1999 (7) TMI 644 - HC - VAT and Sales Tax

Summary

Issues:
Levy of interest under section 9(2) of the Central Sales Tax Act with the aid of section 13 of the Karnataka Sales Tax Act and connected matters.

Analysis:
The controversy in the matter revolves around the levy of interest under section 9(2) of the Central Sales Tax Act with the aid of section 13 of the Karnataka Sales Tax Act. The judgment cites the decision in India Carbon Ltd. v. State of Assam, where the Supreme Court held that interest can only be levied on delayed tax payment if the statute explicitly provides for it. This principle was further reiterated in subsequent cases like V.V.S. Sugars v. Government of Andhra Pradesh and Commissioner, Trade Tax, U.P., Lucknow v. Ashoka Rice Mills.

The interpretation of section 13 of the Karnataka Sales Tax Act is crucial in determining whether interest or penalty is applicable for delayed tax payment. The court referred to the case of Sha Ghelabhai Devji and Company v. Assistant Commissioner of Commercial Taxes, where it was held that the term "penalty" in section 13 should be construed as interest. The court emphasized that every word takes its meaning from the context in which it is used and highlighted the rationale behind charging interest to deter dilatory taxpayers.

The judgment also discussed a circular issued by the Commissioner, stating that delayed payment of deemed or assessed tax under the Central Sales Tax Act would attract a penalty. However, the court noted that the Karnataka Sales Tax Act clearly prescribes a penalty for delayed payment of tax or any other amount due under the Act, indicating a substantive difference in treatment between the two statutes.

Various decisions were cited to illustrate the distinction between penalty and interest in tax matters. The court referenced cases like Swedeshi Cotton Mills Co. Ltd. v. Commissioner of Income-tax and Malwa Vanaspati and Chemical Co. v. Commissioner of Incometax to highlight the compensatory and penal elements in different types of penalties. Additionally, decisions like K. G. Kallappa & Co. v. State of Karnataka and Govindji Punshi v. Tahsildar were mentioned to emphasize the compensatory nature of certain penalties.

In conclusion, the court held that the amount payable for default in tax payment should be treated as interest when there is no discretion for authorities to reduce or enhance it under the provisions of section 13. The liability to pay interest is considered a substantive charge under the Karnataka Sales Tax Act, but such liability cannot be imposed for dues under the Central Sales Tax Act in the absence of a substantive provision, as per the ruling in India Carbon Ltd. v. State of Assam.

The writ petitions were disposed of with the above observations, clarifying the nature of interest and penalty in tax matters under the relevant statutes.