1968 (8) TMI 180 - HC - VAT and Sales Tax

Summary

Issues:
1. Validity of sub-section (1-A) of section 8 of the U.P. Act regarding interest on arrears of sales tax.
2. Conflict between sub-section (1-A) of section 8 and section 3-A of the U.P. Act.
3. Requirement of a notice of demand under sub-section (1) of section 8 of the U.P. Act for recovery proceedings.
4. Charging of interest on arrears under the Central Act.
5. Applicability of sub-section (3) of section 9 of the Central Act for collecting interest on arrears under the Central Act.
6. Quashing of the sale proclamation and issuance of a fresh notice of demand.

Analysis:
1. The petition challenged the validity of sub-section (1-A) of section 8 of the U.P. Act, which allows for the imposition of interest on arrears of sales tax. The argument was that the State Legislature lacked the power to levy interest on sales tax arrears, but the Court held that such power is incidental to the power to impose sales tax, thus upholding the validity of the provision.

2. A contention was raised regarding a conflict between sub-section (1-A) of section 8 and section 3-A of the U.P. Act, as adding interest could potentially exceed the prescribed tax rate. The Court emphasized the need to reconcile statutory provisions and interpreted that the specific provision of sub-section (1-A) must be understood as prevailing over section 3-A, thus dismissing the conflict as a ground for invalidation.

3. The petitioner argued that recovery proceedings were invalid due to the absence of a notice of demand as required by sub-section (1) of section 8 of the U.P. Act. The Court agreed, emphasizing the necessity of a demand notice before initiating coercive measures, especially when the liability amount had been altered, thus leading to the quashing of the sale proclamation.

4. A dispute arose regarding the charging of interest on arrears under the Central Act, with the petitioner contending that no such provision existed. The Court examined sub-section (3) of section 9 of the Central Act, which empowers State authorities to assess and collect taxes in a manner consistent with local sales tax laws, but concluded that interest under the U.P. Act could not be imposed on arrears under the Central Act.

5. The applicability of sub-section (3) of section 9 of the Central Act for collecting interest on arrears under the Central Act was scrutinized, with the Court determining that the machinery authorized by the provision was limited to tax and penalties under the Central Act, not supplementary taxes like interest under the U.P. Act, leading to the acceptance of the petitioner's contention.

6. Finally, the Court partially allowed the petition, quashing the sale proclamation but permitting the issuance of a fresh notice of demand for collecting arrears of tax under both the Central Act and the U.P. Act, along with interest under the U.P. Act, while leaving the determination of the total amount payable and any potential rebate to subsequent proceedings.