1997 (12) TMI 607 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of penalty imposed under the Gujarat Sales Tax Act, 1969 and Central Sales Tax Act, 1956.
2. Validity of interest demand under the Gujarat Sales Tax Act, 1969 for the period from January 1, 1970 to 1975.

Detailed Analysis:

1. Validity of Penalty Imposed:
The primary issue was whether the sales tax authorities were justified in imposing a penalty on the petitioner for not including the freight element in the sale price of cement, thereby affecting the turnover of taxable sales. The petitioner argued that based on the Supreme Court decision in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh [1969] 24 STC 487, freight was not considered part of the sale price, and hence, sales tax was not payable on it. This position changed with the Supreme Court's later decision in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13, which included the freight element as part of the sale price, thus making it taxable.

The court acknowledged that the petitioner-company acted based on the earlier Supreme Court ruling and had a reasonable cause for not including the freight in the taxable turnover. The court emphasized that "a cause could be said to be a 'reasonable cause' when the same is able to appeal to the reason or a conscience." Given the changed judicial interpretation, the court concluded that the petitioner did not pay the tax without a reasonable cause and thus, the penalty could not be justified. Consequently, the demand for penalty was struck down.

2. Validity of Interest Demand:
The second issue was whether interest could be demanded for the period from January 1, 1970 to 1975, given that the provision for interest under section 47(4A) of the Gujarat Sales Tax Act was introduced only with effect from April 1, 1976. The petitioner contended that there was no statutory provision for interest during the relevant period.

The court agreed with the petitioner, stating that the interest provision was inserted by Act No. 10 of 1976, effective from April 1, 1976. The court held that tax statutes creating further liability could not be presumed to have retrospective effect unless expressly stated. The court cited the Supreme Court decision in J.K. Synthetics Ltd. v. Commercial Taxes Officer [1994] 94 STC 422, which clarified that charging provisions are substantive law and not retrospective unless explicitly mentioned. Therefore, the court concluded that the interest demand for the period before April 1, 1976, was not valid and could not be imposed.

Conclusion:
The court allowed the petition, quashing and setting aside the communication-cum-order dated October 1, 1992, which included the demand for interest and penalty. The court ordered the return of amounts paid by the petitioner under interim orders, totaling Rs. 3,79,051, within six weeks. The petition was allowed with no order as to costs.