2019 (1) TMI 1156 - HC - VAT and Sales Tax

Liability of Interest on suo-moto payment of tax before assessment proceedings treating the payment of tax being the tax payable as per return - Section 70 of the Madhya Pradesh Commercial Tax Act, 1994 - Held that - The liability of interest arises in the event which find mention in Sub-section (i), (ii) & (iii) of Clause (a) of Sub-section (4) of Section 26 of the Act. In other words, where an Assessee fails to file return (which includes revised return) and pay tax within the period prescribed, he is liable to pay interest on the delayed return and payment of tax by operation of law - Similarly, when the interest under Clause (a) of Sub-section (4) of Section 26 is not paid within the period prescribed, the Assessee is liable to pay penalty under Clause (b) of Sub-section (4) of Section 26 of the Act. In the present matter it is not the case of the Assessee that he was not liable to pay the tax and that the liability has accrued subsequently. On the contrary one of the ground in Appeal by the Assessee is that the interest and penalty was imposed thereon is high and excessive acted promptly and indicated his bonfide in making payment of tax on being known his liability on the assessment of the preceding year; which establishes the fact that the Assessee was aware of his liability to file return and pay tax on taxable items. Since the same was not paid within the prescribed period, subsequent deposit of tax, i.e. after the prescribed period will not, in our considered opinion, absolve the Assessee from payment of interest and consequential penalty irrespective of the fact that assessment proceedings were initiated after such deposit. Thus, the Appellate Board was not justified in holding that no interest is payable on suo-moto payment of tax before assessments proceedings. The Appellate Board committed patent error in construing the payment of tax after the prescribed period as the tax paid within prescribed period.

Summary

Issues:
1. Interpretation of interest payment on suo-moto tax payment before assessment proceedings.

Analysis:
The judgment by the Madhya Pradesh High Court involved a crucial issue regarding the payment of interest on tax by a dealer before assessment proceedings. The court considered whether an Assessee, who failed to file a return within the prescribed period but made a suo-moto payment of tax before assessment proceedings, is liable to pay interest on such payment. The case involved an Assessee dealing in Transformers and Conductors, registered under the Madhya Pradesh Commercial Tax Act, 1994. The Assessee was found liable for Commercial Tax for two assessment years and had made delayed payments, resulting in interest and penalties being imposed.

The court emphasized the strict construction of taxing statutes, citing precedents that highlight the importance of adhering to the literal language of tax laws. The judgment referred to specific sections of the Act, such as Section 26 and Section 32, which outline the requirements for filing returns and making tax payments. It was noted that failure to comply with these sections attracts interest and penalties as per the provisions of the Act.

The court clarified that interest and penalties are triggered when an Assessee fails to file returns or pay taxes within the prescribed period. The judgment highlighted that the liability to pay interest arises automatically under the Act in such situations. Even if the Assessee makes a belated payment after the prescribed period, the obligation to pay interest remains, as per the statutory provisions.

In the specific case under consideration, the court found that the Assessee's argument that the interest and penalties imposed were excessive was not tenable. The Assessee's awareness of the tax liability and delayed compliance with filing returns and making payments did not absolve them from the obligation to pay interest and penalties. The court concluded that the Appellate Board had erred in ruling that no interest was payable on the suo-moto tax payment made before assessment proceedings, as the payment was made after the prescribed period.

Ultimately, the court held that the Assessee was liable to pay interest on the delayed tax payment and that the Appellate Board's decision was incorrect. The judgment underscored the importance of strict adherence to tax laws and upheld the statutory provisions regarding interest and penalties for delayed tax payments.