showing
deposit of tax as required by Section 7(2), the Assessing
Authority shall not be bound to take cognizance of the
return. If we turn to Form ST 5 we find that column 11
thereof requires the dealer to indicate the turnover for the
quarter concerned and permits certain deductions enumerated
therein. The return has to be verified in the manner
indicated at the foot of the form. It was, therefore,
contended on behalf of the Revenue that a conjoint reading
of Section 7 and Rule 25 clearly brings out that the dealer
or his agent is under an obligation to file a true and
complete return and hence the. failure to deposit the tax
due on the turnover as determined on final assessment would
entail liability to pay interest. It may
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be noted that Section 26(5) of the Act makes all rules made
under the said provision and duly published in the Gazette
to form part of the Act itself on such publication.
4. The assessee contends that since the present case
related to the deposit of differential tax under sub-section
(2-A) of Section 7 and not under Section 7(2), the
differential tax required to be paid would be on "the full
amount of tax due shown in the return". Since in the
present case the full amount of tax ,shown’ in the return
was deposited no such demand for interest as has been made
could be entertained. The Revenue on the other hand
contends that when the law enjoins on the assessee to file a
’return’, it can only mean a true and correct return, that
is, a return which reflects the tax due on final assessment.
Therefore, contends the Revenue, as the whole amount found
due on final assessment was not included in the return and
the full amount of tax due on that basis was not deposited
as required by law, interest became payable under Section
11-B of the Act. The assessee on the contrary relies on the
difference in language between sub-sections (2) and (2-A) of
Section 7 and emphasising on the words "amount of tax due
shown in the return" found in sub-section (2-A) of Section
7, which phraseology is not to be found in sub-section (2)
of that section, contends that no interest can be charged
under Section 11 -B.
5. Sub-sections (2) and (2-A) of Section 7 as they stood
before their amendment by Rajasthan Act 4 of 1979, read as
under :
"(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 Government Treasury or Bank concerned.
(2-A) 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
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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."
In sub-section (2-A), by Amending Act 4 of 1979, the words
"tax according to his accounts" were substituted for the
words "proportionate tax on the basis of the last return"
and the latter part of the sub-section was restructured by
deleting the words "[t]he difference, if any, of the tax
payable according to the return and the advance tax paid
shall be deposited with the return" and making the sentence
a running one. Sub-section (3) permits a dealer who
discovers any error or omission in his return to submit a
revised return in the
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prescribed manner before the time prescribed for the
submission of the next return but not later.
6. Now Section 7(2) says that every ’such’ return, meaning
thereby the return referred to in Section 7(1), shall be
accompanied by a receipt showing the deposit of the full
amount of tax due "on the basis of the return". In other
words the dealer is required to pay the full amount of tax
that becomes due on the basis of the particulars in regard
to the turnover and taxable turnover disclosed in the
return. Sub-section (2-A) begins with a non obstante
clause, namely, notwithstanding anything contained in sub-
section (2), and provides that any dealer or class of
dealers specified in the notification may pay the tax at
intervals shorter than those prescribed under sub-section
(1), in which case the tax shall be deposited at the
intervals specified in the notification in advance of the
return and the return shall be accompanied by the receipt
for the full amount of tax due "shown in the return".
Although the phraseology used in sub-sections (2) and (2-A)
of Section 7 is not the same, the content and purport of the
two sub-sections is more or less identical, namely, both the
sub-sections require that the return shall be accompanied by
a receipt evidencing the deposit of the "full amount of tax
due" on the basis of the return or on the basis of the
information shown in the return. The full amount of tax due
and payable prior to the submission of the return is clearly
relatable to the information furnished in the return.
Undoubtedly, the information to be furnished in the return
must be "correct and complete", that is, true and complete
to the best of knowledge and belief; without the dealer
being guilty of wilful omission. This is the essence of the
verification clause found at the foot of Form ST 5. Rule 25
expects the verification of the return to be in the manner
indicated in Form ST 5. Therefore, on a conjoint reading of
Section 7(1), (2) and (2-A), Rule 25, the information to be
furnished under Form ST 5 and the form of verification, it
becomes clear that the dealer must deposit the full amount
of tax due on the basis of information furnished, which
information Must be correct and complete to the best of the
dealer’s knowledge and belief without he being guilty of
wilful omission. If the dealer has furnished full
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particulars in respect of his business, without wilfully
omitting or withholding any particular information which has
a bearing on the assessment of tax, which he honestly
believes to be "correct and complete", it would be difficult
to hold that the dealer had not acted "bona fide" in
depositing the tax due on that information before the
Submission of the return. of course the tax so deposited is
to be deemed to be provisional and subject to necessary
adjustments in pursuance of the final assessment. Section
7-AA empowers levy of penalty if the assessing authority is
satisfied that any dealer has "without reasonable cause"
failed to furnish the return under Section 7( 1) within the
time allowed. The use of the words "without reasonable
cause" clearly implies that if the dealer can show
reasonable cause for his lapse he cannot be visited with the
penalty prescribed by Section 7-AA. To put it differently
if reasonable cause is shown by the dealer for the lapse, he
cannot be visited with penalty under this provision. This
is also suggestive of the fact that the legislature desired
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to be harsh with wilful defaulters or those guilty of wilful
Omission of material information and not with dealers who
failed to supply some information under the "bona fide"
belief that the same was not necessary or those who had
failed to pay the full tax due not with a view to evading or
avoiding the liability to pay the tax but because they bona
fide believed that they were liable to pay the tax assessed
by them on the basis of the return and no more. If at a
later date on the basis of a different interpretation put on
the language of the relevant provisions of the law, the
dealer becomes liable to pay tax in excess of that already
paid, he may be called upon to make good the difference but
he cannot be visited with penalty under Section 7-AA unless
it is shown that the dealer had withheld payment of the
differential tax by wilfully withholding material
information or had acted without reasonable cause in
committing the default. The assessee, therefore, contends
that there was no wilful omission in not including the
freight charges in the price of the commodity on the basis
whereof the tax was assessed before filing of the returns;
on the contrary, contends the assessee, it had acted "bona
fide" having regard to the ratio of this Court’s decision in
Hyderabad Asbestos Cement Products Ltd. v. State of A. P.4
Counsel for the, Revenue, however, points out that
considerations for the levy of penalty under Section 7-AA
are different from those which guide the recovery of
interest under Section 11 -B and while in a given case levy
of penalty may not be permissible, recovery of interest on
unpaid tax amount may still be justified.
7. As the relevant Assessment Years in question are from
1975-76 to 1977-78 we are concerned with Section 11-B as it
stood before its substitution by Act 4 of 1979 w.e.f. 7-4-
1979. Section 11 -B then provided that if the amount of any
tax payable under sub-sections (2) and (2-A) of Section 7 is
not paid within the time allowed or if the tax amount
specified in any notice of demand is not paid within the
period specified, the dealer shall be liable to pay simple
interest on such amount at one per cent per month for a
period of three months and thereafter at one and a half per
cent per month during the time he continues to make default
in the payments. However, according to Section 11 -B
substituted by Act 4 of 1979 w.e.f. 7-4-1979, the liability
to pay interest accrues (a) where the dealer has furnished
returns but has failed to pay the tax as per the said
returns or within the time allowed; (b) where a dealer has
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furnished a revised return under Section 7(3) whereunder the
amount of tax payable is larger than that already paid; (c)
where a dealer has filed his return after expiry of the
prescribed period but has not paid the tax as per return or
within the time allowed; (d) where a dealer is required to
pay tax without furnishing a return for any period and such
tax is not paid in full by the due date; (e) where a dealer
required to furnish returns pays tax for any period without
furnishing returns; and (f) where the liability to pay tax
is quantified in respect of a dealer who had submitted
returns for the period for which the tax is
4 (1969) 24 STC 487: (1969) 1 SCWR 560
285
quantified. It will thus be seen that under Section 11 -B
before the 1979 Amendment the liability to pay interest on
unpaid tax amount accrued on the dealer in two situations
only, viz., (i) failure to pay the tax due under sub-
sections (2) And (2-A) of Section 7 and (ii) failure to pay
the tax within the time allowed by the notice of demand or
30 days from the receipt of the notice by the dealer.
Section 11 -B before its amendment nowhere provided for
payment of interest on the unpaid tax amount as found on
final assessment from the date of the filing of the return
under Section 7 of the Act. If the amount of tax payable
under sub-section (2) is paid on the basis of return, not on
the basis of final assessment, there can be no question of
payment of interest under clause (a) of Section 11 -B.
Similarly, if the tax is paid according to the return as
required by sub-section (2-A), in other words, if the full
amount of tax due ’shown’ in the return is paid, there can
be no question of charging interest under clause (a) of
Section 11 -B. So far as clause (b) is concerned it is a
post assesment situation. Where tax is found due on final
assessment and the dealer is required to make good the
difference, a notice of demand will issue. If the dealer
fails to pay the tax within the time specified in the
notice, and if no time is specified within 30 days from the
receipt of notice, he is required to pay interest at the
rates prescribed by the sub-section. But if he pays the
difference of tax within the prescribed time, there is no
question of charging interest. If such an interpretation is
not placed and if the Revenue’s plea is accepted serious
anomalies would surface. Firstly, if the liability to pay
interest on the balance tax amount accrues from the date of
submission of returns under Section 7, clause (b) of Section
11 -B read with Section 1 1(2) would be rendered nugatory.
Otherwise one would be required to hold that interest would
be payable from the date of submission of the return till
the date of issuance of notice of demand and thereafter no
interest would have to be paid till the expiry of the
specified period or 30 days, as the case may be, and
thereafter interest would have to be paid at a given rate
for the first three months and thereafter at a higher rate.
Such could not be the legislative intent. Secondly, take
the case of a dealer who has failed to submit a return and
is subjected to assessment of tax on the basis of best
judgment. Pursuant to the said assessment he deposits the
tax. Such a dealer would not be liable to pay interest on
the balance tax if the tax assessed under Section 10 is
higher than what was provisionally assessed. He can always
claim that he cannot be made liable to pay interest for the
error of the authority in making the provisional assessment
under Section 7-A. The defaulter would be in a better
position than a dealer who complies with the requirement of
Section 7(1). And if he can show reasonable cause, he would
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also escape the penalty clause in Sections 7-AA and 16(1).
More or less a similar situation may arise in the matter of
payment of interest where provisional assessment is made
under Section 7-B. Of course such a dealer may become
liable to penalty but that is a different matter altogether.
Take also the case of a dealer who submits a return without
depositing the tax on the basis thereof. Under Rule 25(4)
the authority may or may not take cognizance of the return.
If
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cognizance is not taken the dealer would be treated on a par
with one who has not submitted a return but if cognizance is
taken he must be treated as one who is liable to pay
interest under clause (a) of Section 11-B of the Act.
Therefore, the view canvassed by the Revenue leads to
incongruous situations which can never be the legislative
intent. This is how the situation emerges on a plain
reading of the provisions of the Act as they stood before
Act 4 of 1979 came into force. After the substitution of
Section 11-B by Act 4 of 1979 the situation has changed
altogether. What we have said earlier has nothing to do
with Section 11-B as introduced by Act 4 of 1979. We may
now examine the case law on which reliance was placed.
8. The decision rendered by the Constitution Bench of this
Court in the case of Ghasila2 turned on the following facts.
The Act had come into force on 1-4-1955 while the rules
framed thereunder were published in the Rajasthan Government
Gazette on 28-3-1955. Ghasilal challenged the making of
assessments on his turnover for the year 1955-56 on the
ground that the rules were invalid. The High Court in the
writ petition filed by Ghasilal made an interim order on
9-1-1958 that Ghasilal will maintain proper accounts and
file the prescribed returns and the Revenue will not assess
him till further orders. During the pendency of the writ
petition the rules were validated by Ordinance No. 5 of 1959
(which later became an Act). Thereupon Ghasilal withdrew
his writ petition. Thereafter on 4-12-1959, the Sales Tax
Officer, Kota City Circle, sent him a show-cause notice
asking him to deposit the tax due up to date within a week,
failing which he threatened to take necessary action
permissible in law. On receipt of the notice Ghasilal filed
a return in respect of the 4th quarter ending on 22-10-1957
and deposited the tax of Rs 11,808.37. On 25-4-1960, the
Sales Tax Officer made an assessment in respect of the
accounting period from 3-11-1956 to 22-10-1957 and imposed a
penalty under Section 16(1)(b) of the Act on the ground that
the assessee had not deposited the tax for the earlier
quarters on the due dates and the tax for the 4th quarter
was deposited after a lapse of two years. His appeal was
dismissed by the Deputy Commissioner of Sales Tax who
endorsed the view that the interim order of the High Court
had not precluded the assessee from paying the tax and
filing the returns. On the same line of reasoning penalty
was also levied for the subsequent periods. Ghasilal
challenged the levy of penalty by a writ petition and the
High Court allowed the same. It may be noted that Section
7-AA was not on the statute book then and the penalty was
levied under Section 16(1)(b) as it then stood which inter
alia provided for imposition of penalty if the tax due was
not paid within the time allowed. The submission made on
behalf of Ghasilal was that there was no breach of Section
16(1)(b) inasmuch as no tax was due till the assessee filed
his returns under Section 7(1) of the Act because the tax to
be deposited as required by Section 7(2) was to be
calculated on the basis of the return. There cannot be non-
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compliance of Section 7(2) unless a return is filed without
depositing the tax due on the basis of the return. Hence,
counsel contended, there was no violation of Section 7(2)
and so long as the tax was not assessed and determined as
287
required under Section 10, the liability for payment of
penalty did not arise. On the other hand the Revenue
contended that the liability to pay tax had arisen under
Sections 3 and 5 of the Act and the delay in complying with
the demand notice entailed imposition of penalty. This
Court held :
"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. ... Section 3, the charging section,
read with Section 5, makes tax payable, i.e.,
creates a liability to pay 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
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."
The situation may be different after the introduction of
Section 7-A. The contention based on the show-cause notice
was brushed aside as one without substance as the learned
counsel for the Revenue was unable to show any rule or
section under which it was issued. On this line of
reasoning this Court upheld the High Court decision and
dismissed the appeal.
9. Before we proceed further we must emphasise that
penalty provisions in a statute have to be strictly
construed and that is why we have pointed out earlier that
the considerations which may weigh with the authority as
well as the court in construing penal provisions would be
different from those which would weigh in construing a
provision providing for payment of interest on unpaid amount
of tax which ought to have been paid. Section 3, read with
Section 5 of the Act, is the charging provision whereas the
rest of the provisions provide the machinery for the levy
and collection of the tax. In order to ensure prompt
collection of the tax due certain penal provisions are made
to deal with erring dealers and defaulters and these
provisions being penal in nature would have to be construed
strictly. But the machinery provisions need not be strictly
construed. The machinery provisions must be so construed as
would enable smooth and effective collection of the tax from
the dealers liable to pay tax under the statute. Section 1
1 -B provides for levy of interest on failure of the dealer
to pay tax due under the Act and within the time allowed.
Should this provision be strictly construed or should it
receive a broad and liberal construction, is a question
which we will have to consider in determining the sweep of
the said provision. We will do so at the appropriate stage
but for the present we may notice the thrust of this Court’s
decision in the case of Associated Cement Co. Ltd.3
10. That was a case in which the Company had submitted its
returns under the Act as well as the Central Act for the
period between 1-8-1973 and 31-7-1974 accompanied by
receipts evidencing the payment of tax on the basis of the
said returns. The freight charges were, however, not
included in the taxable turnover on the plea that the said
charges were not liable to be so included. However, after
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the decision of this Court in Hindustan Sugar Mills Ltd.’,
revised returns including the freight charges were filed
along with receipts evidencing the deposit of the balance
tax amount under both the
288
statutes. In the assessment order made under the Act the
authority imposed penalty under Section 7-AA and levied
interest under Section 11 -B of the Act for the delay in
depositing the tax amount relatable to the freight charges.
A similar order was made under Section 9(2) of the Central
Act. The Company pleaded that it had acted bona fide in
omitting to include the freight charges in its turnover as
the view expressed by this Court in Hyderabad Asbestos Co.
Ltd.4 held the field till it came to be explained and
distinguished in the subsequent cases of Birla Jute
Manufacturing Co. Ltd. v. CST5 and Hindustan Sugar Mills
Ltd. 1 The Company also pointed out that within two months
after the judgment of this Court in the latter case it had
filed revised returns including the freight charges in its
taxable turnover and paid the tax due thereon even before
the assessment orders were made. The three-Judge Bench
which decided the case was unanimous in its view that the
Company had acted bona fide in omitting to include the
freight charges in its taxable turnover and, therefore, the
levy of penalty under Section 7-AA of the Act was not
sustainable. However, the Bench was divided on the question
of liability to pay interest under Section 11-B of the Act;
Sen and Venkataramiah, JJ. taking the view that the levy of
interest was legal and proper while Bhagwati, J. holding
that the demand was not legally sustainable. It is,
therefore, necessary to place into sharp focus the two
points of view to appreciate the rationale in support
thereof.
11. The majority view was expressed by Venkataramiah, J. on
behalf of himself and Sen, J. with which Bhagwati, J.
dissented. Venkataramiah, J. speaking for the majority
points out that interest claimed on unpaid tax dues has been
described as compensatory in character and not penal.
Dealing with the assessee’s contention that as it had
deposited the full amount of tax due on the basis of the
returns filed under Section 7(1), and had thereby complied
with Section 7(2), and had subsequently deposited the
additional tax on the basis that freight charges were
includible in the taxable turnover while submitting the
revised return under Section 7(3), the question of charging
interest could not arise, Venkataramiah, J. observed : (SCC
p. 604, para 33)
"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 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
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liable to pay but have not paid as required by
sub-section (2) of Section
5 (1972) 29 STC 639 (MP)
289
7 of the Act. We are of opinion that this
view is in conformity with the legislative
intention in enacting Section 11-B of the
Act."
12. Referring to the Constitution Bench judgment in the
case of Ghasilal2, the learned Judge observes that the said
decision was distinguishable because it related to the
sustainability of the penalties imposed under Section 16(1)
of the Act and not interest levied under Section 11-B of the
Act and secondly because Section 16(1)(b) was attracted when
there was a failure to pay the ’tax due’, an expression not
employed by Section 11 -B of the Act. The learned Judge
also points out that if Sections 7 and 11 -B are not
interpreted in the manner indicated in the above-quoted
passage, (i) a registered dealer who does not file a return
and pays no tax (ii) a registered dealer who files a true
return but does not pay the full amount of tax and (iii) 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) only that much amount of tax as
he considers payable on the basis of the return, will escape
the net of Section 11-B and render the provision either
unworkable or meaningless and, therefore, it is essential,
on a fair reading of Section 11-B, to hold that the law
expects that all those liable to pay tax should file a ’true
return’ within the time allowed. The learned Judge
concludes by saying "We do not think ... we have in any way
disregarded the decision in Ghasilal case21’ and emphasizes
"we have to state that we depend upon Ghasilal2 case itself
to hold that for the purpose of Section 11 -B(a) the tax
becomes payable before assessment is made by virtue of
Section 3 read with Section 5 and sub-sections (2) and (2-A)
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". On this line
of reasoning the majority upheld the demand made under
Section 1 1-B of the Act.
13. Bhagwati, J. after referring to Sections 3, 7, 10, 11
and 11-B of the Act, points out that Section 7(2) speaks of
"full amount of tax due on the basis of the return" and
adds: (SCC pp. 586-87, para 6)
"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 tile 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 subsection (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."
Pointing out that the construction pressed by the Revenue
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leads to a serious anomaly, the learned Judge proceeds to
observe: (SCC p. 587, para 7)
290
"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 proper return would be
determinable only with reference to the
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 thus be 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 to 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 11-B,
clause (a), the assessee would expose himself
to penalty under Section 16, sub-section (1),
clause (n).... 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."
14. The learned Judge then proceeds to state that if the
construction canvassed by the Revenue is accepted it would
lead to a conflict between two sections, in that, the
assessee would be liable to pay interest on the completion
of the assessment from the date of filing of the return till
payment of the tax amount, while under Section 11 -B(b) the
assessee would be liable to pay interest on the amount of
the tax assessed after the expiry of the period specified in
the notice of demand or 30 days from the date of service of
the notice if no period is specified in the notice.
Invoking the well settled rule of interpretation that a
statute must be so construed as to avoid a conflict or
repugnance between its different provisions, the learned
Judge observes: (SCC p. 588, para 7)
"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 (b) of
Section 11-B 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."
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15. Next, the learned Judge finds it difficult to
understand how the tax which is yet to be ascertained
through the process of assessment can be made payable by the
assessee from the date of submission of the return. If it
Is so
291
payable it is equally difficult to understand why it should
bear interest from the date of filing of the return up to
the date of assessment only and thereafter be free from the
liability to bear interest up to the period specified in the
notice of demand and if no such period is specified till the
expiry of 30 days from the date of service of the notice.
The learned Judge, therefore, concludes that the scheme of
taxation under the Act clearly envisages that it is only
when the assessment is made and the period specified in the
notice of demand or 30 days, as the case may be, expires
that the amount of tax as assessed becomes payable and if
the same is not paid within the time allowed, the liability
to pay interest thereon accrues. What becomes payable under
Section 7(2) is only the tax due on the basis of the return
actually filed, i.e., on the basis of self-assessment and
thereafter the difference in tax on assessment, if the tax
assessed is more than the tax deposited on self-assessment.
Lastly, the learned Judge holds that the decision rendered
in the case of Ghasilal2 applies on all fours and in the
face of the ratio laid down in that case it is impossible to
accept the viewpoint of the Revenue. With regard to the
three instances mentioned by Venkataramiah, J. the learned
Judge points out that in such cases penalty can be imposed
under Section 16 of the Act. On this line of reasoning the
learned Judge disagreed with the majority view.
16.It is well-known that when a statute levies a tax it does
so by inserting a charging section by which a liability is
created or fixed and then proceeds to provide the machinery
to make the liability effective. It, therefore, provides
the machinery for the assessment of the liability already
fixed by the charging section, and then provides the mode
for the recovery and collection of tax, including penal
provisions meant to deal with defaulters. Provision is also
made for charging interest on delayed payments, etc.
Ordinarily the charging section which fixes the liability is
strictly construed but that rule of strict construction is
not extended to the machinery provisions which are construed
like any other statute. The machinery provisions must, no
doubt, be so construed as would effectuate the object and
purpose of the statute and not defeat the same. (See Whitney
v. IRC6, CIT v. Mahaliram Ramjidas7, India United Mills Ltd.
v. Commissioner of Excess Profits Tax, Bombay and Gursahai
Saigal v. CIT, Punjab9). But it must also be realised that
provision by which the authority is empowered to levy and
collect interest, even if construed as forming part of the
machinery provisions, is substantive law for the simple
reason that in the absence of contract or usage interest can
be levied under law and it cannot be recovered by way of
damages for wrongful detention of the amount. (See Bengal
Nagpur Railway Co. Ltd. v. Ruttanji Ramji10 and Union of
India v. A.L.
6 1926 AC 37: 42 TLR 58
7 (1940) 8 ITR 442: AIR 1940,PC 124: 67 IA 239
8 (1 955) 1 SCR 8 1 0: AIR 1955 SC 79: (1955) 27 ITR 20
9 (1963) 3 SCR 893: AIR 1963 SC 1062: (1963) 48 ITR 1
10 AIR 1938 PC 67: 65 IA 66: 67 CLJ 153
292
Rallia Ram11). Our attention was, however, drawn by Mr Sen
to two cases. Even in those cases, CIT v. M. Chandra
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Sekharl2 and Central Provinces Manganese Ore Co. Ltd. V.
CIT13, all that the Court pointed out was that provision for
charging interest was, it seems, introduced in order to
compensate for the loss occasioned to the Revenue due to
delay. But then interest was charged on the strength of a
statutory provision, may be its objective was to compensate
the Revenue for delay in payment of tax. But regardless of
the reason which impelled the Legislature to provide for
charging interest, the Court must give that meaning to it as
is conveyed by the language used and the purpose to be
achieved. Therefore, any provision made in a statute for
charging or levying interest on delayed payment of tax must
be construed as a substantive law and not adjectival law.
So construed and applying the normal rule of interpretation
of statutes, we find, as pointed out by us earlier and by
Bhagwati, J. in the Associated Cement Co. case3, that if the
Revenue’s contention is accepted it leads to conflicts and
creates certain anomalies which could never have been
intended by the Legislature,
17. Let us look at the question from a slightly different
angle. Section 7(1) enjoins on every dealer that he shall
furnish prescribed returns for the prescribed period within
the prescribed time to the assessing authority. By the
proviso the time can be extended by not more than 15 days.
The requirement of Section 7(1) is undoubtedly a statutory
requirement. The prescribed return must be accompanied by a
receipt evidencing the deposit of full amount of ’tax due’
in the State Government on the basis of the return. That is
the requirement of Section 7(2). Section 7(2-A), no doubt,
permits payment of tax at shorter intervals but the ultimate
requirement is deposit of the full amount of ’tax due’ shown
in the return. When Section 11-B(a) uses the expression
"tax payable under sub-sections (2) and (2-A) of Section 7",
that must be understood in the context of the aforesaid
expressions employed in the two sub-sections. Therefore,
the expression ’tax payable’ under the said two sub-sections
is the full amount of tax due and ’tax due’ is that amount
which becomes due ex hypothesi on the turnover and taxable
turnover "shown in or based on the return". The word
’payable’ is a descriptive word, which ordinarily means
"that which must be paid or is due or may be paid" but its
correct meaning can only be determined if the context in
which it is used is kept in view. The word has been
frequently understood to mean that which may, can or should
be paid and is held equivalent to ’due’. Therefore, the
conjoint reading of Sections 7(1), (2) and (2-A) and 11-B of
the Act leaves no room for doubt that the expression ’tax
payable’ in Section 11-B can only mean the full amount of
tax which becomes due under sub-sections (2) and (2-A) of
the Act when assessed on the basis of the information
regarding turnover and taxable turnover furnished or shown
in the return. Therefore, so long as the assessee pays the
11 (19641) 3 SCR 164, 185-90: AIR 1963 SC 1685
12 (1985) 1 SCC 283: 1985 SCC (Tax) 85: (1985) 151 ITR 433
13 (1986) 3 SCC 461: 1986 SCC (Tax) 601: (1986) 160 ITR 961
293
tax which according to him is due on the basis of
information supplied in the return filed by him, there would
be no default on his part to meet his statutory obligation
under Section 7 of the Act and, therefore, it would be
difficult to hold that the ’tax payable’ by him ’is not
paid’ to visit him with the liability to pay interest under
clause (a) of Section 11 -B. It would be a different matter
if the return is not approved by the authority but that is
not the case here. It is difficult on the plain language of
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the section to hold that the law envisages the assessee to
predicate the final assessment and expect him to pay the tax
on that basis to avoid the liability to pay interest. That
would be asking him to do the near impossible.
18. The learned counsel for the Revenue placed strong
reliance on the decision of this Court in Kesoram Industries
& Cotton Mills Ltd. V. CWT14. Reference was to the
discussion on the third question, namely, whether the
assessee owed a ’debt’ on the valuation day within the
meaning of Section 2(m) to be deductible in computing the
net wealth of the assessee. In that case the assessee had
in the accounts for the year ending 31-3-1957, shown a
certain amount as provision for payment of income tax and
supertax. The majority answered the question in the
affirmative whereas the third learned Judge disagreed. In
the view we are taking on the relevant provisions of the Act
it is unnecessary for us to examine the merit or demerit of
the rival views.
19. In the result we are of the view that the majority
opinion expressed by Venkataramiah, J. in the Associated
Cement Company case3 does not, with respect, state the law
correctly and in our view the legal position was correctly
stated by Bhagwati, J. in his minority judgment. We,
therefore, overrule the majority view in that decision and
affirm the minority view as laying down the correct law. We
must make it clear to avoid any possibility of doubt in
future that our view is based on the law as it stood before
the amendments effected by Act 4 of 1979. Reference to the
provisions of law after the amendments by Act 4 of 1979 are
if at all for the limited purpose of comparison and we
should not be understood to have expressed any view in
regard to them.
20. The appeals/writ petitions are allowed and the amount
of interest levied and collected from the
appellants/petitioners by virtue of Section 11-B of the Act
as well as Central Act shall be refunded to the appellants/
petitioners within 3 months from today with interest at 12%
per annum from the date of actual recovery from the
appellants till payment. There will, however, be no order
as to costs in the facts and circumstances of the case.
21. CMP No. 10857 of 1977 is disposed of.
14 (1966) 2 SCR 688: AIR 1966 SC 1370: 59 ITR 767
295