1984 (9) TMI 261 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to demand of interest for non-payment of tax.

Analysis:
The petitioner filed a writ petition challenging the demand of interest for non-payment of tax, specifically related to assessment years 1964-65 and 1965-66. The petitioner had initially deposited the excess amount of sales tax and obtained a stay order. The Assistant Commissioner (Judicial) allowed the appeals for both years, holding that tax was payable at 2% only. However, the Commissioner of Sales Tax filed a revision which was dismissed, affirming the lower authority's decision. The Sales Tax Officer later demanded interest based on the High Court's order that sales of chains and straps were taxable as accessories at 10%. The petitioner contended that there was no default in payment of taxes, as all demand notices were complied with promptly.

The key legal issue revolved around the interpretation of Section 8 of the Sales Tax Act, 1948. Sub-sections (1), (1-A), and (1-B) of Section 8 were analyzed to determine the liability for payment of interest. The controversy centered on the term "unpaid amount" in sub-section (1-B) and whether the petitioner had any outstanding tax liability. The petitioner argued that as all demand notices were complied with and excess tax was refunded as per higher authority's direction, there was no unpaid amount. The court examined the sequence of events, emphasizing that interest could only be charged when an assessee unlawfully withheld tax, benefiting from its use.

The court referred to a previous case, Annapurna Biscuit Co. v. State, which supported the view that interest should not be charged if the tax was paid based on the prevailing legal position at the time. The court emphasized that interest is a form of compensation for withholding tax unlawfully, which was not the case here as the excess tax was refunded to the petitioner by the governmental authority itself. Therefore, the court concluded that no interest was payable by the petitioner under sub-section (1-B) of Section 8 in this instance.

In light of the above analysis, the court allowed the writ petition, quashing the orders demanding interest for non-payment of tax for the assessment years 1964-65 and 1965-66. The court held that the petitioner had not defaulted in payment of taxes, as all demand notices were promptly complied with, and the excess tax was refunded as per the direction of the higher authority. Each party was directed to bear its own costs.