2009 (7) TMI 1182 - HC - VAT and Sales Tax

Whether the appellant is liable to pay penal interest on the alleged belated payment of additional sales tax? Held that - As per the assessment order nothing remained unpaid on that date, so no additional tax was imposed by the assessing authority. Therefore, we do not see how interest can be demanded. On this ground alone the impugned order deserves to be quashed and the writ appeal is allowed.

Summary

Issues:
1. Liability to pay penal interest on belated payment of additional sales tax.

Analysis:
The case involved a dispute regarding the liability of the appellant to pay penal interest on the belated payment of additional sales tax. The appellant, a manufacturer of elevators, was assessed for the year 2002-03 and had paid the tax due in full, with no balance payable as per the assessment order. However, a notice was issued later demanding penal interest for belated payment of additional tax. The appellant challenged this demand through a writ petition, which was dismissed by the single judge, leading to the current appeal.

The appellant argued that the provision allowing penal interest under section 24(3) of the Tamil Nadu General Sales Tax Act would not apply to belated payment of additional sales tax, as there was no specific provision for penal interest under the Tamil Nadu Additional Sales Tax Act. The appellant also contended that the introduction of Explanation V to section 2(1)(aa) of the Act postdates the filing of monthly returns, and hence, penal interest cannot be levied retrospectively. Additionally, the appellant highlighted that interest on delayed payment should only be levied if substantively provided for by the statute, and since the additional sales tax was paid before the end of the assessment year, penal interest should not apply.

On the other hand, the Government Advocate for the Revenue argued that the retrospective amendment introducing penal interest for belated payment of additional sales tax validated the impugned action. It was emphasized that every month the additional sales tax becomes due, and failure to pay results in an amount remaining unpaid, justifying the automatic levy of penal interest.

The judgment referred to relevant legal precedents, including the Supreme Court decision in India Carbon Ltd. v. State of Assam, which established that interest on belated tax payment can only be charged if substantively provided for by the tax statute. The State amendment through Act 14 of 2005 introduced the provision for charging penal interest retrospectively, reinforcing the authority to levy penal interest on unpaid amounts. However, the judgment highlighted the Supreme Court's ruling in E.I.D. Parry (India) Ltd. v. Assistant Commissioner of Commercial Taxes [2005] 141 STC 12, which clarified that interest cannot be levied if tax is duly paid unless an assessment or provisional assessment is made, and a notice of demand is issued.

The court scrutinized the provisions of the Tamil Nadu Additional Sales Tax Act, particularly section 2(aaa), which mandates interest payment on any additional tax or penalty remaining unpaid as imposed by the assessing authority. The assessment order showed no amount remaining unpaid, thereby invalidating the demand for interest. Consequently, the court ruled in favor of the appellant, quashing the impugned order and allowing the writ appeal based on the absence of unpaid tax as determined by the assessing authority.