1988 (8) TMI 388 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of retrospective operation of the amended Assam Finance (Sales Tax) Rules, 1968.
2. Levy of interest after completion of assessment and issue of demand notices.
3. Validity of the provisions of section 12(1) of the Assam Finance (Sales Tax) Act and rules 32A and 32B of the Rules.
4. Requirement of rectification proceedings for levying interest.
5. Competence of rule-making authority to give retrospective effect to rules.
6. Excessive delegation of legislative power in fixing interest rates.

Issue-wise Detailed Analysis:

1. Validity of Retrospective Operation of the Amended Assam Finance (Sales Tax) Rules, 1968:
The court examined whether the rule-making authority had the power to give retrospective effect to the rules. It was held that the statute does not authorize a rule-making authority to give a rule retrospective effect. Therefore, the new Rules must be deemed to have started operating on and from 25th June 1969 and not retrospectively from 1st January 1968. Consequently, the cases for the period ending 24th June 1969 would not be covered by the new provisions of rules 32A and 32B.

2. Levy of Interest After Completion of Assessment and Issue of Demand Notices:
The court addressed the question of whether the authority could levy interest and issue demand notices for payment of interest without taking recourse to rectification proceedings. It was held that the subsequent assessment of interest by a follow-up demand notice after two years amounts to reopening the earlier assessment with the effect of enhancing the total amount of tax. Therefore, the provisions of sub-section (3) of section 12 of the Act are attracted, necessitating a reasonable opportunity to the dealer of being heard before such rectification is made.

3. Validity of the Provisions of Section 12(1) of the Act and Rules 32A and 32B of the Rules:
The court examined the provisions of section 12(1) and rules 32A and 32B, which prescribe the rate of simple interest for failure to submit the return and payment of required tax. It was concluded that the provisions of the rules cannot be said to be ultra vires and violative of article 14 of the Constitution of India. However, the retrospective operation of the rules was deemed ineffective.

4. Requirement of Rectification Proceedings for Levying Interest:
The court held that omission to assess the interest while it had accrued at the time of passing the order of assessment can only be done by taking recourse to rectification proceedings under section 12 of the Act. The subsequent assessment of interest without following the procedure under section 12 of the Act for rectification of the order of assessment with the demand of interest enhancing the total amount of tax payable is invalid.

5. Competence of Rule-Making Authority to Give Retrospective Effect to Rules:
The court reiterated that the rule-making authority does not have the power to give retrospective effect to the rules unless explicitly authorized by the statute. Therefore, the retrospective operation of rules 32A and 32B from 1st January 1968 was held to be invalid.

6. Excessive Delegation of Legislative Power in Fixing Interest Rates:
The court examined whether the delegation of power to fix interest rates was excessive. It was held that the fixation of rate and quantifying the rate of interest as per provisions of rule 32A cannot be said to be an excessive delegation of powers and is in consonance with the provisions of the Act.

Conclusion:
The court quashed the demand notices issued to the dealers for payment of interest without following the procedure under section 12 of the Act. The provisions of the Act and the Rules were held to be effective only from 25th June 1969 and not retrospectively from 1st January 1968. The petitions were disposed of accordingly, with each party bearing their own costs.