1964 (7) TMI 32 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability of the State to pay interest on illegally collected sales tax from the date of collection to the date of decree.
2. Applicability of the Interest Act (32 of 1839) and equitable grounds for claiming interest.
3. The principle of restitution and inherent powers of the court under section 151 of the Civil Procedure Code.

Detailed Analysis:

1. Liability of the State to Pay Interest on Illegally Collected Sales Tax:
The core issue is whether the State of Andhra, which levied the sales tax, is liable to pay interest from the date of collection to the date of decree, having refunded the tax collected with interest from the date of decree. The appellant-plaintiff, a registered firm, was assessed a tax of Rs. 7,248-6-2 for the year 1945-46, which was later declared illegal by the Sub Court, Eluru. The plaintiff claimed interest at 6% per annum from the date of collection (26th September 1949) to the date of the decree (25th February 1954).

2. Applicability of the Interest Act (32 of 1839) and Equitable Grounds for Claiming Interest:
The appellant relied on the proviso of the Interest Act, which allows courts to grant interest on equitable grounds. However, the court referred to precedents, including Nanchappa Goundan & Others v. Vatasari Ittichathara Mannadiar, which clarified that interest was not payable at common law unless there was an agreement or usage. The court emphasized that vague notions of equity do not justify interest claims unless they fall within well-recognized categories. Additionally, Bengal Nagpur Railway Co., Ltd. v. Ruttanji Ramji explained that equitable interest requires specific circumstances, such as a fiduciary relationship, which were absent in this case. The court concluded that the tax collected did not create a debt or a fiduciary relationship, and thus, the analogy of a creditor and debtor does not apply.

3. Principle of Restitution and Inherent Powers of the Court:
The appellant also argued for interest based on the principle of restitution, citing cases like Thangaswamy Chettiar v. Bapoo Sahib and Puthiya Veettil Chandanathil Mukkayi v. Parambil Puthavumma, which discussed the inherent power of courts to direct restitution. However, the court doubted whether relief could be granted on general equitable grounds or under section 151 of the Civil Procedure Code. The court referred to Municipal Borough, Ahmedabad v. Vadilal Dalsukh Ram, where a similar claim for interest on refunded tax was rejected. Additionally, section 12-A of the Madras General Sales Tax Act, 1939, specifies that excess amounts collected should be refunded without interest, supporting the position against the appellant's claim.

Conclusion:
The court dismissed the appeal, upholding the decision of the learned brother that the State is not liable to pay interest on the illegally collected sales tax from the date of collection to the date of decree. The court found no basis for the claim under the Interest Act, equitable principles, or restitution. The appeal was dismissed without any order as to costs.