1981 (10) TMI 146 - SC - VAT and Sales Tax

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? Whether 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 that - Appeal partly allowed. 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..

Issues Involved:
1. Levy of penalties for not including freight charges in the taxable turnover.
2. Liability to pay interest on the tax payable in respect of freight charges.

Detailed Analysis:

1. Levy of Penalties for Not Including Freight Charges in the Taxable Turnover:
The assessee, a cement manufacturing company, filed this appeal against the imposition of penalties under section 7AA of the Rajasthan Sales Tax Act, 1954, and section 9(2) of the Central Sales Tax Act for not including freight charges in the taxable turnover in the original returns for the assessment year 1974-75. The assessee argued that there was a bona fide belief that freight charges were not liable to be included in the taxable turnover based on certain High Court decisions and the Supreme Court's decision in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh [1969] 24 S.T.C. 487 (S.C.). However, the Supreme Court in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 S.T.C. 13 (S.C.) held that freight charges formed part of the sale price and were taxable.

Upon learning of this decision, the assessee filed revised returns including freight charges and paid the additional tax. The court held that the penalties for not including freight charges in the original returns were unsustainable, as the non-inclusion was based on a bona fide belief and the revised returns were filed promptly after the Supreme Court's decision in Hindustan Sugar Mills' case. The court referred to its decision in Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax, Indore [1980] 45 S.T.C. 197 (S.C.), which under similar circumstances, held that the assessee was not liable to pay a penalty.

Conclusion: The court quashed the penalties imposed on the assessee for not including freight charges in the taxable turnover in the original returns.

2. Liability to Pay Interest on the Tax Payable in Respect of Freight Charges:
The second issue concerned the liability of the assessee to pay interest under section 11B of the Rajasthan Sales Tax Act on the tax payable in respect of freight charges for the period between the due date and the date of payment. The court examined the provisions of section 7 and section 11B of the Act. Section 7(2) required that every return be accompanied by a receipt showing the deposit of the full amount of tax due on the basis of the return. Section 11B imposed interest on the amount of tax not paid within the period allowed.

The court analyzed the scheme of the Act and concluded that the tax payable under section 7(2) referred to the tax due on the basis of the return actually filed by the assessee, not the tax due on the basis of a correct and proper return. The court emphasized that tax, interest, and penalty are different concepts, and interest is compensatory in nature, not penal. The court held that the liability to pay interest arises when there is a default in payment of tax within the period allowed by law.

The court distinguished the present case from the decision in State of Rajasthan v. Ghasilal [1965] 16 S.T.C. 318 (S.C.), where the issue was the sustainability of penalties, not interest. The court also referred to legislative changes and the insertion of section 7AA and section 11B by subsequent amendments, which provided for the levy of interest on unpaid tax.

Conclusion: The court held that the assessee was liable to pay interest on the tax payable in respect of freight charges under section 11B of the Act, as the tax was not paid within the period allowed by law. The appeal was dismissed regarding the levy of interest.

Separate Judgment by Bhagwati, J.:
Bhagwati, J., delivered a separate judgment, disagreeing with the majority view on the issue of interest liability. He argued that the tax payable under section 7(2) referred to the tax due on the basis of the return actually filed by the assessee, not a correct and proper return. He emphasized that the scheme of the Act showed that tax becomes payable only when assessed by the assessing authority or quantified by the assessee through self-assessment. He held that the assessee was not liable to pay interest under section 11B(a) as there was no default in paying the tax due on the basis of the returns filed.

Conclusion: Bhagwati, J., would have allowed the appeal in full, setting aside both the penalties and the interest.

Final Order:
In accordance with the majority opinion, the appeal was allowed in part. The penalties imposed on the assessee were set aside, but the appeal was dismissed regarding the levy of interest. The parties were to bear their own costs.

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