2005 (4) TMI 75 - SC - VAT and Sales Tax

Whether no subsequent proceeding can be initiated against the revisionist as the subsequent proceeding to the assessment is barred by limitation? Whether the order of the High Court to the extent that a notice of demand was necessary before passing the order of interest is legally sustainable? Held that - We are of the opinion that the High Court was not justified for deleting the interest levied by the authorities on the ground that no notice was served. In this view the impugned judgment would normally be unsustainable. The demand was after nearly four years. There was no demand of interest in the assessment order which in our opinion form part of the assessment order. As the assessment order did not include a claim for interest the demand for interest had to be made within a reasonable period thereafter. To be noted that for rectification of the assessment order a limitation period of three years is laid down. Since the demand of interest was made after almost four years we hold that the demand is not within a reasonable period and the assessee is not liable to pay the interest as demanded. The Department is not entitled to recover the interest from the assessee-respondent but is at liberty to recover the amount of interest demanded from the Assessing Officer concerned who have not taken steps for four years. Thus the demand of interest was not justified because of the inordinate delay on the part of the officers concerned for raising the demand of interest from the assessee and in the peculiar facts and circumstances of this case. The civil appeal accordingly stands dismissed.

Issues Involved:
1. Limitation on subsequent proceedings.
2. Necessity of notice before demanding interest.
3. Automatic accrual of interest by operation of law.
4. Reasonable period for demanding interest.

Issue-Wise Detailed Analysis:

1. Limitation on Subsequent Proceedings:
The respondent argued that the subsequent proceedings to the assessment were barred by limitation. The assessment order for the year 1977-78 was passed on 6th June 1986, and the respondent deposited the tax in two installments by 30th August 1986. However, the assessing authority passed another order on 30th July 1990, imposing interest on the unpaid tax amount. The respondent contended that the rectification order could only be passed within three years from the date of the assessment order, making the impugned order invalid due to being issued beyond this period.

2. Necessity of Notice Before Demanding Interest:
The High Court quashed the order of demand of interest on the ground that no notice in writing was issued to the dealer before passing the impugned order. It was observed that even if the dealer was liable to pay interest on the late payment of tax, a notice was necessary. The impugned order dated 30th July 1990 did not indicate that any notice was sent to the dealer, thus making the order unsustainable. The Tribunal's decision to remand the matter to the assessing authority was also deemed erroneous.

3. Automatic Accrual of Interest by Operation of Law:
The appellant argued that the levy of interest is by operation of law and does not require a separate order. The Supreme Court referred to several precedents, including Commissioner of Sales Tax v. Qureshi Crucible Center, which held that the levy of interest is automatic and does not necessitate a separate order. Similarly, in The Sales Tax Officer, Sector I, Kanpur & Anr. v. M/s. Dwarika Prasad Sheo Karan Dass, it was held that the liability to pay interest arises automatically by operation of law, and no fresh notice of demand is required.

4. Reasonable Period for Demanding Interest:
Despite the automatic accrual of interest, the Supreme Court considered whether the demand for interest was made within a reasonable period. The assessment order did not include a claim for interest, and the demand was made nearly four years later. The Court noted that for rectification of the assessment order, a limitation period of three years is laid down. Since the demand for interest was made after almost four years, it was held that the demand was not within a reasonable period. Consequently, the assessee was not liable to pay the interest demanded. The Court suggested that the Department could recover the interest amount from the assessing officer responsible for the delay.

Conclusion:
The Supreme Court dismissed the civil appeal, agreeing with the High Court's decision that the demand for interest was not justified due to the inordinate delay. The Court upheld the principle that while the accrual of interest is automatic, demands must be made within a reasonable period. The judgment emphasized the necessity of adhering to procedural requirements and reasonable timeframes in tax assessments and demands.

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