2001 (3) TMI 856 - SC - VAT and Sales Tax

Whether the appellant, an assessee, is liable to pay any penal interest on the assessed tax under section 23(3) of the Kerala General Sales Tax Act, 1963 from the date when return was due though neither a return was furnished nor any tax paid on self-assessment basis? Held that - Appeal allowed. No doubt rule 21(7A) of the Kerala General Sales Tax Rules, 1963 casts an obligation on assessees to file a return of total turnover and taxable turnover accompanied by proof of payment of the amount of tax due within 20 days of the previous quarter but such a return was not filed by the appellant. A failure to file return of taxable turnover may render the assessee liable for any other consequences or penal action as provided by law but cannot attract the liability for payment of penal interest under sub-section (3) of section 23 of the Act on the parity of reasoning that if a return of turnover would have been filed on the due date then the tax as per return would have become due and payable on that date.

Summary

Issues:
Whether the appellant is liable to pay penal interest on the assessed tax under section 23(3) of the Kerala General Sales Tax Act, 1963 from the due date of the return, despite not filing the return or paying the tax.

Analysis:

Issue 1: Liability for Penal Interest
The central question in this case was whether the appellant, as an assessee, is obligated to pay penal interest on the assessed tax under section 23(3) of the Act from the due date of the return, even if the return was not filed, and no tax was paid on a self-assessment basis. The appellant contended that without an order of assessment or a self-assessment return accompanied by proof of tax payment, they were not required to pay tax until a demand based on an assessment order was issued. On the other hand, the respondent argued that an assessee liable for sales tax but failing to file a return should be subject to penal interest from the due date of the return. The Court analyzed the legislative intent and held that penal interest cannot be levied on an assessee for failing to file a return when the Act does not expressly provide for such penal interest.

Issue 2: Interpretation of Statutory Provisions
The Court referred to the Constitution Bench decision in J.K. Synthetics Ltd. v. Commercial Taxes Officer, which clarified the concept of "tax due" or "tax payable" as the amount determined based on the turnover or taxable turnover shown in a return or through an assessment order. The Court emphasized that penalizing an assessee for failing to deposit an amount not yet ascertained through assessment would not align with legislative intent. The judgment highlighted the distinction between substantive and adjectival law, affirming that interest cannot be recovered as damages for the delayed payment of tax.

Issue 3: Legislative Intent and Judicial Interpretation
The Court reiterated that a legislative gap cannot be filled through judicial interpretation, emphasizing that penal consequences for not filing a return should be distinct from the liability for penal interest under section 23(3) of the Act. By analyzing past precedents and legislative provisions, the Court concluded that the appellant's failure to file a return of taxable turnover may attract other consequences under the law but does not automatically trigger liability for penal interest as per section 23(3) of the Act.

In conclusion, the Court allowed the appeal, setting aside the division Bench's judgment and restoring the decision of the learned single Judge. The appellant was not held liable to pay penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963.