1994 (5) TMI 233 - SC - VAT and Sales Tax

Whether the appellant is required to pay interest on the additional sales tax which had to be paid on the inclusion of the freight amount in calculating the sale price? Whether the assessee owed a debt on the valuation day within the meaning of Section 2(m) to be deductible in computing the net wealth of the assessee? Held that - The appeals/writ petitions are allowed and the amount of interest levied and collected from the appellants/petitioners by virtue of Section 11-B of the Act as well as Central Act shall be refunded to the appellants/ petitioners within 3 months from today with interest at 12% per annum from the date of actual recovery from the appellants till payment. There will, however, be no order as to costs in the facts and circumstances of the case.

Summary

Issues Involved:
1. Whether the appellant is required to pay interest on the additional sales tax due to the inclusion of freight charges in the sale price under the Rajasthan Sales Tax Act, 1954, and the Central Sales Tax Act, 1956.
2. Interpretation of Sections 7(2), 7(2-A), and 11-B of the Rajasthan Sales Tax Act, 1954, and Section 9(2) of the Central Sales Tax Act, 1956.
3. Applicability of the decisions in State of Rajasthan v. Ghasilal and Associated Cement Co. Ltd. v. CTO.
4. Distinction between penalty and interest provisions under the Act.

Detailed Analysis:

Issue 1: Interest on Additional Sales Tax Due to Freight Charges
The appellant contended that interest under Section 11-B of the Rajasthan Sales Tax Act could only be charged for the period subsequent to the determination of sales tax under the final assessment and after the expiry of the period allowed under the Notice of Demand. The Revenue argued that interest becomes payable from the date on which the original return was filed under Section 7(2) or 7(2-A) of the Act.

Issue 2: Interpretation of Sections 7(2), 7(2-A), and 11-B
- Section 7(2) requires that every return be accompanied by a receipt showing the deposit of the full amount of tax due on the basis of the return.
- Section 7(2-A) allows the State Government to require certain dealers to pay tax at shorter intervals, with the tax due shown in the return.
- Section 11-B provides for charging interest on failure to pay tax, fee, or penalty. Before its substitution by Act 4 of 1979, it specified that interest would be charged if the tax payable under Sections 7(2) and 7(2-A) was not paid within the allowed period.

The Court concluded that the expression "tax payable" under Sections 7(2) and 7(2-A) means the full amount of tax due based on the information furnished in the return. Therefore, as long as the assessee pays the tax due on the basis of the return filed, there is no default, and interest under Section 11-B cannot be charged.

Issue 3: Applicability of Previous Decisions
- State of Rajasthan v. Ghasilal: The Court held that no tax can be said to be due until it is ascertained by the assessing authority or the assessee under Section 7(2). Thus, there is no liability for penalty until the tax is assessed and determined.
- Associated Cement Co. Ltd. v. CTO: The majority opinion held that interest on unpaid tax dues is compensatory and not penal. However, the minority opinion by Bhagwati, J., which the Court found more persuasive, held that the tax payable under Section 7(2) is the tax due on the basis of the return actually filed, not on the basis of a correct and proper return that ought to have been filed.

Issue 4: Distinction Between Penalty and Interest Provisions
The Court emphasized that penalty provisions must be strictly construed, whereas machinery provisions for tax collection should be construed to enable effective tax collection. However, provisions for charging interest on delayed payments are substantive law and must be construed strictly. The Court found that the interpretation suggested by the Revenue would lead to anomalies and conflicts within the statute, which could not have been the legislative intent.

Conclusion:
The Court overruled the majority view in Associated Cement Co. Ltd. v. CTO and affirmed the minority view, stating that interest under Section 11-B of the Rajasthan Sales Tax Act could not be charged on the additional tax due to the inclusion of freight charges from the date of filing the original return. The appeals and writ petitions were allowed, and the interest levied and collected was ordered to be refunded to the appellants/petitioners within three months with interest at 12% per annum from the date of actual recovery till payment. No order as to costs was made.