1998 (3) TMI 656 - HC - VAT and Sales Tax

Issues Involved:
1. Levy of interest under Section 8(1) of the U.P. Sales Tax Act.
2. Applicability and scope of Section 22 of the U.P. Sales Tax Act for rectification of mistakes.
3. Taxability of "coconut with husk" and its classification under the Act.
4. Bona fide dispute regarding tax liability and its impact on the levy of interest.

Detailed Analysis:

1. Levy of Interest under Section 8(1) of the U.P. Sales Tax Act:
The primary issue revolves around the levy of interest on the unpaid tax amount under Section 8(1) of the Act. The court noted that Section 8(1) mandates the payment of simple interest at 2% per month on the unpaid tax amount if the tax admittedly payable is not deposited within the prescribed time. The court emphasized that the interest is levied because the Revenue is deprived of the benefit of tax for the period it remains unpaid. The interest payable under Section 8(1) is added to the amount of tax and is deemed to be part of the tax. This provision aims to deter dealers from evading or delaying the payment of tax.

2. Applicability and Scope of Section 22 of the U.P. Sales Tax Act for Rectification of Mistakes:
The court examined the scope of Section 22, which allows rectification of any mistake apparent on the record in any order passed under the Act. The jurisdiction of rectification can be exercised to correct mistakes of law or fact that are apparent from the record. The court clarified that a mistake must be obvious and patent, not requiring a long-drawn process of reasoning. In the present case, there was a serious dispute regarding the taxability of "coconut with husk," and the court found that the Tribunal did not adequately address the applicability of Section 22 in its decision.

3. Taxability of "Coconut with Husk" and Its Classification under the Act:
The court discussed the conflicting views on whether "coconut with husk" should be classified as a fresh fruit or vegetable, which would exempt it from tax. Initially, a circular issued by the Commissioner of Sales Tax, U.P., suggested that "coconut with husk" should be exempt from tax. However, subsequent decisions, including a Supreme Court ruling, clarified that "coconut with husk" is neither a fresh fruit nor a vegetable, making it a taxable commodity. The court noted that the legal position regarding the taxability of "coconut with husk" was not clear until a circular dated January 4, 1990, clarified it.

4. Bona Fide Dispute Regarding Tax Liability and Its Impact on the Levy of Interest:
The court considered whether the assessee's bona fide dispute regarding the taxability of "coconut with husk" impacted the levy of interest. The court referred to previous decisions, including the case of Sabharwal Brothers v. Commissioner, Sales Tax, U.P., where it was held that a dealer bona fide disputing the tax liability was not liable to pay interest for non-payment of tax within the specified time. The court emphasized that the liability to pay interest should be automatic and arise by operation of law, irrespective of whether the default was bona fide or otherwise.

Conclusion:
The court found that the Tribunal failed to adequately address the scope of Section 22 and the bona fide nature of the dispute regarding the taxability of "coconut with husk." The court set aside the Tribunal's order and remanded the matter for fresh consideration, directing the Tribunal to decide the appeals afresh in accordance with the law and the observations made in the judgment. The court also directed the Tribunal to consider the relevancy of previous decisions, such as Ganpat Lal Lakhotia v. State of Rajasthan and Vinod Kumar Arvind Kumar v. Commissioner of Sales Tax, which held that "coconut" is a declared commodity under Section 14 of the Central Sales Tax Act, 1956, and its turnover cannot be assessed at a rate higher than 4%.

Petitions allowed in part.

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