1996 (5) TMI 395 - AT - VAT and Sales Tax

Issues Involved:
1. Liability to pay interest on turnover tax under section 10A of the Bengal Finance (Sales Tax) Act, 1941.
2. Validity of the interim order restraining the collection of turnover tax.
3. Applicability of Supreme Court's decision in J.K. Synthetics Ltd. v. Commercial Taxes Officer.
4. Interpretation of the provisions regarding interest as machinery or substantive law.
5. Whether the company acted in bona fide belief regarding its tax liability.
6. Impact of previous judgments on the case.

Detailed Analysis:

1. Liability to Pay Interest on Turnover Tax:
The primary issue was whether the petitioner company was liable to pay interest on turnover tax under section 10A of the Bengal Finance (Sales Tax) Act, 1941, for default in payment after the dismissal of the challenge against the vires of those provisions. The company argued that interest should not be charged during the period the interim order was in force, as section 10A does not provide for interest unless a dealer admits the amounts in the returns and fails to pay the full tax thereon. The respondents countered that the company was liable to pay interest as the interim order had expired, and the company had admitted its liability in a petition to the Commissioner of Commercial Taxes.

2. Validity of the Interim Order:
The company had initially obtained an interim order from the High Court restraining the respondents from imposing and collecting turnover tax, conditional upon furnishing a bank guarantee for 50% of the disputed amount. The interim order expired on May 23, 1989, and the company failed to obtain an extension. The respondents invoked the bank guarantees and demanded interest on the turnover tax from October 1983 onwards. The company challenged this demand as illegal, invalid, and without jurisdiction.

3. Applicability of Supreme Court's Decision in J.K. Synthetics Ltd.:
The company argued that the Supreme Court's decision in J.K. Synthetics Ltd. v. Commercial Taxes Officer, which held that interest on delayed payment of tax must be construed as substantive law, should apply. The Supreme Court had stated that so long as the assessee pays the tax due according to the return filed, there would be no default. The Tribunal had to determine whether this principle applied to the company's case, given that the company had not paid the turnover tax but had furnished bank guarantees as per the High Court's interim order.

4. Interpretation of Provisions Regarding Interest:
The Tribunal had previously considered the provisions regarding interest in section 10A as machinery provisions, but this view was overruled by the Supreme Court in J.K. Synthetics Ltd. The Tribunal had to reconsider whether the interest provisions should be treated as substantive law, meaning that interest could only be charged if the dealer failed to pay the tax due according to the return filed.

5. Bona Fide Belief Regarding Tax Liability:
The company contended that it had acted in bona fide belief that it was not required to pay turnover tax due to the High Court's interim order and the ongoing legal challenge. The Tribunal had to assess whether the company had a bona fide belief that it was not liable to pay the tax, and whether this belief absolved it from the liability to pay interest.

6. Impact of Previous Judgments:
The Tribunal considered previous judgments, including its own decision in Kingsway & Co. v. Commercial Tax Officer and the Supreme Court's decision in J.K. Synthetics Ltd. The Tribunal also examined the case of M.L. Shroff & Co., where it was held that the applicant was not liable to pay interest due to an interim order permitting the submission of returns without payment of tax. The Tribunal had to determine whether the facts of the present case were similar to those in M.L. Shroff & Co. and whether the company could claim exemption from interest based on the interim order.

Conclusion:
The Tribunal concluded that the company was liable to pay interest on the turnover tax under section 10A of the 1941 Act. The interim order did not restrain the company from paying the turnover tax, and the company had all the information about its liability but chose to furnish bank guarantees instead of making full payment. The Tribunal found that the company did not act in bona fide belief that it was not required to pay the tax, and the facts of the present case were distinguishable from those in J.K. Synthetics Ltd. and M.L. Shroff & Co. The application was dismissed, and the interim order was vacated.

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