1969 (9) TMI 98 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the Sales Tax Officer needs to make an assessment order and issue a notice of demand to recover interest under section 8(1-A) of the U.P. Sales Tax Act.

Detailed Analysis:

Issue 1: Necessity of Assessment Order and Notice of Demand for Recovering Interest:

Background and Legislative Context:
The primary question referred to the Full Bench was whether, to recover interest under section 8(1-A) of the U.P. Sales Tax Act, it is necessary for the Sales Tax Officer to issue an assessment order and a notice of demand. This provision was introduced by the Sales Tax (Second Amendment) Act of 1963, which added sub-section (1-A) to section 8 of the Principal Act. The provision stipulates that if the tax remains unpaid for six months, interest at 18% per annum shall be added to the tax and be deemed part of the tax.

Arguments by Petitioners:
The petitioners argued that section 8(1-A) creates a legal fiction that interest is part of the tax. Therefore, the procedure for demanding tax should also apply to interest, requiring an assessment order and a notice of demand. They contended that without these formalities, recovery proceedings are not competent. They also argued that this interpretation is necessary to ensure that assessees have a forum for appeal, revision, or reference regarding interest liability.

Court's Analysis:
1. Scope of Section 8(1-A):
- The court noted that section 8(1-A) falls under the chapter dealing with payment and recovery of tax. The provision for interest was introduced to facilitate tax recovery and to exert pressure on assessees to pay. The words "and be deemed for all purposes to be part of the tax" were interpreted to mean that interest should be treated as part of the tax for recovery purposes only.

2. Automatic Liability:
- The court found that the liability to pay interest is automatic and does not require a separate assessment order or notice of demand. The use of the word "run" in section 8(1-A) indicates that interest accrues automatically on the unpaid tax. The addition of interest to the tax amount is also automatic.

3. Calculation vs. Assessment:
- The court emphasized that interest calculation is a matter of arithmetic and does not require an assessment order. The first proviso to section 8(1-A) uses the term "recalculated," indicating a straightforward calculation rather than an assessment.

4. Absence of Amendment for Appeal:
- The court noted that no amendment was made to section 9 to provide for an appeal against interest liability, suggesting that the legislature did not intend for interest to be assessed separately.

5. Practical Considerations:
- The court highlighted practical difficulties in issuing a notice of demand for interest, as the exact amount of interest cannot be determined until the tax is paid. A notice of demand must specify a precise sum, which is not feasible for interest accruing daily.

6. Remedies for Assessees:
- The court acknowledged that assessees are not left remediless. They can challenge the calculation of interest during recovery proceedings or through other available legal remedies.

Dissenting Opinion:
- One judge dissented, arguing that the legal fiction in section 8(1-A) should extend to all aspects of tax, including the need for an assessment order and a notice of demand. The dissenting judge emphasized that the legal fiction should be carried to its logical conclusion, ensuring that assessees have access to statutory remedies like appeal and revision.

Conclusion:
- The majority judgment concluded that it is not necessary for the Sales Tax Officer to issue an assessment order or a notice of demand for recovering interest under section 8(1-A). The liability to pay interest is automatic and does not require separate proceedings. The court answered the referred question in the negative, against the petitioners and in favor of the Commissioner of Sales Tax.

Summary:
The High Court of Allahabad ruled that under section 8(1-A) of the U.P. Sales Tax Act, the Sales Tax Officer is not required to issue an assessment order or a notice of demand to recover interest. The liability to pay interest is automatic, and the interest is deemed part of the tax for recovery purposes only. The court emphasized practical difficulties and the legislative intent behind the provision, concluding that assessees are not left without remedies to challenge interest calculations.