2014 (11) TMI 34 - HC - VAT and Sales Tax

Levy of Interest from the date of filing of return or from the date of assessment - Tax liability for Non production of C form before AO - Denial of benefit of Declaration - whether the appellate authority should entertain the declaration under the circumstances when the dealer could not produce the same before the assessing authority will have to be considered in the light of the powers of the appellate authority - Held that - If the appellate power is a limited power then entertainment of the documents filed by the assessee will depend upon the scope of the said limited power. However, if the appellate power is not restricted in any manner, the said power will be as wide as the power that could be exercised by the assessing authority. Generally stated, the appellate power is co-extensive with the power of the original authority. Section 20 provides for the first appeal. The scope of the appellate power is found in section 20(5). The appellate-authority may confirm, reduce, enhance or annul the assessment, or direct the assessing authority to make further enquiry, or pass such order as it may think fit. The power necessarily includes the power of setting aside the assessment and remand the matter. The power is quite wide. There is absolutely no limitation as to exercise of the power by the appellate authority and if so, there is no reason to deny him the power to entertain an application of the assessee to consider the prayer to produce C form (declaration) provided the assessee is able to satisfy the authority that due to reasons beyond his control he could not produce them before the assessing authority. It is true that the assessee cannot, as a matter of course, produce these documents before the appellate authority. He will have to show sufficient cause as to why he could not produce them earlier. It is clear, provision for charging interest is introduced in order to compensate for the loss occasioned to the revenue due to delay in payment of tax. The provision for charging of interest can only be on the basis of a statutory provision. It is a substantive law. The object is to compensate the revenue for delay in payment of tax. Therefore, effect has to be given to the said provision strictly in accordance with law. So long as the assessee pays the tax which according to him is due on the basis of information supplied in the return filed by him, there would be no default on his part to meet his statutory obligation under the Act. Therefore, it cannot be said that the assessee has not paid the tax which is payable. It is only after the determination of the questions of fact the assessing officer passes the order holding that the assessee is liable to pay tax which he has not paid. Then an opportunity has to be given to the assessee to pay such tax determined after adjudication within the time by raising a demand. If the assessee commits a default in payment of tax within that time, then he would become a defaulter. It is thereafter his liability to pay interest would arise. The reason being the assessee cannot project the final assessment and he cannot be expected to pay the tax on that basis to avoid the liability to pay interest. It would be asking him to do it near impossible. Therefore, the Apex Court held in those circumstances the liability to pay tax arises only after such adjudication and not earlier to it. There cannot be any quarrel with the said proposition. On the date the assessee filed the return he knew what is the tax payable under the State Act as well as under the Central Act. In order to get concessional rate of tax payable under the Central Act he knew he has to furnish a declaration in Form-C. He also knew that if he fails to furnish a declaration in Form-C, he is liable to pay tax under the said Act. Therefore, it is not a case where the assessee was not aware of his liability to pay tax. He was conscious of the tax liability. He sought for concessional payment of tax on the assumption that he would be able to produce the declaration in Form-C and avail the said benefit. He also knew that if he fails to produce the said declaration in Form-C, he has to pay the tax. That is why after the assessment order, on his default in producing the declaration in Form-C, when he was called upon to pay the tax under the VAT Act, he has paid the tax. He has accepted the said order. The payment of interest being compensative in nature, the tax which he paid in pursuance of the assessment order in respect of which there was no dispute, should have been paid along with the return as prescribed under law. He failed to pay the tax along with the return. He had the benefit of that amount and it deprived the State of the benefit of that amount and therefore, when the liability to pay tax is not disputed, not only he is liable to pay tax, he is liable to pay interest from the date he was liable to pay tax to compensate the delay in payment of tax. Therefore, the finding recorded by the Tribunal by misreading the judgment of the Apex Court referred to supra requires to be set aside and accordingly we hereby set aside the said finding. After examining those declarations, after hearing the assessees, the Assessing Authority has determined that the assessee cannot have the benefit of such declarations. After rejecting the claim made on the basis of declarations, orders are passed levying tax under the VAT Act. Now the question is interest on such tax is payable from what date. In our view, the aforesaid circumstances are covered by the judgment of the Apex Court in the aforesaid Constitution Bench decision. In cases where declaration in Form-C is furnished, the Assessing Authority at the time of assessment determines after hearing the assessee that they cannot be acted upon, they are defective and the assessee is not entitled to the benefit of such declaration and then holds the assessee as liable to pay tax. Then the liability to pay interest on that tax would flow after determination of the said disputed fact and not from the date on which the return was filed either enclosing those defective forms or the date those defective forms are furnished in support of the claim made in the said returns - Decided partly in favour of Revenue.

Summary

Issues Involved:
1. Date from which interest on delayed payment of tax is to be levied when 'C' form is not furnished.
2. Date from which interest is payable when 'C' form furnished is found to be defective.

Issue-wise Detailed Analysis:

1. Date from which interest on delayed payment of tax is to be levied when 'C' form is not furnished:

The court examined the statutory provisions under the CST Act and the VAT Act to determine the date from which interest on delayed payment of tax is to be levied when 'C' form is not furnished. The CST Act mandates that for inter-State trade, the dealer must furnish a 'C' form to avail the benefit of a concessional rate of tax. If the 'C' form is not furnished, the dealer is liable to pay tax at the higher rate applicable under the VAT Act. The court noted that the liability to pay tax arises under Section 9(2B) of the CST Act, which states that if the tax payable by any dealer is not paid in time, the dealer shall be liable to pay interest for delayed payment of such tax. The court held that interest is compensatory in nature and should be paid from the date the tax under the VAT Act is liable to be paid, not from the date of the assessment order or the demand notice. The court emphasized that the dealer was aware of his tax liability and sought a concessional rate on the assumption that he would furnish the 'C' form. Therefore, the interest is payable from the date the tax was originally due, as the dealer had the benefit of the amount and deprived the state of it.

2. Date from which interest is payable when 'C' form furnished is found to be defective:

The court addressed the issue of interest when 'C' forms furnished are found to be defective. It referred to the judgment of the Constitution Bench of the Supreme Court in J.K. Synthetics Ltd. v. CTO, which held that the provision for charging interest is substantive law and aims to compensate the revenue for the delay in payment of tax. The court concluded that when 'C' forms are furnished but found defective, the liability to pay interest arises only after the assessment authority determines the defectiveness of the forms and passes an order. The interest would be payable from the date of such determination and not from the date of filing the return or the date of furnishing the defective forms. The court also noted that if 'C' forms are produced at the appellate stage and sufficient cause is shown for not producing them earlier, the appellate authority can entertain the forms and grant relief or remand the matter to the assessing authority. In such cases, there would be no liability to pay interest.

Conclusion:

The court answered the first question of law in favor of the revenue, holding that interest on delayed payment of tax is payable from the date the tax was originally due when 'C' form is not furnished. The second question of law was answered in favor of the assessee, stating that interest is payable from the date of determination of the defectiveness of 'C' forms by the assessing authority. The court's order emphasized the compensatory nature of interest and the substantive legal provisions governing its levy.