1973 (12) TMI 83 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of enhanced tax rate on textile goods.
2. Liability to pay interest on unpaid tax.
3. Necessity of fresh notice of demand upon variation in tax assessment.
4. Interpretation of the term "enhancement" in the context of tax assessment.

Detailed Analysis:

1. Validity of Enhanced Tax Rate on Textile Goods:
The petitioner, a partnership firm dealing in textile goods, was initially taxed at six pies per rupee under a notification issued under section 3-A of the U.P. Sales Tax Act. This rate was later enhanced to one anna per rupee by a notification dated 31st March 1956. The High Court invalidated this notification, but the U.P. Sales Tax (Amendment) Act, 1957, was passed to validate it. This Act was also declared invalid by the High Court. Subsequently, the U.P. Sales Tax (Amendment and Validation) Act, 1958, was enacted, which was upheld by the Supreme Court, thereby entitling the State to realize the sales tax at the enhanced rate.

2. Liability to Pay Interest on Unpaid Tax:
The petitioner paid the tax at the enhanced rate for the assessment years 1956-57 and 1957-58 but later sought a refund, claiming liability only at the original rate. The Supreme Court upheld the enhanced rate, and the Sales Tax Officer assessed the tax accordingly. The petitioner complied with the tax payment but did not pay the interest demanded. The core issue was whether the petitioner was liable to pay interest under section 8(1-A) of the Act, which mandates interest at 18% per annum if the tax remains unpaid for six months after the specified time.

3. Necessity of Fresh Notice of Demand Upon Variation in Tax Assessment:
The court emphasized that the term "tax assessed" includes the tax as determined by appellate or revising authorities. When the appellate authority reduced the tax, the petitioner paid it accordingly. However, the revising authority later restored the original assessment, which the petitioner paid promptly. The court held that a fresh notice of demand is necessary whenever there is a variation in the amount of tax due to appeal or revision, as per the Supreme Court's decision in Income-tax Officer, Kolar Circle, Kolar, and Another v. Seghu Buchiah Setty.

4. Interpretation of the Term "Enhancement" in the Context of Tax Assessment:
The court interpreted "enhancement" under the second proviso to section 8(1-A) to include not just the increase of tax over the original assessment but also the restoration of the original assessment by the revising authority after it had been reduced by the appellate authority. The court clarified that the revising authority's action of restoring the tax to the original rate constituted an enhancement, necessitating a fresh notice of demand for the enhanced amount. Consequently, interest could only be charged if the petitioner failed to pay the enhanced tax within six months from the revising authority's order.

Conclusion:
The court quashed the recovery proceedings for interest against the petitioner, ruling that the petitioner was not liable to pay interest as the enhanced tax was paid within the stipulated time following the revising authority's order. The petitioner was entitled to costs, and the writ petition was allowed.