1983 (6) TMI 161 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of Section 8 of the Jammu and Kashmir General Sales Tax Act, 1962.
2. Requirement of a prior demand notice for the recovery of interest under Section 8.

Issue-Wise Detailed Analysis:

1. Constitutionality of Section 8:
The petitioners argued that Section 8 of the Act is violative of Articles 14, 19, 265, 301, and 304 of the Constitution of India, claiming it to be confiscatory rather than compensatory due to the high interest rate of 3% per month. They also contended that selling goods on credit, an unavoidable business practice, would adversely affect their business due to the interest burden.

The court refuted these arguments, emphasizing that interest, tax, and penalty are distinct concepts. Interest is compensatory in nature, meant to cover the delay in payment of tax, and not penal. The court cited the Supreme Court's ruling in Associated Cement Co. Ltd. v. Commercial Tax Officer, which held that interest is compensatory and not confiscatory. Additionally, the Act also mandates the government to pay interest on delayed refunds, ensuring fairness. The court concluded that Section 8 is constitutionally valid and does not infringe upon the petitioners' rights to trade or business.

2. Requirement of a Prior Demand Notice:
The petitioners contended that no interest could be recovered without first serving a prior notice of demand as per Section 8 of the Act. The court analyzed Sections 7 and 8 of the Act, which detail the procedures for filing returns, assessment, and recovery of tax. Section 8(1) specifies that tax assessed must be paid within a specified time, failing which it becomes recoverable with interest.

The court referred to the Supreme Court's judgment in Haji Lal Mohd. Biri Works v. State of U.P., which held that interest liability is automatic and arises by operation of law without the need for a separate demand notice. Similarly, in A.C.C. Limited's case, the Supreme Court upheld the recovery of interest on delayed tax payments, interpreting the relevant provisions to mean that interest accrues from the date the tax falls due, not from the date of a subsequent demand notice.

The court concluded that the assessing authority is not required to issue a prior notice of demand to charge interest. The liability to pay tax arises when the return is filed or should have been filed, and interest accrues from the due date of the tax payment. The court also dismissed the argument that interest could not be levied for the first quarter of the year 1978-79, as the amendment introducing interest came into effect before the expiry of the first quarter.

Judgment:
The court dismissed all petitions, upholding the constitutionality of Section 8 and ruling that no prior demand notice is required for the recovery of interest. The orders staying the recovery of sums demanded from the petitioners were vacated. The petitions were dismissed without any order as to costs.