1974 (11) TMI 77 - HC - VAT and Sales Tax

Issues Involved:
1. Classification of tooth-paste and toothbrushes for tax purposes.
2. Liability to pay interest on unpaid sales tax during the period of stay orders.

Issue-wise Detailed Analysis:

1. Classification of Tooth-paste and Toothbrushes for Tax Purposes:
The primary issue was whether tooth-paste and toothbrushes should be classified as toilet goods taxable at 7% or as unclassified goods taxable at 2%. Initially, the Sales Tax Officer classified these items as toilet goods and levied a 7% tax rate. However, upon appeal, it was determined that these items were unclassified and taxable at 2%. This classification was upheld until 15th March 1969, when the Additional Revising Authority, Allahabad, revised the assessment for the year 1962-63, reinstating the 7% tax rate. Consequently, for subsequent assessment years, the tax rate of 7% was applied to these items.

2. Liability to Pay Interest on Unpaid Sales Tax During the Period of Stay Orders:
The main question in this petition was whether the petitioner was liable to pay interest on the unpaid sales tax for the period during which stay orders were in force. Interest on arrears of sales tax is governed by Section 8(1-A) of the U.P. Sales Tax Act, which mandates that if the tax remains unpaid for six months after the specified time, simple interest at 18% per annum shall accrue.

The Division Bench considered previous judgments, including Ajai Kumar Ashok Kumar v. Sales Tax Officer, which held that penal interest could not be charged for the period during which the realization of tax was stayed by the Commissioner. The reasoning was that if the time for payment is extended by the Sales Tax Officer or the Commissioner, the assessee is not in default until six months after the extended time.

However, the Supreme Court in Haji Lal Mohammad Biri Works v. State of U.P. ruled that Section 8(1-A) does not prevent the running of interest due to any stay order, stating that the liability to pay interest is statutory and the Sales Tax Officer has no discretion to exempt it.

Subsequently, in Ram Chandra Ram v. State of U.P., it was held that interest under Section 8(1-A) is payable even if there is a stay order from the High Court, as the stay does not stop the running of interest, which is automatic.

The matter was referred to a Full Bench to address two questions:
1. Whether a stay order amounts to extending the time for payment or amending the notice under Section 8(4) of the Act.
2. Whether the period of a stay order should be excluded for computing penal interest under Section 8(1-A).

The Full Bench concluded that even if a stay order extends the time for payment or amends the notice, interest continues to accrue. Thus, the period during which a stay order is in operation is not excluded for computing penal interest, as per the Supreme Court's interpretation that interest runs automatically.

Conclusion:
The Full Bench answered the second question in the negative, confirming that the period of a stay order is not excluded for computing penal interest under Section 8(1-A). The first question was deemed unnecessary to answer, as interest accrues regardless of any stay order. No costs were ordered in this case.

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