2022 (4) TMI 66 - HC - VAT and Sales Tax

Liability of interest u/s 42(3) of the Tamil Nadu Value Added Tax Act, 2006 - barred by time limitation or not - HELD THAT - The assessment under the Tamil Nadu Value Added Tax Act, 2006 is based on the self assessment by an assessee by filing proper returns declaring the income. Assessment is thus driven by the returns filed by an assessee or a dealer. The assessment will be completed based on the information furnished by an assessee/dealer in the returns and the books of accounts that are produced during assessment. If an assessee fails to file correct returns and furnish required documents, the interest of the revenue cannot compromised. An assessee/dealer cannot take advantage of the lapses committed at a later point of time if subsequently it is found that the turn-over had escaped resulting in evasion of tax by such an assessee/dealer. A reading of Sub Clause 3 to Section 42 of the Act also makes it clear that on any amount remaining unpaid after the date specified for its payment as referred to in subsection (1) or in the order permitting payment in instalments, the dealer or person shall pay, in addition to the amount due, interest at 2% per month of such amount for the entire period of default. The specified date for making payment of tax is in terms of Rule 7 of the Rules. Thus, the challenge by the impugned Notices are without any merits. If there is a failure to tax in time, the dealers are required to pay interest as payment of Interest is consequential. Writ petition dismissed.

Issues Involved:
1. Whether the petitioner can be fastened with interest liability under Section 42(3) of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act, 2006).
2. Whether the impugned demand notices are time-barred.
3. Whether the petitioner can be absolved from payment of interest on the delayed payment of differential tax.

Issue-wise Detailed Analysis:

1. Interest Liability Under Section 42(3) of TNVAT Act, 2006:
The primary issue is whether the petitioner is liable to pay interest under Section 42(3) of the TNVAT Act, 2006. The petitioner filed returns for the Assessment Years 2008-2009 and 2010-2011, and subsequent assessment orders were passed. The petitioner was called upon to pay additional purchase tax and penalties for the respective assessment years. The court observed that under Section 42(1) of the TNVAT Act, 2006, the tax assessed becomes payable and must be paid within the specified time. If the tax remains unpaid after the due date, Section 42(3) mandates that the dealer must pay interest at 2% per month for the entire period of default. The court concluded that the petitioner is liable to pay interest as it is consequential to the delayed payment of tax.

2. Time-barred Demand Notices:
The petitioner argued that the impugned demand notices are time-barred. The petitioner relied on various judgments, including the Supreme Court's decision in Commissioner of Trade Tax, Lucknow Vs. Kanhai Ram Thekedar, which held that demands for interest must be made within a reasonable period. The court, however, noted that the assessment and reassessment orders were passed based on self-assessment by the petitioner, and any failure to declare the correct turnover cannot compromise the revenue's interest. The court also referred to the decision in Kwality ICE Cream Company, which emphasized that the period of limitation for demanding interest should align with the period for demanding the principal amount. Despite these arguments, the court held that the demand for interest is not time-barred as the petitioner failed to make proper declarations in time, and interest is consequential to the delayed payment of tax.

3. Absolution from Payment of Interest on Delayed Payment:
The petitioner contended that they should be absolved from paying interest on the delayed payment of differential tax. The court referred to the case of Sri Sakthi Murugan Tex, where it was held that interest is payable for the entire period of default starting from the date the tax was originally due. The court reiterated that the petitioner cannot be absolved from paying interest as it is compensatory in nature and not penal. The court emphasized that there can be no waiver of interest for the default period as the tax ought to have been paid at the time of filing the return. The petitioner is merely paying the tax that should have been paid earlier, and there is no merit in the argument for absolution from interest payment.

Conclusion:
The court found no merit in the petitioner's arguments and held that the petitioner is liable to pay interest under Section 42(3) of the TNVAT Act, 2006, for the delayed payment of tax. The impugned demand notices were not time-barred, and the petitioner cannot be absolved from the interest liability. The writ petitions were dismissed, and the petitioner was directed to reply to the impugned notices within 30 days, failing which the respondent shall proceed to pass a final order.

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