1972 (7) TMI 89 - HC - VAT and Sales Tax

Summary

Issues:
Challenge of proceedings for recovery of penal interest on arrears of sales tax due. Interpretation of provisions regarding penal interest under the U.P. Sales Tax Act. Validity of charging penal interest during the period of stay order issued by the Commissioner of Sales Tax.

Analysis:
The petitioners challenged the recovery of penal interest on arrears of sales tax due from them. The petitioners were assessed to sales tax for the year 1955-56, and a notice of demand was served for the balance amount. The Commissioner of Sales Tax granted a stay of tax realisation until the decision of the petitioners' appeal. The appeal was dismissed in 1962, and a revision petition was disposed of in 1964. However, the stay order was not vacated by the Commissioner until 1967. Subsequently, a recovery certificate was issued, and penal interest was charged on the outstanding amount. The petitioners argued that they were not defaulters during the period of the stay order.

The court analyzed the provisions of penal interest under the U.P. Sales Tax Act. Penal interest is chargeable if the tax remains unpaid for six months after the notice of demand. The assessing authority can extend the time for payment, and the assessee is not in default until six months from the extended time. The Commissioner of Sales Tax can also extend the time for payment, as per the Act. In this case, the Commissioner initially extended the time until the appeal decision, and later stayed the recovery until further orders. The court held that the petitioners were not defaulters during the period of the stay order, and penal interest could only be charged after the withdrawal of the stay order by the Commissioner in 1967.

The respondents contended that the Commissioner's order automatically ended after the appeal or revision decision. However, the court clarified that the stay order remained in force until revoked by the Commissioner. Therefore, the court ruled in favor of the petitioners, restraining the respondents from realizing penal interest for the period of the Commissioner's stay order. The petition was allowed, and no costs were imposed.

In conclusion, the judgment addressed the challenge to the recovery of penal interest on sales tax arrears, interpreting the relevant provisions of the U.P. Sales Tax Act. The court emphasized that penal interest could only be charged after the withdrawal of the stay order by the Commissioner, and the petitioners were not liable for penal interest during the period of the stay order.