Full Judgment Text
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CASE NO.:
Appeal (civil) 2679 of 2000
PETITIONER:
Commissioner of Trade Tax,Lucknow
RESPONDENT:
M/s Kanhai Ram Thekedar
DATE OF JUDGMENT: 29/04/2005
BENCH:
S.N. Variava & Dr. AR. Lakshmanan
JUDGMENT:
J U D G M E N T
Dr. AR. Lakshmanan, J.
This appeal is filed by the Commissioner of Trade Tax, U.P. challenging the final
order dated 16.9.1999 passed by the High Court of Judicature at Allahabad in the Trade
Tax Revision No.3 of 1999 whereby the High Court allowed the revision of the
respondent-assessee.
The brief facts pertaining to the present appeal are as under:
By the impugned order, the High Court allowed the revision filed by the
respondent and quashed the order of demand of interest on the ground that no notice in
writing was issued. It was observed in the judgment that even if the dealer was liable to
pay interest on the late payment of amount of tax a notice is necessary for demand of
interest. In the instant case, the assessing authority passed the order on 30.7.1990
imposing interest against the respondent. The respondent filed appeal before the
Commissioner (Judicial) Sales Tax, now Trade Tax, Allahabad Region, Allahabad. In
the appeal, the respondent mentioned that ex parte proceedings imposing interest
against the respondent has been passed which is barred by time. The Assistant
Commissioner dismissed the appeal of the respondent on 27.7.1991. The respondent
filed second appeal before the Sales Tax Tribunal which passed the order dated
21.7.1998 remanding the case to the assessing authority for decision after giving
notice to the respondent. The respondent filed a Trade Tax Revision before the High
Court against the order of the Tribunal and the High Court by the impugned order dated
16.9.1999 allowed the revision of the respondent. Aggrieved by the impugned order,
the State has preferred the above appeal by way of special leave.
We heard Mr. R.G. Padia, learned senior counsel appearing for the appellant
and Mr. Ranbir Singh Yadav, learned counsel appearing for the respondent.
Learned senior counsel appearing for the appellant submitted that the order of
the High Court to the extent that a notice of demand was necessary before passing the
order of interest is legally not sustainable. He further submitted that the levy of interes
t
is by operation of law and does not require a separate order.
Learned counsel appearing for the respondent submitted that the impugned
assessment order passed by the assessing authority dated 30.7.1990 does not refer to
any notice served upon the dealer before passing the impugned order and, therefore,
the said order has been quashed by the Tribunal in respect of remanding the matter. It
was also submitted that the rectification order could be passed within three years from
the date of the order of the assessment or the order passed in appeal or revision. The
impugned order was passed beyond the period of three years and, therefore, the said
order is not sustainable. In this background of facts, the following questions of law arise
for consideration by this Court:
1. Whether no subsequent proceeding can be initiated against the
revisionist as the subsequent proceeding to the assessment is
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barred by limitation?
2. Whether the order of the High Court to the extent that a notice
of demand was necessary before passing the order of interest
is legally sustainable?
We have carefully perused the entire pleadings, orders passed by the authorities
and the High Court and the annexure filed along with this appeal.
In this case, the assessment order for the assessment year 1977-78 was
passed on 6.6.1986 imposing tax liability of Rs.18053.98 paise. The respondent
deposited the tax in two instalments namely, 2,817/- on 26.6.1982 and Rs. 15,236.98
paise on 30.8.1986. The assessing authority passed another order on 30.7.1990
holding that on admitted amount of tax it was liable to pay interest at the rate of 24%
p.a. from 1.5.1978 on amount of tax the assessee has not deposited. The assessing
authority held that the dealer was liable to pay interest to the tune of Rs.33,291/-.
The respondent-dealer filed first appeal against the said order which was dismissed.
Against that order, the second appeal was filed before the Tribunal, which remanded
the matter to the assessing authority for fresh decision after giving an opportunity of
hearing to the dealer. Feeling aggrieved, the dealer filed a revision before the High
Court. The dealer submitted that the amount of tax was deposited by 30.8.1986.
The liability for payment of interest arises in view of the provisions contained in
Section 8 (1), 8(1-B) and sub-section (2) of Section 8 of the U.P. Sales Tax Act,1948
(now the U.P. Trade Tax Act, 1948) (for short "the Act"). The relevant portion of
Section 8 read as under:
"8. Payment and recovery of tax
(1) The tax admittedly payable shall be deposited
within the time prescribed or by the thirty first day of
August, 1975, whichever is later, failing which
simple interest at the rate of 2 per cent per mensem
shall become due and be payable on the unpaid
amount with effect from the day immediately
following the last date prescribed till the date of
payment of such amount, whichever is later, and
nothing contained in section 7 shall prevent or have
the effect of postponing the liability to pay such
interest.
Explanation - For the purpose of this sub-section, the tax
admittedly payable means the tax which is payable under this
Act on the turnover of sales or, as the case may be, the
turnover of purchases, or of both, as disclosed in the accounts
maintained by the dealer, or admitted by him in any return or
proceeding under this Act, whichever is greater, or if no
accounts are maintained then according to the estimate of the
dealer, and includes the amount payable under Section 3-B or
sub-section (6) of Section 4-B.
(1-A) The tax assessed under this Act shall be deposited in the
manner specified in, and within thirty days of the service of, the
notice of assessment and demand.
(1-B) If the tax, other than the tax referred to in sub-section (1),
assessed by any Assessing Authority is not paid within the
period specified in the notice of assessment and demand
referred to in sub-section (1-A),
simple interest at the rate of one and half per cent per mensem
on the unpaid amount calculated from the date of expiration of
the period specified in such notice shall become due and be
payable.
(1BB) If the tax, assessed under this Act is enhanced in
reassessment or otherwise by any authority, tribunal or court
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the dealer shall also be liable to pay simple interest at the rate
specified in sub-section (1-B) on the unpaid amount of the
enhanced tax from the date of expiration of the period specified
in such notice of assessment and demand already served on
the dealer under sub-section (1-A) and it shall not be necessary
to give a fresh notice of assessment and demand with respect
to the enhanced tax and it shall be deemed that the tax so
enhanced was assessed in the order of assessment made for
the first time.
(1-C) The amount of interest payable under sub-section (1), (1-
B) (1-BB) and (2) shall be without prejudice to any other liability
or penalty that the dealer may incur under this Act or under any
other law for the time being in force, and shall be added to the
amount of tax and be also deemed for all purposes to be part of
the tax.
(2) Where realization of any tax remained stayed by any order
of any Court or authority and such order of stay is subsequently
vacated, the interest referred to in sub-section (1-B) shall be
payable also for any period during which such order remained
in operation.
(2-A) Notwithstanding anything contained in sub-section (1),
(1-A), (1-B), (1-BB), (1-C) or (2) the Commissioner may on the
application of a manufacturer within such time and in such
manner as may be prescribed grant in lieu of exemption under
section 4-A moratorium for payment of the admitted tax subject
to such conditions as may be prescribed. The Commissioner
may withdraw any such moratorium in the circumstances in
which it could have withdrawn the exemption under section 4-A,
but no such withdrawal shall be made with retrospective effect.
Provided that on and after commencement of the Uttar Pradesh
Trade Tax (Amendment) Ordinance, 1997, the Commissioner
may on the application of a manufacturer having a small scale
industry, the date of starting production of which falls on or after
April 1, 1990, grant, in lieu of exemption under section 4-A,
moratorium for payment of the admitted tax and the provision of
rule 43 of the Uttar Pradesh Trade Tax Rules, 1948, as
amended by the Uttar Pradesh Trade Tax (Second
amendment) Rules, 1993, shall apply for granting such
moratorium.
(2-B) Notwithstanding anything contained in any other provision
of this Act and rules made thereunder, the State Government
may grant moratorium from payment of the admitted tax to a
Power Project Industrial Unit, subject to such conditions as may
be prescribed.
(3) Notwithstanding anything contained in any law or contract
to the contrary, the assessing authority may, at any time or
from time to time, by notice in writing, a copy of which shall
be forwarded to the dealer at his last address known to the
assessing authority , require \026
(a) any person from whom any amount is due or may
become due to the dealer, or
(b) any person who holds or may subsequently hold
money for or on account of the dealer,
to pay to the assessing authority \026
(i) forthwith upon the money becoming due or being
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held, or
(ii) at or within the time specified in the notice, not
being before the money becomes due or is held,
so much of the money as is sufficient to pay the
amount due by the dealer in respect of arrears of
tax or other due under this Act, or the whole of
the money when it is equal to or less than that
amount.
Explanation - For the purpose of this sub-section, the amount
due to a dealer or money held for or on account of a dealer by
any person shall be computed after taking into account such
claims, if any, as may have fallen due for payment by such
dealer to such person and as may be legally subsisting."
The High Court was of the view that even if the dealer was liable to pay interest
on delayed payment of amount of tax, a notice in writing before passing the impugned
order was necessary which is not shown to have been done in the present case. The
impugned order dated 30.7.1990 nowhere states that any notice was sent to the dealer,
therefore, such an order could not be sustained. Consequently, the Tribunal has
committed an error in passing the impugned order dated 21.7.1998 remanding the
matter to the assessing authority. Holding so, the High Court allowed the revision and
quashed the order of the Tribunal.
In our opinion, the order passed by the High Court is absolutely illegal.
In the case of Commissioner of Sales Tax vs. Qureshi Crucible center ,
1993 suppl (3) SCC 495, the Commissioner of Sales Tax was the appellant. The
appeal was preferred against the judgment of the learned single Judge of the Allahabad
High Court allowing the sales tax revision filed by the assessee. After referring to
Section 8(1), this Court held as under:
"According to this section, a dealer shall have to deposit the tax
admittedly payable either within the time prescribed or by August 31,
1975 whichever is later. If he fails to do so, simple interest at the rate
of 2% per mensem becomes payable. This levy of interest is by
operation of law. It does not require a separate order as such by any
authority. The explanation defines the expression "tax admittedly
payable". It means the tax which is payable, inter alia, according to
the return filed by the dealer.
In this case, the dealer filed a return for the assessment years
1975-76. The goods in which he was dealing fell within the category of
unspecified goods. For unspecified goods, the rate of tax prior to
December 1, 1973 was 3.5%. With effect from the said date, however,
the rate was revised to 7%. In the return filed by the respondent-
assessee, he arrived at the tax admittedly payable on the turnover
disclosed by him, by applying rate of 3.5%. The authorities held that
inasmuch as he has not paid the tax admittedly payable within the
meaning of Section 8(1) inasmuch as he has not calculated and paid
the tax at the rate prescribed by law \026 he must be held to have failed
to comply with the requirement of Section 8(1). Accordingly, interest
as prescribed by the said section was levied. The appellate authority
as well as the Tribunal affirmed the said levy. The matter was carried
to the High Court by way of a revision. The learned Judge allowed the
revision holding that "there has been no finding by the Tribunal that the
assessee acted mala fide in not depositing the tax at the rate of 7%.
The demand of interest was not justified."
In the case of The Sales Tax Officer, Sector I, Kanpur & Anr. Vs. M/s
Dwarika prasad Sheo Karan Dass, (1977) 1 SCC 22, this Court has held that the
assessee is liable to pay interest under Section 8(1-A) of the U.P. Sales Tax Act, 1948
on unpaid amount of tax and that such liability arises automatically by operation of law.
This Court also held that fresh notice of demand not necessary where amount of tax or
other dues reduced as a result of the appeal, revision or other proceedings.
This Court had an occasion to consider sub-Section (1-A) of Section 8 of the Act
in the case of Haji Lal Mohd. Biri Works vs. State of U.P. , (1974) 3 SCC 137 and
held that the liability to pay interest under Section 8(1-A) of the Act is automatic and
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arises by operation of law. It was further observed in that case that it is not necessary
for the Sales Tax Officer to specify the amount of interest in the recovery certificate.
This Court had also considered the question whether it was necessary for the
Sales Tax Officer to issue a fresh notice of demand to the respondent after the tax
assessed by the Sales Tax Officer was reduced on appeal and further reduced on
revision. This Court after considering sub-Section (9) which has been added in Section
8 of the Act by the U.P. Sales Tax (Amendment) Act (3 of 1971) held that it shall not be
necessary to the assessing authority to serve upon the dealer a fresh notice. Similar
view was taken by the Allahabad High Court in the case of Firm Parshuram
Rameshwar Lal vs. State of U.P., (1974) 33 STC 540 (All) which has also been
referred to in this judgment.
In view of the above, this Court accepted the appeal filed by the Sales Tax
Officer and set aside the judgment of the High Court and dismissed the writ petition filed
by the assessee.
In the case of Prahlad Rai & Ors. vs. Sales Tax Officer, Meerut & Ors., 1991
Supp(2) SCC 612, this Court had an occasion to consider the payment of interest on
arrears of sales tax. In this case, the assessee contended that he had admittedly paid
the entire arrears of sales tax voluntarily and, therefore, they did not become defaulters
and not liable to pay interest. Rejecting the said argument, this Court held that the
accrual of interest is automatic and no separate notice of demand was required to be
served in that respect.
Thus, we are of the opinion that the High Court was not justified for deleting the
interest levied by the authorities on the ground that no notice was served. In this view,
the impugned judgment would normally be unsustainable. However, as already
noticed, the respondent-assessee has specifically urged that the subsequent
proceedings to the assessment is barred by limitation and that even though the order
was passed on 6.6.1986 imposing tax liability etc., the assessing authority had passed
another order only on 30.7.1990 holding that on admitted amount of tax, the assessee
was liable to pay interest at 24% p.a. from 1.5.1978 and, therefore, on the question of
delay in demanding interest, the demand has to be set aside. This argument of the
learned counsel appearing for the respondent merits acceptance. In this case, the
assessment relates to the assessment years 1977-78. The respondent furnished his
return to the assessing authority and the assessing authority passed an assessment
order against the respondent and in accordance with the assessment order, the
assessee has deposited the entire amount of tax amounting to Rs. 15,236.98 paise on
30.8.1986 and Rs.2,817/- on 26.6.1982. However, on 30.7.1990, the assessing
authority passed an order imposing interest against the respondent. Thus the demand
was after nearly four years. There was no demand of interest in the assessment order
which, in our opinion, form part of the assessment order. As the assessment order did
not include a claim for interest, the demand for interest had to be made within a
reasonable period thereafter. To be noted that for rectification of the assessment order,
a limitation period of three years is laid down. Since the demand of interest was made
after almost four years, we hold that the demand is not within a reasonable period and
the assessee is not liable to pay the interest as demanded. The Department is not
entitled to recover the interest from the assessee-respondent but is at liberty to recover
the amount of interest demanded from the Assessing Officer concerned who have not
taken steps for four years.
We are in entire agreement with the law laid down by this Court on the
interpretation of Section 8 of the Act in the judgments referred to above. But we,
however, hold that the demand of interest was not justified because of the inordinate
delay on the part of the officers concerned for raising the demand of interest from the
assessee and in the peculiar facts and circumstances of this case.
The civil appeal ,accordingly, stands dismissed. However, there shall be no
order as to costs.