2005 (12) TMI 542 - HC - VAT and Sales Tax

Summary

Issues:
Assessment of sales tax on inter-State sales of arecanut disallowing exemption due to non-levy of sales tax on corresponding purchase under the Karnataka Sales Tax Act, 1957 and Central Sales Tax Act, 1956. Dispute over the authority to collect interest on delayed payment of penalty under the CST Act.

Analysis:
The petitioner, engaged in the business of arecanut, challenged an assessment under the CST Act for the year 1994-95 where exemption on inter-State sales of arecanut was disallowed due to non-levy of sales tax on the corresponding purchase. The assessing authority not only determined the basic tax liability but also levied a penalty of Rs. 1,46,395. The petitioner contested a notice demanding interest of Rs. 2,52,704 on the penalty, arguing that the CST Act lacked provisions for collecting interest on delayed penalty payment. The petitioner relied on a Supreme Court judgment (India Carbon Ltd. v. State of Assam) emphasizing the need for specific provisions to collect interest or penalty. The respondent, represented by the Additional Government Advocate, cited section 9(2-B) of the CST Act and section 13(2) of the Act, contending that they empower the State to collect interest on delayed penalty payment.

The key issue for consideration was whether the respondent had the authority to collect interest on delayed penalty payment under the CST Act. Section 9(2-B) of the CST Act, as amended by Validation Act No. 10 of 2000, allows interest collection on delayed tax payment but does not explicitly cover penalty. The absence of a specific provision in section 9(2-B) for interest on delayed penalty payment indicates that section 13(2) of the Act, enabling interest on delayed tax or any other amount due, cannot be extended to penalty. The Supreme Court precedent in India Carbon Ltd. case emphasized the necessity of a legal basis for levying interest on delayed payments, which is lacking in the CST Act concerning penalty.

The judgment highlights that the State cannot collect interest on delayed penalty payment without a specific provision in the CST Act authorizing such levy. Section 13(2) of the Act, cited by the respondent, pertains to interest on amounts due under the Act and does not extend to penalties. The court's decision to quash the notice demanding interest on delayed penalty payment affirms the petitioner's contention that the CST Act does not permit interest collection on penalties. The ruling clarifies that the State authorities must adhere to substantive provisions in the CST Act for imposing interest, emphasizing the legal requirement for explicit authorization to collect interest on delayed payments.

The petition was allowed, and the notice directing the petitioner to pay interest on delayed penalty payment was quashed. The judgment underscores the necessity for specific legal provisions authorizing interest collection on penalties under the CST Act, ensuring compliance with established legal principles and precedents.