Full Judgment Text
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PETITIONER:
ASSOCIATED CEMENT CO. LTD.
Vs.
RESPONDENT:
COMMERCIAL TAX OFFICER, KOTA & ORS.
DATE OF JUDGMENT02/09/1981
BENCH:
BHAGWATI, P.N.
BENCH:
BHAGWATI, P.N.
SEN, A.P. (J)
VENKATARAMIAH, E.S. (J)
CITATION:
1981 AIR 1887 1982 SCR (1) 563
1981 SCC (4) 578 1981 SCALE (3)1338
ACT:
Rajasthan Sales Tax Act 1954 Ss. 7AA, 10, 11B and
Central Sales Tax Act 1956, S. 9-Scope of.
Assessee not depositing the tax in respect of amount of
freight at the time of filing original return-Revised return
filed and tax deposited-Assessing authority whether
competent to impose penalty-Assessee whether liable to pay
interest on the tax due.
HEADNOTE:
The appellant-assessee a company manufactured cement
which was sold partly in the State of Rajasthan and partly
outside the State. The sales tax returns relating to the
sales were filed by the assessee under the Rajasthan Sales
Tax Act, 1954 and under the Central Sales Tax Act 1956
before the Assessing Authority for the period August 1, 1973
to July 31, 1974 i.e. for the assessment year 1974-75. In
those returns the assessee did not include in the taxable
turnover the freight charges paid in respect of the goods
sold under the bonafide impression that freight charges were
not to be so includible in the taxable turnover in view of
certain decisions rendered by the High Courts and the
Supreme Court.
The Supreme Court on August 29, 1978 In Sugar Mills
Limited v. State of Rajasthan and others [1979] 1 SCR 276
held that freight charges formed part of the sale price and
were includible in the taxable turn-over of an assessee and
that sales tax was payable thereon.
Coming to know of the aforesaid decision the assessee
prepared and filed the revised returns in respect of the
assessment year 1974-75 before the Commercial Tax officer on
October 20, 1978 including freight charges in the turn-over
and also deposited along with the revised returns, challans
showing payment of the balance of the tax payable under the
State Act as well as under the Central Act.
The assessing authority passed two orders of assessment
one under section 10(3) of the State Act and the other under
section 9 of the Central Act. The former order of assessment
levied a penalty of Rs. 53,353 under section 7AA of the
State Act on account of the delay in depositing the sales
tax payable in respect of the amount of freight charges and
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also levied interest of Rs. 85910/under s. 11B of the State
Act. In the latter order of assessment a penalty of Rs.
1,34,205/- was levied under section 7AA of the State Act
read with section 9(2) of the Central Act for the delay in
depositing the tax payable in respect of the freight
charges, and interest of Rs. 2,07,174/- was levied under
section 11 of the State Act read with section 9(2) of the
Central Act,
564
In the appeals to this Court on the question whether:
(A) the Assessing Authority was right in imposing penalty on
the assessee under the two assessment orders for not
depositing the tax in respect of the amount of freight at
the time of filing of the original returns under the State
Act and the Central Act, and (B) the assessee was liable
under section 11B of the State Act to pay interest on the
tax in respect of the amount of freight for the period
between the date of filing of the original return and the
date when such tax was actually paid while filing the
revised return.
^
HELD: [By The Court]
(A) The levy of penalties for not including the freight
charges in the taxable turnover in the original returns and
for not paying the tax in respect of such freight charges is
unsustainable and the two orders of assessment in so far as
they levy penalty are liable to be quashed and set aside.
[571 B, 589 B]
Cement Marketing Company of India Limited v.
Commissioner of Sales Tax Indore [1980] 1 SCR 1098 referred
to.
[per Bhagwati J. dissenting]
B(1) So long as the assessee pays the amount of tax
which according to him is due on the basis of the return
filed by him, there would be no default on his part in
complying with the obligation under sub-section (2) of
section 7 and there would be no liability on him to pay
interest under section 11B clause (a), because he would have
paid the amount of tax quantified by him through the process
of self-assessment. The actual amount of tax payable by the
assessee would be determined only when it is assessed by the
Assessing Authority under section 10 and that would not be
payable until the expiration of the period specified in the
notice of demand or thirty days from the date of service of
such notice, as the case may be. [584 D-E]
(2) Since the assessee deposited the amounts of tax
which according to him were due on the basis of the returns
actually filed by him and the returns were accompanied by
receipts showing deposit of such amounts of tax, there was
no default on the part of the assessee in paying the amounts
of tax payable under sub-section (2) of section 7 within the
actual period allowed and in the circumstances no interest
was payable by the assessee under section 11B clause (a).
[586 F-G]
State of Rajasthan v. Ghasi Lal [1965] 2 SCR 805 relied
on.
3. When the assessment, is made and the tax payable by
an assessee is determined, the tax so determined does not
become payable until after a notice of demand is served by
the Assessing Authority under section 11 sub-section (2)
read with Rule 31 of the Rajasthan Sales Tax Rules 1955. The
assessee is allowed time to make payment up to the date
specified in the notice of demand and if no such date is
specified, then within thirty days from the date of service
of the notice. So long the assessee pays up the amount of
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the tax assessed within the time specified in the notice of
demand or within thirty days from the date of service of the
notice, as the case may be, he would not be in default and
hence
565
S. 11B clause (b) provides that the assessee would be liable
to pay interest on the tax assessed only if the amount of
such tax is not paid within the period specified in the
notice of demand or in the absence of such specification,
within thirty days from the date Of service of such notice
and then too, the liability to pay interest would commence
not from the date of the assessment, but from the day
commencing after the end of the said period, that is, the
period specified in the notice of demand or thirty days from
the date of service of such notice, as the case may be. Thus
even after the assessment is made and the tax payable by an
assessee is determined, the assessee is not liable to pay
interest on the amount of such tax until after the period
specified in the notice of demand or in the absence such
specification, thirty days From the date of service of such
notice, have expired. [574 D-H]
4. The language used in sub-section (2) of section 7 is
"full amount of tax due on the basis of return". The
"return" is the return Sled by the assessee under sub-
section (1) of section 7. When sub-section (1) of section 7
requires an assessee to file a return, the return filed must
be correct and proper. If the return is not correct and
proper, the Assessing Authority may not give credence to the
return and may refuse to assess the tax on the basis of the
return and if the Assessing Authority finds that the
assessee has concealed any particulars from the return
furnished by him or has deliberately furnished inadequate
particulars in the return the Assessing Authority may levy
penalty on the assessee under section 16, sub-section (1)
clause (e) and the assessee may also be liable to be
punished for an offence under Section 16, sub-section (3)
clause (d) for making a false statement in the return.
Whether the return filed be correct or not, the tax payable
by the assessee under sub-section (2) of section 7 would be
the full amount of tax due on the basis of the return. The
return actually filed by the assessee must be looked into in
order to see what is the full amount of tax duo on the basis
of such return. It is not the assessed tax nor is it the tax
due on the basis of a return which ought to have been filed
by the assessee but it is the tax due according to the
return actually filed that is payable under sub-section (2)
of section 7. This provision is really in the nature of
self-assessment and what it requires is that whatever be the
amount of tax due on the basis of self-assessment must be
paid up along with the filing of the return which
constitutes self-assessment. The plain words of sub-section
(2) of section 7 cannot be tortured to mean full amount of
tax due on the basis of return which ought to have been
filed but which has not been filed. [576 B-F]
5. The legislature could never have intended that the
assessee should be liable on pain of imposition of penalty,
to deposit an amount which is yet to be ascertained through
assessment. How would the assessee know in advance what view
the Assessing Authority would take in regard to the
taxability of any particular category of sales or the rate
of tax applicable to them and deposit the amount of tax on
that basis ? Even in regard to the liability to pay
interest, it does not stand to reason that the legislature
should have subjected the assessee to such liability for
non-payment of an amount of which the liability for payment
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is still to be ascertained. [577 F-G]
6. The tax payable under sub-section (2) of section 7
dealt with in clause (a) of section 11B cannot, be equated
with the amount of the tax assessed forming the subject
matter of clause (b) of section 11B and hence it must
566
be tax due on the basis of the return actually filed by the
assessee and not on the basis of a correct and proper return
which ought to have been filed by him. [578 G-H]
7. The scheme of taxation envisaged in the State Act
clearly shows that it is only when the assessment is made
and the period specified in the notice of demand or in the
absence of such specification, thirty days from the date of
service of such notice expires, that the amount of tax as
assessed becomes payable by the assessee and its payment can
be enforced by the Revenue. What becomes payable by the
assessee under sub-section (2) of section 7 is merely the
tax due on the basis of the return actually filed by the
assessee that is, on the basis of self-assessment. [579 F-G]
8. On a true construction of the provisions of the
State Act tax becomes due from the assessee and is payable
by him only when it is ascertained by the Assessing
Authority under section 10 or by the assessee under section
7(2). Till then there is only the liability of the assessee
to be assessed to tax and no tax can be said to be payable
by the assessee. The tax payable is ascertained when the
assessment is made by the Assessing Authority under section
10 or when the assessee himself quantifies it through the
process of self-assessment under subsection (2) of section
7. These two amounts of tax may and in quite a number of
cases would be different because one is ascertained by the
Assessing Authority through the process of assessment and
that is why sub-section (4) of section 7 provides that every
deposit of tax made under sub-section (2) shall be deemed to
be provisional subject to necessary adjustments in pursuance
of final assessment of tax made under section 10. This
provision clearly contemplates that the tax payable under
sub-section (2) of section 7 may be different from the tax
assessed under section 10 and it cannot, therefore,
obviously be the tax due on the basis of a correct and
proper return but must be the tax due on the basis of the
return actually filed. [580 D-G]
9(i) it is clear from the language of subsection (2) of
section 7 that it is only on the filing of the return that
the liability to pay the tax due on the basis of the return
arises. If no return is filed within the prescribed time, it
would undoubtedly constitute a default attracting penalty
under section 16, sub-section (1) clause (n) but there would
be no liability on the assessee to pay interest on the
amount of the tax, because the liability to pay the tax due
on the basis of the return under sub-section (2) of section
7 can arise only when the return is filed There is no
liability on the assessee to pay any amount by way of tax
until the return is filed or the assessment is made. [581 H-
582 B]
(ii) It can neither be held that section 7 sub-section
(2) is attracted even when no return has been filed. It is
clear that until the assessee files a return or assessment
is made, no tax is payable by the assessee, because till
then there is only a liability to be assessed to tax. The
conclusion that a registered dealer who does not file any
return at all as required by sub-section (1) of section 7
would still be liable to pay the amount of tax and if he
does not pay the same before the due date for filing the
return, he would be liable to pay interest under section
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11(b) clause (a) cannot be accepted. This would be contrary
to the decision of this Court in State of Rajasthan v. Ghasi
Lal [ 1965] 2 SCR 805.
[582 C-F]
567
[per A.P. Sen and Venkataramiah, JJ]
B(1). The statutory liability under section 11B arises
wherever there is default in payment of the tax within the
period allowed by law irrespective of any doubt which an
assessee may be entertaining about the liability to pay the
tax. [604 D-E]
State of Rajasthan v. Ghasi Lal [1965] 2 SCR 805
distinguished.
2. Tax, interest and penalty are three different
concepts. Tax becomes payable by an assessee by virtue of
the charging provision in a taxing statute. Penalty
ordinarily becomes payable when it is found that an assessee
has willfully violated any of the provisions of the taxing
statute. Interest is ordinarily claimed from an assessee who
has withheld payment of any tax payable by him and it is
always calculated at the prescribed rate on the basis of the
actual amount of tax withheld and the extent of delay in
paying it. It may not be wrong to say that such interest is
compensatory In character and not penal. [594 D-F]
3. Registered dealers can be classified into the
following different classes: (1) A registered dealer who
files his return showing a higher taxable turnover than the
actual turnover which is ultimately found to be taxable at
the time of regular assessment and who pays tax under
section 7(2) of the Act on the basis of the return. (2) A
registered dealer who files a true and proper return and
pays tax on the basis of such return within the time
allowed. (3). A registered dealer who does not file any
return at all as required by section 7(1) and pays no tax
under section 7(2) of the Act. (4). A registered dealer who
files a true return but does not pay the full amount of tax
as required by section 7(2), and; (5) A registered dealer
who files a return but wrongly claims either the whole or
any part of the turnover as not taxable and pays under
section 7(2) of the Act that amount of tax, which according
to him is payable, on the basis of the return. In the case
of a registered dealer falling under class (1) no question
of payment of interest would arise as the amount of tax paid
by him at the time of filing the return is much more than
what is actually due and payable by him under the Act. The
extra tax paid by him becomes refundable after the regular
assessment is completed in view of section 7(4) of the Act.
In the case of a registered dealer falling under clause (2)
also no question of payment of interest arises as there is
no shortfall in payment of the tax. [594 F-595D]
4. A fair reading of section 11 of the Act suggests
that the Act expects that all assessees who are liable to
pay sales tax should file a true return within the period
prescribed under sub-section (1) of section 7 and should
produce a treasury receipt or a receipt of any bank
authorised to receive money on behalf of the State
Government showing that full amount of tax due from them has
been paid. [595 H-596 A ]
5. It is settled law that a distinction has to be made
by court while interpreting the provisions of a taxing
statute between charging provisions which impose the charge
to tax and machinery provisions which provide the machinery
for the quantification of the tax and the levying and
collection of the tax so imposed. While charging provisions
are construed strictly, machinery sections are not generally
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subject to a rigorous construction. The courts are
568
expected to construe the machinery sections in such a manner
that a charge to tax is not defeated. [596 C-D]
India United Mills Ltd. v. Commissioner of Excess
Profits Tax, Bombay [1955] 1 S.C.R. 810, Gursahai Saigal v.
Commissioner of Income-tax Punjab [1963] 3 S.C.R. 893
Commissioner of Income-tax v. Mahaliram Ramjidas, A.I.R.
1940 P.C. 124 and Whitney v. Commissioners of Inland Revenue
[1926] A.C. 37, referred to.
6. If the words ’on the basis of return’ occurring in
sub-section (2) of section 7 of the Act are construed as on
The basis of a true and proper return which ought to have
been filed under sub-section (1) of section 7 then all the
three classes of persons viz (i) those who have not filed
any return at all and who are later on found to be liable to
be assessed, (ii) those who have filed a true return but
have not deposited the full amount of tax which they are
liable to pay and (iii) those who filed a return making a
wrong claim that either the whole or any part of the
turnover is not taxable and who are subsequently found to
have made a wrong claim, would be placed in the same
position and they would all be liable to pay interest on the
amount of tax which they are liable to pay but have not paid
as required by sub-section (2) of section 7 of the Act. This
view is in conformity with the legislative intention in
enacting section 11B of the Act [599 A-C]
7. In cases to which section 7(2) of the Act applies
interest has to be paid on the tax payable but which has not
been paid from the last date on which the return has to be
filed for the assessment year in question and in cases to
which sub-section (2A) is applicable, from the last date on
which the advance tax has to be paid. The amount of interest
has however to be calculated after the actual amount of tax
payable is assessed and necessary adjustments are made. [609
B-C]
8. Either by delaying the filing of the return or not
filing it all or by filing a return wrongly claiming that a
certain part of the turnover is not taxable or by not
disclosing a part of the taxable turnover in the return an
assessee cannot escape the liability to pay interest under
section 11B on the amount of tax with held, as a consequence
of his own action or inaction, from the last date on which
it had to be paid as per sub-section (2) or sub-section (2A)
of section 7, as the case may be, read with the Rules. An
assessee cannot contend that interest does not accrue under
section 11B on the tax payable by him where the time to file
the return has elapsed until the actually files a return
admitting the liability to pay such talc or until assessment
is made. [604 B-D]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 852 of
1980.
From the Assessment orders dated the 30th January, 1980
of the Commercial Tax officer, Spl. Circle Kota, (Rajasthan)
for the assessment year 1974-75.
Soli J. Sorabji, B.R. Agarwal and P. G. Gokhale for the
Appellants.
S. T. Desai and B. D. Sharma for the Respondents.
569
The Judgment of A.P. Sen and E. S. Venkataramiah JJ.
was delivered by Venkataramiah J. P. N. Bhagwati, J. gave a
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dissenting opinion.
BHAGWATI, J. I have had the advantage of reading the
Judgment prepared by my learned brother Venkataramiah J.,
but despite the great respect which I have for his learning
and erudition, I find myself unable to agree with the view
taken by him. The facts giving arise to this appeal are not
very material because the question which arises for
consideration is essentially one of law, but the factual
setting does help to see the question in its proper
perspective and hence it would be useful to set out a few
material facts.
The assessee is a public limited company carrying on
business of manufacture and sale of cement. It has a factory
for manufacturing cement at Lakheri in the State of
Rajasthan and it effects sales of cement both inside as well
as outside the State of Rajasthan. Since some of the sales
effected by the assessee were inside the State of Rajasthan
and some others were inter-state sales, the assessee filed
returns of sales for the quarters comprised in the period
1st August 1973 up to 31st July 1974 both under the
Rajasthan Sales Tax Act 1954 thereinafter referred to as the
Stale Act) and the Central Sales Tax Act 1956 (hereinafter
referred to as the Central Act). The assessee did not
include in the taxable turn-over shown in the returns the
amount of freight paid in respect of the goods sold under
the bonafide impression that the amount of freight did not
form part of the sale price and was not includible in the
taxable turn-over of the assessee. This impression was
carried by the assessee in view of certain decisions which
had been given by some High Courts as well as the Supreme
Court and particularly the decision of the Supreme Court in
Hyderabad Asbestos Cement Products Limited v. State of
Andhra Pradesh(1). The assessee paid up for each quarter the
full amount of tax calculated on the basis of the return
submitted by it and the receipt for such payment was filed
along with the return. The amount of tax paid by the
assessee obviously did not include tax on the amount of
freight, since according to the assessee the amount of
freight did not form part of the sale price and was
accordingly not shown in the returns as forming part of the
taxable turn-over. Subsequently however, the question
whether the amount of freight formed part of the sale price
and was therefore includible in the taxable turn-over of the
assessee so as to be exigible to tax came up for
consideration before
570
this Court in Hindustan Sugar Mills Limited v. State of
Rajasthan and others(1) and it was held by this Court that
by reason of the provisions of the Cement Control order 1967
which governed the transactions of sale of cement entered
into by the assessee with the purchasers, the amount of
freight formed part of the sale price within the meaning of
the first part of the definition of that term contained in
section 2 (p) of the State Act and section 2 (h) of the
Central Act and was includible in the taxable turn-over of
the assessee. As soon as this decision was given by the
Court on 29th August 1978, the assessee immediately prepared
revised returns in respect of the period 1st August 1973 up
to 31st July 1974 showing the amount of freight as forming
part of the taxable turn-over and filed the same before the
Commercial Tax officer, Special Circle, Kota on 20th October
1978. The assessee also deposited along with the revised
returns challans showing payment of the balance of the tax
on the basis of the revised returns under the State Act as
well as the Central Act. Two orders of assessment were
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thereafter passed by the Assessing Authority, one under
section 10 sub-section (3) of the State Act and the other
under section 9 of the Central Act. The former order of
assessment levied a penalty of Rs. 53,355 under section 7AA
of the State Act and interest amounting to Rs. 85,910.50
under section 11B of the State Act for the delay in payment
of the tax in respect of the amount of freight under State
Act, which according to the Assessing Authority ought to
have been deposited alongwith the filing of the original
returns. Similarly, the latter order of assessment also
levied a penalty of Rs. 1,34,205 under section 7 AA of the
State Act read with section 9 sub-section (2) of the Central
Act and interest amounting to Rs. 2,07,174 under section 11B
of the State Act read with section 9 sub-section (2) of the
Central Act for the delay in depositing the tax payable in
respect of the amount of freight under the Central Act. The
assessee has in the present appeal preferred with special
leave challenged the validity of both these orders of
assessment in so far as they levy penalty and interest on
the assessee.
The first question which arises for consideration
before us is whether the Assessing Authority was right in
imposing penalty on the assessee under the two assessment
orders for not depositing the tax in respect of the amount
of freight at the time of filing of the original returns
under the State Act and the Central Act. My.
571
learned brother Venkataramiah has held, following the
decision of this Court in Cement Marketing Company of India
Limited v. Commissioner of Sales Tax, Indore(l) that "the
levy of penalties for not including the freight charges in
the taxable turn-over in the original returns and for not
paying the tax in respect of such freight charges, is
unsustainable" and that the two orders of assessment in so
far as they levy penalty on the assessee are liable to be
quashed and set aside. I entirely agree with the view taken
by him and I do not think I can usefully add anything to
what he has said.
The next question that arises for consideration is
whether the assessee was liable under section II B of the
State Act to pay interest on the tax in respect of the
amount of freight for the period between the date of filing
of the original return and the date when such tax was
actually paid while filing the revised return. The
contention of the revenue was that the assessee was so
liable and this contention was sought to be supported by
relying on section 2 sub-sections (1) and (2) read with
section 11 of the State Act. The same provisions with
section 9 sub-section (2) of the Central Act were also
relied upon for the purpose of sustaining the Revenue’s
claim for interest under the Central Act. The determination
of the question before us therefore really turns on the true
interpretation of section 7 subsection (1) and (2) read with
section II B of the State Act. Section 7 of the State Act as
it stood at the material time was in the following terms:
"7. Submission of returns: (1) Every registered
dealer, and such other dealer, as may be required to do
so by the assessing authority by notice served in the
prescribed manner, shall furnish prescribed returns,
for the prescribed periods, in the prescribed forms, in
the prescribed manner and within the prescribed time to
the assessing authority;
Provided that the assessing authority may extend
the date for the submission of such returns by any
dealer or class of dealers by a period not exceeding
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fifteen days in the aggregate.
(2) Every such return shall is be accompanied by a
Treasury receipt or receipt of any bank authorised to
receive money on behalf of the State Government,
showing the
572
deposit of the full amount of tax due on the basis of return
in the State Government Treasury of bank concerned.
(2A) Notwithstanding anything contained in sub-section
(2). the State Government may by notification in the
official Gazette require any dealer or class of dealers
specified therein, to pay tax It intervals shorter than
those prescribed under sub-sec[ion (1). In such cases, the
proportionate tax on the basis of the last return shall be
deposited at the intervals specified in the said
notification in advance of the return. The difference if
any, of the tax payable according to the return and the
advance tax paid shall be deposited with the return and the
return shall be accompanied by the treasury receipt, or
receipts, of any Bank authorised to receive money on behalf
of the State Government, for the full amount of tax due
shown in the return.
(3) If any dealer discovers any omission, error, or r)
wrong statement in any returns furnished by him under sub-
section (1), he may furnish a revised return in the
prescribed manner before the time prescribed for the sub
mission of the next return but not later.
Section II B of the State Act during the relevant period
provided inter alia as under:
"11B. Interest on failure to pay tax, fee or penalty-
(a) If the amount of any tax payable under sub-
sections (2) and (2A) of section 7 is not paid
within the period allowed, or
(b) If the amount specified in any notice of demand,
whether for tax, fee, or penalty, is not paid
within the period specified in such notice, or in
the absence of such specification, within 30 days
from the date of service of such notice, the
dealer shall be liable to pay simple interest on
such amount at one per cent per month from the day
commencing after the end of the said period for a
period of three months and at one and a half per
cent per month thereafter during the time he
continues to make default in the payments;
573
Provided that, where, as a result of any order
under this Act, the amount, on which interest
was pay able under this section, has been
reduced, the interest shall be reduced
accordingly and the excess interest paid, if
any, shall be refunded:
Provided further that no interest shall be payable
under this section on such amount and for
such period in respect of which interest is
paid under the provisions of sections 11 and
14.
These are the two sections which fall for construction but
in order to arrive at their true meaning and legal effect it
is necessary to refer to a few other provisions of the State
Act. Section 3 is the charging section and it creates the
liability to pay tax. That is the normal function of a
charging section in a taxing statute. But, of itself, it
does not make the tax payable by an assessee. It is only
when the tax which an assessee is liable to pay is
ascertained that becomes payable by the assessee. Now the
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normal mode by which the tax payable by an assessee is
ascertained is by the process of assessment which is
provided in section 10 Sub-section (I) clause (a) of section
10 says that assessment and determination of tax due for any
year shall be made after the returns for all the periods of
that year have become due. Section 11 then provides for
payment and recovery of tax and its provisions in so far as
material read inter alia as follows:
"11. Payment and recovery of tax: (I) The tax
shall be payable by a dealer on the basis of the
assessments. F
(2) The tax paid by a dealer shall be adjusted
against the judgment determined as a result of the
assessment under section 10 and the balance of the
amount shall be payable by such dealer by such date as
may be specified in the notice of demand and, where no
such date is specified, shall be paid within thirty
days from the date of service of the notice.
Provided that the assessing authority may, subject
to such conditions and restrictions as may be
prescribed, in respect of any particular dealer, and
for reasons to be re corded in writing, extend the date
of such payment and
574
allow such dealer to pay the tax due and the penalty,
if any, by instalments.
(3) In default of the payment of tax payable under
sub-section (1) or sub-section (2), the amount of tax
shall be recoverable as an arrear of land revenue.
.... ...... ...... ...... .... ........ ........ ..
Provided further that where recovery of tax or any
part thereof is stayed under the preceding proviso, the
amount of such tax shall be recoverable with interest
at the prescribed rate on the amount ultimately found
due; and such interest shall be payable on such amount
from the date of tax first become due.’’
When the assessment is made and the tax payable by an
assessee is determined, the tax so determined does not
become payable until after a notice of demand is served by
the Assessing Authority under section 11 sub-section (2)
read with Rule 31 of the Rajasthan Sales Tax Rules 1955 made
by the Government of Rajasthan in exercise of the powers
conferred under section 26 of the State Act and then the
assessee is allowed time to make payment up to the date
specified in the notice of demand and if no such date is
specified, then within thirty days from the date of service
of the notice. So long the assessee pays up the amount of
the tax assessed within the time specified in the notice of
demand or within thirty days from the date of service of the
notice, as the case may be, he would not be in default and
hence section 11 B clause (b) provides that the assessee
would be liable to pay interest on the tax assessed only if
. the amount of such tax is not paid within the period
specified in the notice of demand or in the absence of such
specification, within thirty days from the date of service
of such notice and then too, the liability to pay interest
would commence not from the date of assessment, but from
"the day commencing after the end of the said period" that
is, the period specified in the notice of demand or thirty
days from the date of service of such notice, as the case
may be. Thus even after the assessment is made and the tax
payable by an assessee is determined, the assessee is not
liable to pay interest on the amount of such tax until after
the period specified in the notice of demand or in the
absence such specification, thirty days from the date of
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service of such notice, have expired.
575
Turning now to sub-section (I) of section 7 it requires
every A registered dealer to furnish prescribed returns for
the prescribed period, in the prescribed forms, in the
prescribed manner and within the prescribed time to the
Assessing Authority. It was not disputed on behalf of the
Revenue that in the present case the prescribed returns in
the prescribed forms were furnished by the assessee in time
for the quarter comprised in the period 1st August 1973 to
31st July 1974, the only grievance in regard to those
returns being that the amount of freight was not shown as
forming part of the taxable turnover. Sub-section (2) of
section 7 provides that every return furnished by the
assessee must be accompanied by a receipt showing the
deposit of the full amount of tax due on the basis of the
return and the assessee accordingly deposited the full
amount of tax calculated on the basis of each quarterly
return and filed the receipt showing such deposit along with
the return. Since, according to the view taken by the
assessee at the time of filing the original returns, the
amount of freight did not form part of the sale price, it
was not included in the taxable turnover shown in the
original returns and hence no tax on the amount of freight
was deposited by the assessee while filing the original
returns. It was only after the decision of this Court in
Hindustan Sugar Mills Limited Company’s case (supra) that
the assessee filed revised returns including the amount of
freight in the taxable turnover and deposited the balance of
the tax on the basis of the revised returns. The argument of
the Revenue was and that is the argument which has appealed
to my learned brother, Venkataramiah, that the words "full
amount of tax due on the basis of return" in sub-section (2)
of section 7 meant the full amount of tax due on the basis
of a true and proper return which ought to have been filed
by the assessee and not the full amount of tax due on the
basis of the return actually filed and since the amount of
the freight was liable to be included in the taxable
turnover and hence in a true and proper return, the "full
amount of tax due on the basis of return" within the meaning
of sub-section (2) of section 7 included the tax on the
amount of freight and the assessee therefore ought to have
deposited the same at the time of filing, the original
returns, and since the assessee failed to do so, section 11
A clause (a) was attracted and the assessee was liable under
that provision to pay interest on the tax on the amount of
freight which remained unpaid until the filing of the
revised returns. This argument, plausible though it may
seem, is in my opinion unsustainable. It is plainly contrary
to the language of sub-section (2) of section 7 read with
section 11B and is opposed to the scheme of the State Act.
It is also incon-
576
sistent with the decision of a Bench of five Judges of this
Court in State of Rajasthan v. Ghasi Lal(1). Indeed I fail
to see how in the face of the decision, the Court can
possibly accept the argument of the Revenue.
The language used in sub-section (2) of section 7 is
"full amount of tax due on the basis of return". The
"return" referred to is obviously the return filed by the
assessee under sub-section (1) of section 7. Now it is true
that when sub-section (1) of section 7 requires an assessee
to file a return, the return filed must be correct and
proper. If the return is not correct and proper, the
Assessing Authority may not give credence to the return and
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may refuse to assess the tax on basis of the return and if
the Assessing Authority finds that the assessee has
concealed any particulars from the return furnished by him
or has deliberately furnished inadequate particulars in the
return, the Assessing Authority may levy penalty on the
assesssee under section 16 sub-section (1) clause (e) and
the assessee may also be liable to be punished for an
offence under section 16, sub-section (3) clause (d) for
making a false statement in the return. But, whether the
return filed be correct or not, the tax payable by the
assessee under sub-section (2) of section 7 would be the
full amount of tax due on the basis of the return. We must
look at the return actually filed by the assessee in order
to see what is the full amount of tax due on the basis of
such return. It is not the assessed tax nor is it the tax
due on the basis of a return which ought to have been filed
by the assessee but it is the tax due according to the
return actually filed that is payable under sub-section (2)
of section 7. This provision is really in the nature of
self-assessment and what it requires is that whatever be the
amount of tax due on the basis of self-assessment must be
paid up along with the filing of the return which
constitutes self-assessment. I fail to see how the plain
words of sub-section (2) of section 7 can be tortured to
mean full amount of tax due on the basis of return which
ought to have been filed but which has not been filed.
It may also be noted that the construction contended
for on behalf of the Revenue leads to a serious anomaly. If
this construction were accepted, the tax payable under sub-
section (2) of section 7 would be the full amount of tax due
on the basis of a correct and proper return and that would
necessarily be the same as the tax assessed by the Assessing
Authority, because what is a correct and
577
proper return would be determinable only with reference to
the A assessment ultimately made. The assessment when made
would show whether the return filed was correct and .
proper, it would be correct and proper if it accords with
the assessment made; if it does not accord with the
assessment, then to the extent to which it differs it would
obviously have to be regarded as incorrect and improper. The
consequence of the construction suggested on behalf of the
Revenue would be thus that the tax payable under sub-section
(2) of section 7 would be the full amount of the tax as
assessed, because that would represent the tax due on the
basis of a correct and proper return and the assessee would
have t deposit at the time of filing the return, an amount
equivalent to the amount of the tax as assessed. If the
assessee fails to do so, then apart from the liability to
pay interest under section I IB clause (a), the assessee
would expose himself to penalty under section 16 sub-section
(1) clause (n) which provides inter alia that any person who
fails to comply with any requirement of the provisions of
the State Act, the requirement under sub-section (2) of
section 7 being to deposit the full amount of tax due on the
basis of return, shall be liable to D penalty in "a sum not
exceeding Rs. 1,000 and in the case of continuing default, a
further penalty not exceeding Rs. 50 for every day of such
continuance." This is a consequence which it is difficult to
believe could ever have been contemplated by the
legislature. The legislature could never have intended that
the assessee should be liable, on pain of imposition of
penalty, to deposit an amount which is yet to be ascertained
through assessment. How would the assessee know in advance
what view the Assessing Authority would take in regard to
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the taxability of any particular category of sales or the
rate of tax applicable to them and deposit the amount of tax
on that basis ? And this would be all the more problematic
in the case of a statute like the sales tax law which is
full of complexities and where it may be difficult to assert
dogmatically that a particular view is right or wrong. Even
in regard to the liability to pay interest, it does not
stand to reason that the legislature should have subjected
the assessee to such liability for non-payment of an amount
of which the liability for payment is still to be
ascertained. Moreover, on the construction of the Revenue,
if the assessee has not deposited at the time of filing the
return an amount equivalent to the full amount of the tax
assessed, the assessee would be liable to pay interest on
amount remaining unpaid from the date of filing of the
return until payment. But, as I have already pointed out
above, when the assessment is made and the tax payable by
the
578
assessee is determined, the assessee is given time for
payment of the amount of the tax assessed upto the period
specified in the notice of demand and in the absence of such
specification, within thirty days from the date of service
of such notice and it is only if the assessee fails to make
payment within such period that he becomes liable to pay
interest on the amount of the tax assessed to the extent to
which it remains unpaid. There is no liability on the
assessee to pay interest on the amount of the tax assessed
until after the expiration of the period specified in the
notice of demand or thirty days from the date of service of
such notice, as the case may be. There would thus be a
conflict between the two provisions, if the construction
contended for on behalf of the Revenue were accepted. Under
sub-section (2) of section 7 read with section 11 B clause
(a), the assessee would be liable to pay interest on the
amount of the tax assessed to the extent to which it has not
been deposited at the time of filing the return and such
interest would run continuously from the date of the filing
of the return until payment, while under section 11 B clause
(b) the assessee would not be liable to pay interest on the
amount of the tax assessed during the period specified in
the notice of demand or in the absence of such non-
specification during the period of thirty days from the date
of service of such notice. Such a conflict could never have
been intended by the legislature. It is a well-settled rule
of interpretation that a statute must be so construed as not
to create any repugnance between the different provisions,
for it is a basic assumption underlying every
interpretational exercise that the legislature must be
supposed not to have intended to contradict itself. The
Court must always prefer that interpretation which avoids
repugnancy between two provisions of a statute and gives
full meaning and effect to both. Therefore, on this
principle of interpretation also the construction canvassed
on behalf of the Revenue cannot be accepted, as it would
create a direct conflict between the provisions of clause
(a) and (b) of section 11 B. The only way in which clauses
(a) and (b) of section 11 B can be read harmoniously and
full meaning and effect can be given to them is by
construing them as dealing with distinct matters or
situations. The tax payable under sub-section (2) of section
7 dealt with in clause (a) of section 11 B cannot,
therefore, be equated with the amount of the tax assessed
forming the subject matter of clause (be of section l l and
hence it must be held to be tax due on the basis of the
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return actually filed by the assessee and not on the basis
of a correct and proper return which ought to have been
filed by him.
579
There is also another angle from which the problem can
be A considered. Clause (a) of section 11 B postulates tax
which, though payable under sub-section (2) of section 7, is
not paid by the assessee within the time allowed and hence
it subjects the assessee to liability to interest for non-
payment of such tax. Now if, as contended by the Revenue,
the tax payable under sub-section (2) of section 7 means the
full amount of tax due on the basis of a correct and proper
return which ought to have been filed by the assessee, and
is, therefore, equivalent to the amount of the tax as
assessed, it would be the amount of the tax as assessed
which would be payable under sub-section (2) of section 7
and this amount would be payable by the assessee at the time
of filing the return, even though ex hypothesi no assessment
has taken place. Now it is difficult to appreciate how under
the scheme of taxation embodied in the State Act, the amount
of tax which is yet to be ascertained through the process of
assessment can be said to be payable by the assessee at the
time of filing the return. If, as contended by the Revenue,
it is so payable it is difficult to understand why it should
have been liable to bear interest from the date of filing
the return upto the date of assessment and thereafter it
should have been freed from the liability of bearing
interest upto the period specified in the notice of demand
or thirty days from the date of service of the notice, as
the case may be and the rate of interest also should have
been made to vary from period to period. Moreover, it is, to
my mind, impossible to accept the proposition that the
amount of the tax ultimately assessed, which would represent
the tax due on the basis of a correct and proper return
should be payable by the assessee at the time of filing the
return under sub-section (2) of section 7. The scheme of
taxation envisaged in the State Act clearly shows that it is
only when the assessment is made and the period specified in
the notice of demand or in the absence of such
specification, thirty days from the date of service of such
notice expires, that The amount of tax as assessed becomes
payable by the assessee and its payment can be enforced by
the Revenue. What becomes payable by the assessee under sub-
section (2) of section 7 is merely the tax due on the basis
of the return actually filed by the assessee that is, on the
basis of self-assessment. G
This position seems to be clear beyond doubt on an
examination of the scheme of taxation contained in the State
Act and no authority is needed in support of it, but if any
authority were needed, it is to be found in the decision of
a Bench of five Judges of this Court in State of Rajasthan
v. Ghasi Lal (supra). There the
580
question was whether the assessee could be said to have
failed, without reasonable cause, to pay the tax due within
the time allowed, when he paid the tax due on the basis of
the quarterly returns at the time of filing those returns,
but the returns were filed long after the due dates for
filing the same had expired. The argument of the Revenue was
that tax became due from the assessee under section 3 which
is the charging section and the assessee could not withhold
payment of the same by delaying the filing of the quarterly
returns within the time prescribed under the State Act and
he was therefore liable to pay interest on the amount of the
tax as assessed from the date the quarterly returns ought to
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have been filed and the amount of the tax paid. This
argument of the Revenue was rejected by the Court and Sikri,
J. speaking on behalf of the Bench of five Judges, said:
"Till the tax payable is ascertained by the Assessing
Authority under section 10 or by the assessee under section
7(2), no tax can be said to be due within section 16(1) (b)
of the Act for till then there is only a liability to be
assessed to tax." These observations show beyond doubt that
on a true construction of the provisions of the State Act
tax becomes due from the assessee and is payable by him only
when it is "ascertained by the Assessing Authority under
section 10 or by the assessee under section 7(2)". Until
then, there is only the liability of the assessee to be
assessed to tax and no tax can be said to be payable by the
assessee. The tax payable is ascertained when the assessment
is made by the Assessing Authority under section 10 or when
the assessee himself quantifies it through the process of
self-assessment under sub-section (2) of section 7. These
two amounts of tax may, and in quite a number of cases
would, be different because one is ascertained by the
assessee himself by filing his return and the other is
ascertained by the Assessing Authority through the process
of assessment and that is why sub-section (4) of section 7
provides that every deposit of tax made under sub-section
(2) shall be deemed to be provisional subject to necessary
adjustments in pursuance of final assessment of tax made
under section 10. This provision clearly contemplates that
the
tax payable under sub-section (2) of section 7 may be
different from the tax assessed under section 10 and it
cannot, therefore, obviously be the tax due on the basis of
correct and proper return (because that would necessarily be
the same as the tax ultimately assessed under section 10)
but must be the tax due on the basis of the return actually
filed.
Mr. Justice Venkataramiah has in his Judgment
classified registered dealers into the following five
different categories:
581
1. A registered dealer who files his return showing a
higher taxable turnover than the actual turnover
which is ultimately found to be taxable at the
time of regular assessment and who pays tax under
section 7(2) of the Act on the basis of the
return.
2. A registered dealer who files a true and proper
return and pays tax on the basis of such return
within the time allowed.
3. A registered dealer who does not file any return
at all as required by section 7(1) and pays no tax
under section 7(2) of the Act.
4. A registered dealer who files a true return but
does not pay the full amount of tax as required by
section 7(2); and
5. A registered dealer who files a return but wrongly
claims either the whole or any part of the
turnover as not taxable and pays under section
7(2) of the Act that amount of tax, which
according to him is payable, on the basis of the
return.
The learned Judge has observed that if the construction
contended for on behalf of the assessee were accepted,
registered dealers falling within categories (3), (4) and
(S) would be outside the provision enacted in sub-section
(2) of section 7 read with section 11B clause (a) and no
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interest would be payable by them under that provision and
that would make clause (a) of section I I "either unworkable
or meaningless". I must, with the greatest respect, confess
my inability to appropriate the line of reasoning which has
prevailed with the learned Judge in making this observation.
The learned Judge has proceeded on the basis that the
registered dealers falling within all the three categories,
namely, (3), (4) and (S) are required by sub-section (2) of
section 7 to pay the tax chargeable under section 3 of the
State Act and if they do not pay the same within the time
allowed, that is, at the time when the returns are filed or
in case the returns are-not filed within the prescribed
time, then before the expiration of the date when they ought
to have been filed they would be liable to pay interest
under section 11B clause (a). There, is, in my opinion, a
basic fallacy underlying this assumption, because it is
clear from the language of sub-section (2) of section 7 that
it
582
is only on the filing of the return that the liability to
pay the tax due on the basis of the return arises. If no
return is filed within the prescribed time, it would
undoubtedly constitutes a default attracting penalty under
section 16, sub-section (1) clause (n), but there would be
no liability on the assessee to pay interest on the amount
of the tax, because the liability to pay the "tax due on the
basis of the return’ ’ under sub. section (2) of section 7
can arise only when the return is filed. There is no
liability on the assessee to pay any amount by way of tax
until the return is filed or the assessment is made. This is
clear from the decision of this Court in the State of
Rajasthan v. Ghasi Lal (supra) where this Court held in so
many terms at page 322 of the Report that since the assessee
in that case did not file returns till December 19, 1959 and
January and March 1960, "section 7(2) could not be attracted
till then" (Emphasis supplied). I fail to understand how in
the face of these observations made by a Bench of five
judges of this Court, it can ever be held that section 7
sub-section (2) is attracted even when no return has been
filed. It is clear from the observations in this case-
observations which have been quoted here as also in an
earlier paragraph-that until the assessee files a return or
the assessment is made, no tax is payable by the assessee,
because "till then there is only a liability to be assessed
to tax ’. I must therefore regretfully express my liability
to accept the conclusion reached by my learned brother
Venkataramiah that a registered dealer falling within
category 3 who does not File any return at all as required
by sub-section (I) of section 7 would still be liable to pay
the amount of tax and if he does not pay the same before the
due date for filing the return has expired, he would be
liable to pay interest under section I IB clause (a). That
would be plainly contrary to the decision in State of p
Rajasthan v. Ghasi Lal (supra) which, being a decision of S
Judges of this Court, is binding upon us.
So also with regard to registered dealers falling
within category 4, I cannot agree with the view taken by my
learned brother Venkataramiah. He has reasoned that if a
registered dealer files a return but does not pay the full
amount of the tax due on the basis of the return filed by
him, the Assessing Authority would be entitled to ignore the
return under sub-rule (4) of Rule 25 and when the return is
not taken cognizance of, there would be no return on the
basis of which interest can be computed. This reasoning is,
in my opinion, fallacious and if I may say so without
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meaning the slightest disrespect, it is based on
misappreciation of the effect of sub-rule (4) of Rule 25
vis-a-vis sub-section (2) of section 7. Rule 25
583
sub-rule (4) provides that if a return is not accompanied by
a receipt for the deposit of tax as required by sub-section
(2) of section 7, the Assessing Authority shall not be bound
to take any cognizance of the return. If the assessee does
not deposit the amount of tax due on the basis of the return
and files the return without making such deposit, the
Assessing Authority is given the discretion to ignore the
return and to proceed to assess the assessee as if no return
were filed. But, the Assessing Authority may, in a given
case, if it so thinks fit, take cognizance of the return for
the purpose of assessment, despite the fact That the tax due
on the basis of the return has not been deposited by the
assessee as required by sub-section (2) of section 7. Where
the Assessing Authority chooses to take cognizance of the
return, there can be no doubt, even on the reasoning of Mr.
Justice Venkataramiah, that the assessee would be liable to
pay the amount of tax due on the basis of the return and if
he fails to do so, he would have to pay interest under
section 11 clause (a). Then merely because the Assessing
Authority may, in a given case, in the exercise of its
discretion, decline to take cognizance of the return, it
does not mean that in such a case the assessee would be
retrospectively relieved of his liability to pay the amount
of tax due on the basis of the return, on the ground that
the return filed by him has become ’no-return’. The
liability of the assessee to deposit the amount of tax due
on the basis of the return cannot depend upon a future
discretionary event. namely, whether the Assessing Authority
chooses to take cognizance of the return or declines to take
cognizance of it. The only correct way of reading sub-
section (2) of section 7 and sub-Rule (4) of Rule 25 is that
whenever a return is led by the assessee, it must under sub-
section (2) of section 7 be accompanied by receipt showing
deposit of the full amount of tax due on the basis of the
return and if the assessee fails to deposit the amount of
the tax due on the basis of the return actually filed, the
Assessing Authority would have the option under sub-rule (4)
of Rule 25 either to take or not to take cognizance of the
return. If the Assessing Authority chooses not to take
cognizance of the return, it would proceed to assess the
assessee as if no return had been filed by him, but that
would not relieve the assessee of the obligation attaching
to him under sub-section (2) of section 7 of depositing, at
the time of filing the return, the amount of the tax due on
the basis of the return actually filed nor would it condone
the breach of such obligation. If the assessee does not pay
the full amount of the tax due on the basis of the return as
required subsection (2) of section 7, he would be liable to
pay interest under
584
section 11B clause (a), irrespective of whether the
Assessing Authority chooses to act upon the return or
declines to take cognizance of it. The argument which has
appealed to my learned brother Venkataramiah that if the
construction put forward on behalf of the assessee were
accepted, sub-section (2) of section 7 would fail in its
application to a registered dealer falling within category 4
is therefore in my opinion not a valid argument and with the
greatest respect, I must confess my inability to accept it.
On the construction contended for on behalf of the assessee,
the case of a registered dealer falling within category 4 is
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clearly covered by sub-section (2) of section 7 and in fact,
it is precisely to cover inter alia a case of this kind that
the legislature enacted sub-section (2) of section 7 read
with section 11B clause (a). Similarly the case of a
registered dealer falling within category 5 is also covered
by sub-section (2) of section 7 and if he does not pay the
amount of tax which according to him is payable, on the
basis of the return filed by him, he would be liable to pay
interest under section 11B clause (a). So long as the
assessee pays the amount of tax which according to him is
due on the basis of the return filed by him, there would be
no default on his part in complying with the obligation
under sub-section (2) of section 7 and there would be no
liability on him to pay interest under section 11B clause
(a), because he would have paid the amount of tax quantified
by him through the process of self-assessment The actual
amount of tax payable by the assessee would be determined
only when it is assessed by the Assessing Authority under
section 10 and that would not be payable until the
expiration of the period specified in the notice of demand
or thirty days from the date of service of such notice, as
the case may be.
I must therefore regret my inability to accept the view
taken by my learned brother Venkataramiah that if the
construction contended for on behalf of the assessee were
accepted, section 11 clause (a) would become meaningless or
unworkable. That provision would have full meaning and
effect on the construction canvassed on behalf of the
assessee and in fact as pointed out above if the
construction which has appealed to my learned brother
Venkataramiah were accepted, the consequence would be
directly contradictory to the decision of this Court in
State of Rajasthan v. Ghasi Lal (supra). My learned brother
Venkataramiah has relied strongly on the decision of this
Court in Gurshai Saigal v. Commissioner of Income Tax,
Punjab(l) but I fail to see how this decision can
585
be of any help in the present case where section 11B clause
(a) is not at all rendered meaningless or unworkable on the
construction suggested on behalf of the assessee. The
assessee in that case was sought to be charged with interest
under sub-section (8) of section 18A of the Indian Income
Tax Act 1922 which provided that "where, on making the
regular assessment, the Income-tax Officer finds that no
payment of tax has been made in accordance with the
foregoing provisions of this section, interest calculated in
the manner laid in sub-section (6) shall be added to The tax
as determined on the basis of the regular assessment." The
argument of the assessee was that since sub-section (6) of
section 18A provided that where in any year an assessee has
paid tax under sub-section (2) or sub-section (3) on the
basis of his own estimate and the tax so paid is less than
80% of the tax determined on the basis of the regular
assessment, simple interest at the rate of 6% per annum from
the first day of January in the financial year in which the
tax WAS paid upto the date of such regular assessment shall
be payable by the assessee and since no payment of tax had
been made by the asses n e r, at all in that case it, was
not possible to calculate interest in tile manner laid down
in sub-section (6) and no interest could therefore be
charged to the assessee under sub-section (8) of section
18A. This argument was rejected by the Court on the ground
that if the words "from the first day of January in the
financial year in which the tax was paid" occurring in sub-
section (6) of section 18A were to be literally applied in a
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case falling within sub-section (8) of section 18A where no
tax would have been paid, sub-section (8) would be rendered
totally meaningless and futile. The Court therefore with a
view not to rendering sub-section (8) of section 18A a dead
letter construed the words in sub-section (6) to mean "from
the first day o, January in the financial year in which the
tax ought to have been paid." This liberty was taken by the
Court with the language of sub-section (6) of section 18A,
because the Court proceeded on the hypothesis that the
legislature could not have intended that sub-section (8) of
section 18A should be meaningless and unworkable. But here
in the present case there is no compelling necessity to
modify the words used in sub-section (2) of section 7,
because sub-section (2) of section 7 read with section 11B
clause (a) is not rendered meaningless or futile on a plain
natural construction of the language used in that provision.
It is interesting to compare section 140A sub-section
(I) of the Income Tax Act, 1961 with section 7 sub-section
(2) of the State Act. Sub-section (I) of section 140A
provides that where any tax is
586
payable on the basis of any return required to be furnished
under section 139 or under sec. 148, after taking into
account the amount of tax, if any, already paid under any
provision of the Act, the assessee shall be liable to pay
such tax before furnishing the return and the return shall
be accompanied by proof of payment of such tax. Sub-section
(3) of section 140A then proceeds to state that if any
assessee fails to pay the tax or any part thereof in
accordance with the provision of sub-section (1), the Income
Tax officer may direct that a sum equal to two percent of
such tax or part thereof, as the case may be, shall be
recovered from him by way of penalty for every month during
which the default continues. Can it possibly be contended
that these two sub-sections of section 140A refer to tax
payable on the basis of a proper and correct return or in
other words the tax assessed ? It is obvious that these two
sub-sections refer only to tax payable on the basis of self-
assessment and require such tax to be paid before the filing
of the return and if that is not done, the assessee becomes
liable to pay penalty for every month n during which the
default continues. So also section 21 j of Income-tax Act,
1961 which provides for payment of interest on under-payment
of advance tax does not impose liability for payment of
interest in case or every deficiency but provides for
payment of interest only if the advance tax paid is less
than 75 per cent of the assessed tax. In the world of human
affairs, it is hardly possible that the advance tax paid by
the assessee or the tax payable on the basis of self-
assessment would always be equivalent to the tax ultimately
assessed by the authorities. There is no reason to interpret
section 7 sub-section (2) differently from similar
provisions in the Income-Tax Act, 1961.
I am therefore of the view that since the assessee
deposited the amounts of tax which according to him were due
on the basis of the returns actually filed by him and the
returns were accompanied by receipts showing deposit of such
amounts of tax, there was no default on the part of the
assessee in paying the amounts of tax payable under sub-
section (2) of section 7 within the actual period allowed
and in the circumstances no interest was payable by the
assessee under section I IB clause (a). I would accordingly
allow the appeal and set aside the orders passed by the
Assessing Authority imposing penalty and levying interest on
the assessee under the Slate Act as well as the Central Act.
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The Revenue will pay the costs of the appeal to the
assessee.
587
VENKATARAMIAH, J. The assessee M/s. Associated Cement
Companies Limited has filed this appeal by special leave
under Article 136 of the Constitution against the orders
dated January 30, 1980 passed by the Commercial Tax officer,
Special Circle, Kota in the State of Rajasthan imposing on
it a penalty of Rs. 53,335 under section 7AA of the
Rajasthan Sales Tax Act, 1954 (hereinafter referred to as
’the Act’) and levying interest under section 11B of the Act
amounting to Rs. 85,910.50 and a further penalty of Rs.
1,34,205 under section 7AA of the Act read with section 9(2)
of the Central Tax Act and levying interest of Rs.
2,07,174/- under section 11B of the Act read with section
9(2) of the Central Sales Tax Act in respect of the
assessment year 1974-75.
The circumstances under which the above orders came to
be passed are these: The assessee has a cement manufacturing
factory in the State of Rajasthan at Lakheri. The cement
manufactured at that factory is sold partly in the State of
Rajasthan and partly outside that State. The invoices of
sales are however, made and issued at Ahmedabad and other
places. The sales tax returns relating to the sales were
filed under the Act and under the Central Sales Tax Act at
Kota before the assessing authority for the period between
August 1, 1973 and July 31, 1974 i e. the assessment year
1974-75. In those returns, the assessee had not included in
the taxable turnovers the freight charges paid in respect of
the goods in question in the bonafide belief that the
freight charges were not liable to be included in the
taxable turnover in view of certain decisions which had been
rendered by some of the High Courts and of the Supreme Court
and in particular the decision of this Court in Hyderabad
Asbestos Cement Products Ltd. v. State of Andhra Pradesh.(l)
But in, Hindustan Sugar Mills etc. v. State of Rajasthan &
Ors.(2) this Court held that on a true construction of the
scheme of the Cement Control order, 1967 and the relevant
provisions of the Act and of the Central Sales Tax Act, the
freight charges formed part of the sale price and that sales
tax was payable thereon. The above decision was rendered on
August 22, 1978. On coming to know of the said decision, the
assessee prepared and filed the revised returns in respect
of the assessment year in question i.e. 1974-75 before the
Commercial Tax officer, Special Circle, Kota on October 20,
1978 including the freight charges in the taxable turnover.
The assessee also deposited alongwith the revised returns
588
the balance of the sales tax payable under the Act and under
the Central Sales Tax Act. Thereafter the assessing
authority passed the two impugned orders of assessment-one
under section 10(3) of the Act and another under section 9
of the Central Sales Tax Act. In the order of assessment
passed under the Act, the assessing authority levied a
penalty of Rs. 53,335/- under section 7AA of the Act on
account of the delay in depositing a sum of Rs. 1,06,671/-
towards sales tax payable in respect of the freight charges
and also levied interest of Rs. 85,9l0.50 under section I IB
of the Act. Similarly in the assessment order passed under
the Central Sales Tax Act, a penalty of Rs. 1,34,205/- was
levied under section 7AA of the Act read with section 9(2)
of the Central Sales Tax Act for the delay in depositing the
tax payable in respect of the freight charges and levied
interest of Rs. 2,07,174 under section 11B of the Act read
with section 9(2) of the Central Sales Tax Act. In this
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appeal, we are only concerned with the correctness of the
impugned orders in so far as they levy penalty and interest.
The first question canvassed before us relates to the
levy of penalties on the assessee under the assessment
orders for not paying the sales tax payable under the Act
and under the Central Sales Tax Act in respect of the
freight charges which were declared as components of sale
price by this Court in Hindustan Sugar Mill’s case (Supra)
on August 22, 1978. The explanation of the assessee for not
including the freight charges in the taxable turnover was,
as mentioned earlier, that there was a doubt about its
liability to pay sales tax thereon as the very same question
was pending adjudication before this Court and that on the
facts and in the circumstances of the case, the assessee
could not be held guilty of filing false returns before the
assessing authority. It was pleaded that since the non-
inclusion of the freight charges in the taxable turnover was
a result of bonafide belief of the assessee that they were
not liable to be included in the taxable turnover, the
assessing authority should have in its discretion not
imposed the penalties particularly having regard to the fact
that within two months after the judgment of this Court in
Hindustan Sugar Mills’ case (supra), the assessee had filed
the revised returns including the freight charges in the
taxable turnover and paid the sales tax payable in respect
of them even before the assessing authority had passed the
orders of assessment. We are of the view that This part of
the case of the assessee has got to be accepted in view of
the decision of this Court in Cement Marketing Co. Of India
Ltd. v. Asstt. Commissioner of Sales Tax,
589
Indore & Ors.(1) where under similar circumstances, this
Court held A that the assessee therein which was also
manufacturer and dealer in cement was not liable to pay a
penalty under section 43 of the Madhya Pradesh General Sales
Tax Act, 1958 read with section 9(2) of the Central Sales
Tax Act. For the reasons mentioned therein, we hold that the
levy of penalties for not including the freight charges in
the taxable turnover in the original returns and for not
paying the tax in respect of such freight charges is
unsustainable and that the impugned penalties are liable to
be quashed.
The next question which arises for consideration
relates to the liability of the assessee to pay interest
under section 11B of the Act on the tax paid in respect of
the freight charges for the period S between the date on
which it was payable under section 7(2) of the Act and the
date of payment and the liability to pay interest on the tax
payable in respect of the freight charges under the Central
Sales Tax Act in accordance with section 9(2) thereof read
with section 11B of the Act. The claim of the department is
based on subsections (1) and (2) of section 7 read with
section 11B of the Act in the case of interest claimed under
the Act and on the aforesaid provisions of the Act read with
section 9(2) of the Central Sales Tax Act in respect of the
interest payable under the Sales Tax Act. Section 7 of the
Act at the relevant point of time read as follows:
"7. Submission of returns.-(1) Every registered
dealer and such other dealer, as may be required to do
so by the assessing authority by notice served in the
prescribed manner, shall furnish prescribed returns,
for the prescribed periods, in the prescribed forms, in
the prescribed manner and within the prescribed time to
the assessing authority:
Provided that the assessing authority may extend
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the date for the submission of such returns by any
dealer or class of dealers by a period not exceeding
fifteen days in the aggregate.
(2) Every such return shall be accompanied by a
Treasury receipt or receipt of any bank authorised to
receive money on behalf of the State Government,
showing the deposit of the full amount of tax due on
the basis of return in the State Government Treasury or
bank concerned.
590
(2A) Notwithstanding anything contained in sub
section (2), the State Government may by notification
in the official Gazette require any dealer or class of
dealers specified therein, to pay tax at intervals
shorter than those prescribed under sub-section (1). In
such cases, the proportionate tax on the basis of the
last return shall be deposited at the intervals
specified in the said notification in advance of the
return. The difference, if any, of the tax payable
according to the return and the advance tax paid shall
be deposited with the return and the return shall be
accompanied by the treasury receipt, or receipts of any
Bank authorised to receive money on behalf of the State
Government, for the full amount of tax due shown in the
return
(3) If any dealer discovers any omission, error,
or wrong statement in any returns furnished by him
under sub-section (1), he may furnish a revised return
in the prescribed manner before the time prescribed for
the submission of the next return but not later.
(4) Every deposit of tax made under sub-section
(2) shall be deemed to be provisional subject to
necessary adjustments in pursuance of the final
assessment of tax made for any year under section 10."
Section 11B of the Act during the relevant, period read
as under:-
11 B. Interest on failure to pay tax, fee or penalty,-
(a) If the amount of any tax payable under
subsections (2) and (2A) of section 7 is not paid
within the period allowed, or
(b) if the amount specified in any notice of
demand, whether for tax, fee, or penalty, is not paid
within the period specified in such notice, or in the
absence of such specification, within 30 days from the
date of service of such notice, the dealer shall be
liable to pay simple interest on such amount at one
percent per month from the day commencing after the end
of the said period for a period of three months and at
one and a half percent per month
591
thereafter during the time he continues to make default
in the payments;
Provided that, where, as a result of any order
under this Act, the amount, on which interest was
payable under this section, has been reduced, the
interest shall be reduced accordingly and the excess
interest paid, if any, shall be refunded;
Provided further that no interest shall be payable
under this section on such amount and for such period
in respect of which interest is paid under the
provisions of sections 11 and 14."
We are principally concerned in this case with sub-
sections (1) and (2) of section 7 of the Act. Sub-section
(1) of section 7 of the Act requires every registered dealer
and such other dealer, as may be required to do so by the
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assessing authority in the prescribed manner to furnish
returns in a prescribed form in respect of the n prescribed
periods within the prescribed time furnishing necessary
particulars regarding his turnover. The proviso to sub-
section (1) of section 7 of the Act authorises the assessing
authority to extend the date for the submission of such
returns by a period not exceeding 15 days in the aggregate.
Sub-section (2) of section 7 of the Act insists that every
such return shall be accompanied by a 1 Treasury receipt or
receipt of any bank authorised to receive money on behalf
the State Government showing the deposit of the full amount
of tax due on the basis of return in the State Government
Treasury or bank concerned. Sub-section (4) of section 7 of
the Act, it may be noticed, provides that every deposit of
tax made under sub-section (2) shall be deemed to be
provisional subject to necessary adjustments in pursuance of
the final assessment of tax made for any year under section
10. Clause (a) of section 11B of the Act authorises the levy
of interest on the amount of tax not paid in accordance with
sub-sections (2) and (2A) of section 7 of the Act. The
expression ’prescribed’ is defined in section 2(1) of the
Act. It states that in the Act unless the context otherwise
requires "prescribed" means prescribed by rules made under
the Act. Section 26 of the Act empowers the State Government
to make rules to carry out the purposes of the Act and in
particular and without prejudice to the generality of the
foregoing power, such rules may provide for all matters
expressly required or allowed by the Act to be prescribed.
We have seen earlier that section 7(1)
592
of the Act requires the returns to be filed in the
prescribed manner, in respect of the prescribed periods and
within the prescribed time. Sub-section (5) of section 26 of
the Act lays down that all rules made under that section
shall be published in the official Gazette and upon such
publication shall have effect as if enacted in the Act
Chapter VII of the Rajasthan Sales Tax Rules, 1955
(hereinafter referred to as ’the Rules’) framed by the State
Government in exercise of its power under the Act deals with
the topic "Return of turnover and other returns and
statements". The relevant part of Rule 25 of the Rules which
appears in Chapter VII reads as follows:
"25. Return of turnover.-(1) The return referred
to in sub-section (1) of section 7 shall be in form
S.T. 5 and shall be signed by the dealer himself or his
agent, and shall be verified in the manner indicated
therein and shall be submitted to the assessing
authority concerned.
(2) The return may be presented personally or may
be sent by post.
(3) The said return shall be filed for such of the
quarters ending with the last day of the month of June,
September, December and March of every assessment year
if the ’previous year’ of the dealer ends on the 31st
day of March of any year, and in other cases for each
of the quarters of the year of accounts of the dealer,
and shall be filed not later than 30 days after the end
of the quarter to which it relates:
Explanation.-The quarters of the year of accounts
of a dealer shall be as follows:
First quarter-The period of three months
commencing on the first day of the year of accounts.
Second quarter-The period of three months
commencing on the day next after the end of the first
quarter.
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Third quarter-The period of three months
commencing on the day next after the end of the second
quarter.
Fourth quarter-Rest of the year of account.
The months shall be calculated according to the
usage of the dealer whose year of account is in
question.
593
(4) If a return is not accompanied by a receipt
for the deposit of tax as required by sub-section (2)
of section 7, the assessing authority shall not be
bound to take any cognisance of the return."
Sub-rule (1) of Rule 25 of the Rules provides that the
return referred to in sub-section (1) of section 7 of the
Act shall be in form S.T. 5 and sub-rule (3) of Rule 25
prescribed the time within which quarterly returns should be
filed by a dealer. Sub-rule (4) of Rule 25 of the Rules
provides that if a return is not accompanied by a receipt
for the deposit of tax as required by sub-section (2) of
section 7 of the Act, assessing authority shall not be bound
to take any cognisance of the return. Rule 25 of the Rules
which is framed under the Act should be read as a part of
the Act itself in view of the express provision contained in
sub-section (5) of section 26 of the Act, which declares
that all rules made under section 26 shall on publication in
the official Gazette have effect, as if enacted in the Act.
That should be the effect of a rule framed under statute
containing a provision similar to the provision in section
26(5) of the Act can be gathered from a decision of the
House of Lords in Institute of Patent Agents & Ors. v.
Joseph Lockwood in which Lord Herschell, L.C. Observed at
page 360 thus:
"I own I feel very great difficulty in giving to
this provision, that they "shall be of the same effect
as if they were contained in this Act," any other
meaning than this, that you shall for all purposes of
construction or obligation or otherwise treat them
exactly as if they were in the Act. No doubt there
might be some conflict between a rule and a provision
of the Act. Well, there is a conflict sometimes between
two sections to be found in the same Act. You have to
try and reconcile them as best you may. If you cannot,
you have to determine which is the leading provision
and which the subordinate provision, and which must
give way to the other. That would be so with regard to
the enactment and with regard to rules which are to be
treated as if within the enactment."
The contention of the assessee in the present case is
that as it had deposited the full amount of tax due on the
basis of the returns filed under sub-section (1) of section
7 of the Act at the time when
594
they were filed, it had compiled with sub-section (2) of
section 7 of the Act and that the question of levying
interest on the amount of tax which it deposited on the
basis of the revised returns for the period prior to the
date of the revised returns did not arise. On behalf of the
department it is urged before us that the words "on the
basis of return" occurring in sub-section (2) of section 7
of the Act must be read as on the basis of a true and proper
return in the context in which those words appear in the
statute and if they are so read, the assessee is liable to
pay interest on the deficit amount of tax which was made
good on October 20, 1978 for the period between the date on
which such deposit or deposits had to be made under section
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7(1) of the Act read with Rule 25 of the Rules and the date
on which they were actually made.
We are concerned in this case with the liability of the
assessee to pay interest on the amount of tax which had
remained unpaid Tax, interest and penalty are three
different concepts. Tax becomes payable by an assessee by
virtue of the charging provision in a taxing statute.
Penalty ordinarily becomes payable when it is found that an
assessee has willfully violated any of the provisions of the
taxing statute. Interest is ordinarily claimed from an
assessee who has withheld payment of any tax payable by him
and it is always calculated at the prescribed rate on the
basis of the actual amount of tax withheld and the extent of
delay in paying it. It may not be wrong to say that such
interest is compensatory in character and not penal.
In order to understand the case of the assessee, we may
classify the registered dealers into the following different
classes:
1. A registered dealer who files his return showing a
higher taxable turnover than the actual turnover
which is ultimately found to be taxable at the
time of regular assessment and who pays tax under
section 7(2) of the Act on the basis of the
return.
2. A registered dealer who files a true and proper
return and pays tax on the basis of such return
within the time allowed.
3. A registered dealer who does not file any return
at all as required by section 7(1) and pays no tax
under section 7(2) of the Act.
595
4. A registered dealer who files a true return but
does not pay the full amount of tax as required by
section 7(2) and
5. A registered dealer who files a return but wrongly
claims either the whole or any part of the
turnover as not taxable and pays under section
7(2) of the Act that amount of tax, which
according to him is payable, on the basis of the
return.
In the case of a registered dealer falling under class
(1) no question of payment of interest would arise as the
amount of tax paid by him at the time of filing the return
is much more than what is actually due and payable by him
under the Act. The extra tax paid by him becomes refundable
after the regular assessment is completed in view of section
7(4) of the Act. In the case of a registered dealer falling
under class (2) also no question of payment of interest
arises as there is no shortfall in payment of the tax.
If the contention of the assessee urged in this case is
accepted, no interest becomes payable even by registered
dealers falling under classes 3,4 and 5 because (a) in the
case of a registered dealer falling under class (3) who has
not filed any return at all, no occasion would arise to
claim interest on any tax ’due on the basis of return’ as
there is no return at all. (b) in the case of a registered
dealer falling under class (4) who files a true return but
does not pay full amount of tax under section 7(2) the
assessing authority is entitled to ignore it under sub-rule
(4) of Rule 25 of the Rules and when the return is not taken
cognisance of, there will be no return on the basis of which
interest can be computed and (c) in the case of a registered
dealer coming within the purview of class (S) who has filed
a return but has wrongly claimed either the whole or any
part of the turnover as not taxable and paid under section
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7(2) of the Act only that amount of tax which according to
him is payable as tax as he would have paid whatever is
payable on the basis of the return. The resulting position
would be that clause (a) of section 11B of the Act which
clearly imposes the liability on the assessee who has not
paid the tax due by him within the period allowed by law
becomes either unworkable or meaningless. A fair reading of
section I IB of the Act suggests that the Act expects that
all assessees who are liable to pay sales tax should file a
true return within the period prescribed under sub-section
(I) of section 7 and should
596
produce a treasury receipt or a receipt of any bank
authorised to receive money on behalf of the State
Government showing that full amount of tax due from them has
been paid.
The argument pressed before us on behalf of the
assessee is that since section 7 of the Act does not
expressly say that a registered dealer who has not filed any
return or a person who has claimed that his turnover or any
part thereof is not taxable and has not paid tax due in
respect of such disputed turnover should also pay interest
on the tax which is legitimately due to the Government but
withheld by him, no interest can be claimed under section
11B of the Act in such cases. Section 7 of the Act which
deals with the submission of returns is not a charging
section but a machinery section. It is settled law that a
distinction has to be made by court while interpreting the
provisions of a taxing statute between charging provisions
which impose the charge to tax and machinery provisions
which provide the machinery for the quantification of the
tax and the levying and collection of the tax so imposed.
While charging provisions are construed strictly, machinery
sections are not generally subject to a rigorous
construction. The courts are expected to cons true the
machinery sections in such a manner that a charge to tax is
not defeated. The above rule of construction of a taxing
statute has been adopted by this Court in India United Mills
Ltd. v. Commissioner of Excess Profits Tax, Bombay in which
section 15 of the Excess Profits Tax Act came up for
consideration. The Court observed in that case thus:
"That section is, it should be emphasised, not a
charging section, but a machinery section. And a
machinery section should be so construed as to
effectuate the charging section."
The above principle was followed by this Court in
Gursahai Saigal v. Commissioner of Income-tax, Punjab in
which is was observed thus:
"Now it is well recognised that the rule of
construction on which the assessee relies applies only
to a taxing provision and has no application to all
provisions in a taxing statute. It does not, for
example, apply to a provision not
597
creating a charge for the tax but laying down the
machinery for its calculation or procedure for its
collection. The provisions in a taxing statute dealing
with machinery for assessment have to be construed by
the ordinary rules of construction, that is to say, in
accordance with the clear intention of the legislature
which is to make a charge levied effective."
In deciding Gursahai Saigal’s case (supra) the Court
followed the observations made by the Privy Council in
Commissioner of Income-tax v. Mahaliram Ramjidas and by the
House of Lords in Whitney v. Commissioners af Inland
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Revenue. In the case of Mahaliram Ramjidas (supra) the Privy
Council observed:
"The section, although it is a part of a taxing
Act, imposes no charge on the subject, and deals merely
with the machinery of assessment. In interpreting
provisions of this kind the rule is that construction
should be preferred which makes the machinery workable
utres valeatpotius quam Pereat."
In Whitney’s case (supra), Lord Dunedin made the
following observations:
"My Lords, I shall now permit myself a general
observation. Once that it is fixed that there is
liability, it is antecedently highly improbable that
the statute should not go on to make that liability
effective. A statute is designed to be workable, and
the interpretation thereof by a Court should be to
secure that object, unless crucial omission or clear
direction makes that end unattainable. Now, there are
three stages in the imposition of a tax: there is the
declaration of liability, that is the part of the
statute which determines what persons in respect of
what property are liable. Next, there is the
assessment. Liability does not depend on assessment.
That, exhypothesi, has already been fixed. But
assessment particularizes the exact sum which a person
liable has to pay. Lastly, come the methods of
recovery, if the person taxed does not voluntarily
pay,"
The circumstances under which the above principle was
applied by this Court in Gursahai Saigal’s case (supra) are
interesting. That
598
was a case in which an assessee who was charged with
interest under sub-section (8) of section 18A of the Indian
Income-tax Act, 1922 has questioned his liability to pay
interest His contention was that interest payable under sub-
section (8) of section 18A of that Act had to be calculated
in the manner laid down in sub-section (6) thereof. Since
sub-section 6 of. s. 18A of the Act provided that where in
any year an assessee had paid tax under sub-section (2) or
sub-section (3) thereof on the basis of his own estimate and
the tax so paid was less than eighty per cent of the tax
determined on the basis of regular assessment simple
interest at the rate of six per cent per annum from the 1st
day of January in the financial year in which the tax was
paid upto the date of the said regular assessment should be
payable by the assessee and as he had not paid any tax at
all, it was urged that it was not possible to calculate
interest in the manner laid down in sub-section (6). The
Court rejected the contention of the assessee following the
decision of the Privy Council and the House of Lords
referred to above that the words "from the Ist day of
January in the financial year in which the tax was paid"
obviously could not literally be applied to a case where no
tax had been paid but since on a true construction those
words meant "from the Ist day of January in the financial
year in which the tax ought to have been paid", the assessee
was liable to pay interest. This Court observed:
"It would not be doing too much violence to the
words used to read them in this way The tax ought to
have been paid on one or other of the dates earlier
mentioned. The intention was that interest should be
charged from January 1 of the financial year in which
the tax ought to have been paid. Those who paid the tax
but a smaller amount and those who did not pay tax at
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all would then be put in the same position
substantially which is obviously fair and was clearly
intended. Which is the precise financial year in any
case would depend on its facts and this would make no
difference in the construction of the provision."
We are in respectful agreement with the method of
approach adopted by this Court in Gursahai Saigal’s case
(supra). It is the duty of the Court while interpreting the
machinery provisions of a taxing statute to give effect to
its manifest purpose having a full view of it. Wherever the
intention to impose liability is clear courts ought to have
no hesitation in giving what we may call a common sense
interpretation to the machinery sections so that the charge
does not fail.
599
In the present case if we construe the words "on the basis
of return" occurring in sub-section (2) of section 7 of the
Act as on the basis of a true and proper return which ought
to have been filed under sub-section (1) of section 7 then
all the three classes of persons viz. (i) those who have not
filed any return at all and who are later on found to be
liable to be assessed, (ii) those who have filed a true
return but have not deposited the full amount of tax which
they are liable to pay and (iii) those who have filed a
return making a wrong claim that either the whole or any
part of the turnover is nat taxable and who are subsequently
found to have made a wrong claim, would be placed in the
same position and they would all be liable to ply interest
on the amount of tax which they are liable to pay but have
not paid as required by sub-section (2) of section 7 of the
Act. We are of opinion that this view is in conformity with
the legislative intention in enacting section 11B of the
Act.
We have carefully gone through the decision of five
learned judges of this Court in State of Rajasthan and Ors.
v. Ghasi Lal and we are humbly of opinion that it is
distinguishable from the present case. In Ghasi Lal case
(supra), this Court was concerned with the question of
sustainability of penalties imposed under the Act and not
interest leviable under section 11B. The relevant facts in
that case were these: Thee respondent therein who was a
dealer within the meaning of the Act filed a writ petition
in the High Court of Rajasthan challenging the making of
assessment 13 on his turnover for the year 1955-56 on the
ground that the Rules which had been published on March 28,
1955 were invalid. On January 9, 1958 the High Court passed
an interim order stating that "the petitioner will keep
proper accounts and file the prescribed returns but shall
not be assessed till further orders". While the petition was
pending in the High Court, ordinance No. 5 of 1959 was
promulgated on November 6, 1959 validating the Rules.
Thereupon the respondent therein withdrew the writ petition.
On December 17, 1959, the Rajasthan Sales Tax Validation Act
(Rajasthan Act 43 of 1959) replaced the Ordinance. The
effect of the ordinance and the Validation Act was to
validate the Rules even if any defect existed in the making
of the Rules. On December 4, 1959, the Sales Tax Officer
called upon the respondent therein to pay tax due by him
within a week as the writ petition had been withdrawn and
dismissed. The respondent had filed his returns earlier and
also had deposited certain amounts towards tax. On April 25,
1960, the Sales Tax
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Officer made an assessment in respect of the accounting
period November 3, 1956 to October 22, 1957 and also
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proceeded to impose a penalty of Rs. 400/- under section
16(1) (b) of the Act. Justifying the imposition of penalty,
he observed thus:
"The assessee has not deposited tax of the
quarters on the due date, the tax deposited for 4th
quarter is very late, i.e., after two years the
assessee was given a notice and in reply to which he
referred the stay order of the Hon’ble High Court
granted to him in a writ petition filed challenging the
validity of sales tax rules made under the Act. The
stay order of the Hon’ble High Court does not say that
the assessee is allowed to withhold the tax. On the
contrary, it directs that the petitioner (assessee)
will keep proper accounts and file prescribed returns
but shall not be assessed. This clearly shows that the
assessee should have filed returns in time and
according to section 7(2) the treasury challan of the
deposit should have accompanied them. This amounts to
contravention of the mandatory provisions. The writ was
dismissed on 23-4-58 sic (23-11 59), even the amount
was not deposited till 17-12-59. This shows that the
assessee withheld the tax intentionally".
The Deputy Commissioner of Sales Tax (Appeal), Kota
dismissed the appeal upholding the above penalty. Similarly
on December 6, 1960, the Sales Tax Officer assessed the
respondent in respect of accounting period October 23, 1957
to November 10, 1958 and imposed a penalty of Rs. 1,000/-
for not depositing the tax in time on the same grounds. The
respondent questioned the penalties in respect of the
aforesaid two years before the High Court. The High Court
quashed them. Against the orders of the High Court, the
State of Rajasthan filed two appeals which were disposed of
by this Court by the judgment rendered in the above case.
The judgment of this Court depended upon the true
construction of clause (b) section 16(1) of the Act which
read:
"16.(1)-If any Person-
(a) ............................; or
(b) has without reasonable cause failed to pay
the tax due within the time allowed; or
601
(c) has without reasonable cause failed to
furnish the return of his turnover, or failed
to furnish it within the time allowed; or
... ... ... ...
... ... ... ...
the assessing authority may direct that such person
shall pay by way of penalty, in the case referred to in
clause (a) in addition to the fee payable by him, a sum
not exceeding Rs. 50/- and in the case referred to in
clause (b), in addition to the amount payable by him, a
sum not exceeding half of that amount, and that in
cases referred to in clauses (c) and (d), in addition
to the tax payable by him, a sum not exceeding half the
amount of tax, determined; in the case referred to in
clause (e), in addition to the tax payable by him, a
sum not exceeding double the amount of tax, if any
which would have been avoided if taxable turnover as
returned by such person had been accepted as correct
turn over and in the cases referred to in clauses (f),
(ff) and (g), a sum not exceeding Rs 100/-".
Sikri, J. (as he then was) who delivered the judgment
of this Court observed thus :
"In our opinion, there has been no breach of s.
16(1) (b) of the Act, and consequently, the orders
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imposing the penalties cannot be sustained. According
to the terms of section 16(1) (b), there must be a tax
due and there must be a failure to pay the tax due
within the time allowed. There was some discussion
before us as to the meaning of the words ’time
allowed’, but we need not decide in this case whether
the words ’time allowed’ connote time allowed by an
assessing authority or time allowed by a provision in
the Rules or the Act, or all these things, as we are of
the view that no tax was due within the terms of s.
16(1) (b) of the Act. Section 3, the charging section,
read with s. 5 makes tax payable, i.e. creates a
liability to pay the tax. That is the normal function
of a charging section in a taxing statute. But till the
tax payable is ascertained by the assessing authority
under s. 10, or by the assessee under s. 7(2), no tax
can be said to be due within s. 16(1) (b) of the Act,
for till then there is only a liability to be assessed
to tax." (underlining by us).
A careful reading of the above passage shows that this
Court held that section 16(1) (b), which provided for the
imposition of
602
penalty when an assessee had without reasonable cause failed
to pay the tax due within the time allowed, was not
attracted as no tax was due, within the terms of section
16(1) (b) even though it was payable by virtue of section 3
read with section 5 of the Act. Now section 11B (a) which
provides for levying interest on failure to pay tax, states
that if the amount of any tax payable under sub-sections (2)
and (2A) of section 7 is not paid within the period allowed
the dealer shall be liable to pay interest at the prescribed
rate during the time he continues to make default in the
payments Section 11B(a) of the Act does not refer to any tax
due.
At this stage it is necessary to refer to certain
legislative changes that have taken place since the decision
in Ghasilal’s case (supra) was delivered. Section 16(1) (c)
as it stood then has been amended and section 7AA providing
for levy of penalty for failure to furnish returns has been
inserted in the Act by Rajasthan Act 11 of 1969. Section 7AA
reads thus:-
"7AA. Penalty for failure to furnish returns-If
the assessing authority in the course of any
proceedings under this Act is satisfied that any dealer
has without reasonable cause failed to furnish the
return under sub-section (1) of section 7 within the
time allowed, he may direct that such dealer shall pay
by way of penalty, in addition to the amount of the
tax, if any, payable by him, a sum equal to two per
cent of the tax, for every month during which the
default continued but not exceeding in the aggregate
fifty per cent of the tax."
Section 16(1) as it now stands does not deal with levy
of penalty for not filing the prescribed return as it is
provided by section 7AA set out above. It is also to be
pointed out that sub section (2A) was inserted in section 7
by Rajasthan Act 13 of 1963 providing that notwithstanding
anything contained in sub-section (2) of section 7 the State
Government may by notification in the official Gazette
require any dealer or class of dealers specified therein to
pay tax at intervals shorter than those prescribed under
section 7(1). In such cases the proportionate tax on the
basis of the last return has to be deposited at the
intervals specified in the said notification in advance.
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These features clearly show that the tax that is payable
under section 3 read with section 5 of the Act has to be
paid along-
603
with the return within the time allowed for that purpose and
if section 7(2) applies it has to be paid in advance at
stated intervals. Section 11B with which we are concerned
was added by Rajasthan Act 11 of 1969. Clause (a) of section
11 states that if the amount of any tax payable under sub-
sections (2) and (2A) of section 7 is not paid within the
period allowed interest at the prescribed rate has to be
paid on that amount from the day commencing after the end of
the said period. ’Period allowed’ means period allowed by
the Act and the Rules or such extended period under the
proviso to section 7(1). It is thus clear that in cases to
which section 7(2) of the Act applies interest has to be
paid on the tax payable but which has not been paid from the
last date on which the return has to be filed for the
assessment year in question and in cases to which subsection
(2A) is applicable, from the last date on which the advance
tax has to be paid. The amount of interest has no doubt to
be calculated after the actual amount of tax payable is
assessed and necessary adjustments are made. We do not think
that in taking the above view we have in any way disregarded
the decision in Ghasilal’s case (supra) in which the
question of payment of interest under section 11B did not at
all arise for consideration.
Our learned Brother Bhagwati, J. in his opinion while
dealing with the applicability of section 11B(a) has
observed that the scheme of taxation envisaged in the Act
clearly shows that it is only when the assessment is made
and specified in the notice of demand or in the absence of
such specification thirty days from the date of service of
such notice expires that the amount of tax as assessed
becomes payable by an assessee. With great respect, we have
to state that we depend upon Ghasilal’s case (supra) itself
to hold that for purposes of section 11B(a) the tax becomes
payable before assessment is made by virtue of section 3
read with section 5 and sub-sections (2) and (2A) of section
7 of the Act and the Rules framed thereunder, even though,
it becomes due when return is filed under section 7(2) or
ascertained under section 10. That a tax can become payable
even before assessment is also clear from the observations
of Sikri, J. (as he then was) in Ghasilal’s case (supra) to
the effect that "section 3, the charging section read with
section 5, makes tax payable i.e.. creates a liability to
pay the tax .... But, till the tax payable is ascertained by
the assessing authority under section 10 or by the assessee
under section 7(2), no tax can be said to be due
604
within section 16(1) (b) of the Act for till then there is
only a liability to be assessed to tax".
(emphasis added)
We are of opinion that either by delaying the filing of
the return or not filing it all or by filing a return
wrongly claiming that a certain part of the turnover is not
taxable or by not disclosing a part of the taxable turnover
in the return an assessee cannot escape the liability to pay
interest under section 11 B(a) on the amount of tax
withheld, as a consequence of his own action or inaction,
from the last date on which it had to be paid as per sub-
section (2) or sub-section (2A) of section 7, as the case
may be, read with the Rules. An assessee cannot contend that
interest does not accrue under section 11B(a) on the tax
payable by him where the time to file the return has elapsed
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until he actually files a return admitting the liability to
pay such tax or until assessment is made.
We are of the view that the statutory liability under
section 11B(a) arises wherever there is default in payment
of the tax within the period allowed by law irrespective of
any doubt which an assessee may be entertaining about the
liability to pay the tax.
It is not disputed in this case that freight charges
had to be included in the taxable turnover of the assessee
mentioned in the returns that were filed within the
prescribed time under section 7(1) of the Act and that the
tax payable in respect of freight charges should have been
paid as required by sub-section (2) of section 7 before the
returns were filed. The fact that the question relating to
the liability of the assessee to pay sales tax in respect of
the freight charges was decided by the Supreme Court
subsequently does not in any way affect the question which
arises for consideration in this case. The decision of this
Court did not create any new liability. It only declared
that such a liability was existing at the relevant point of
time. Since it is clear that the amount of tax due in
respect of the freight charges which was payable under sub-
section (2) of section 7 was not paid within the period
allowed, section 1 IB is clearly attracted and the liability
to pay interest as required by it arises.
On behalf of the State Government, an alternative
contention was urged in support of the levy of interest on
the tax payable in
605
respect of the freight charges relying upon the new section
11 which was substituted by the Rajasthan Sales Tax
(Amendment) Act, 1979 in the place of section 11 which was
in force during the relevant period. The relevant part of
the new section 11B reads thus:
"11B Interest on failure to pay tax, fee or
penalty .
(1) (a) Where any registered dealer or any other
dealer has furnished returns but has not paid the tax
as per return or within the time allowed by or under
the provisions of this Act, he shall be liable to pay
interest on the whole or that part of the amount of tax
which was not paid as per returns within the time as
aforesaid, at the rate of one and a quarter per cent
per month from the date by which he was required to pay
the tax by or under the provisions of this Act for a
period of three months and at one and a half per cent
per month thereafter until the date of payment:
(b) Where any registered dealer or any other
dealer has furnished a revised return as provided under
sub-section (3) of section 7, which revised return
shows that amount of tax larger than that already paid
is payable, such dealer shall be liable to pay interest
on the excess amount of tax at such rate and for such
period as provided in clause (a) of this sub-section as
if such amount of tax payable as per the revised return
was the amount of tax payable according to the original
return; ... ... .. ...
lt was contended that as clauses (a) and (b) of sub-
section (1) of section 11B extracted above were declaratory
in character and merely explained what the Legislature meant
by enacting section 11B as it stood before the substitution,
the assessee was liable to pay interest on the amount of tax
payable in respect of freight charges under clause (b) of
sub-section (1) of the new section 11B. Since we are of the
view that the assessee was liable to pay interest on the tax
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in question under section 11B of the Act as it stood prior
to tile amendment, we do not find it necessary to express
any opinion on this alternative contention urged on behalf
of the State Government.
In the result, we allow the appeal in part and set
aside the impugned orders to the extent they direct the
assessee to pay the penalties. The appeal in so far as the
levy of interest under the impugned orders is concerned is
dismissed. In view of the circumstances of the case, the
parties shall pay and bear their own costs.
606
ORDER
In accordance with the opinion of the majority, the
appeal is allowed in part. The penalties imposed on the
assessee under the impugned orders of assessment are set
aside. The appeal in so far as the levy of interest is
concerned is dismissed. The parties shall bear their own
costs.
N V. K. Appeal allowed in part
607