2007 (4) TMI 262 - SC - VAT and Sales Tax

Whether the assessee was entitled to interest @ 18% per annum from 20/21 December 2001 upto the date of refund/adjustment? Held that - The assessee has paid the tax under the Sales Tax Act in order to avoid penalty. The question of paying interest will also not arise because sales tax is an indirect tax. It is collected by the assessee from its customers. The incidence of tax falls not on the assessee but on its customers. It is a sort of a loan given by the State to the assessee so that the assessee can use the tax amount to meet its working capital requirement. As stated the liability of the respondent-assessee accrued each year, therefore, there is no question of the Department paying interest @ 18% on the tax collected by the assessee during the aforestated period. The tax was collected by the assessee from its customers as an agent for the Government. The assessee is allowed to retain that amount which has accrued to the account of the State Government. Therefore, the question of payment of interest under the Deferment Scheme does not arise. This reasoning appears to be the basis for the Scheme for not providing for the payment of interest. Appeal allowed in part by setting aside the directions of the High Court to the State to refund the amount of the tax collected from 30-4-1997 to 20/21-12-2001 with interest @ 18% from 21-12-2001 upto the date of refund/adjustment.

Issues:
1. Entitlement to interest on tax refund amount.
2. Interpretation of tax deferment scheme and rules.
3. Application of interest provisions in tax enactments.
4. Refund of tax amount without interest.

Analysis:

Issue 1: Entitlement to interest on tax refund amount
The main issue in this case was whether the Department was liable to pay interest on the tax refund amount from a specific date until the refund/adjustment. The Court examined the Deferment Scheme and the Rules framed under the Sales Tax law and found no provision for the grant of interest. The State, through its advocate, acknowledged that it was appealing against the grant of interest but did not contest the refund itself. The Court emphasized that interest in tax enactments is admissible only based on 'Agreement' or 'Statutory Provision' and cannot be granted on equitable grounds, especially under schemes for exemption/deferment. The Court held that the High Court erred in granting interest and concluded that the assessee was not entitled to interest on the tax refund amount.

Issue 2: Interpretation of tax deferment scheme and rules
The Court clarified that the entitlement of the assessee to tax deferment benefit was not in dispute, and the quantum and period of benefit were also established. The Deferment Scheme, along with the Punjab General Sales Tax (Deferment and Exemption) Rules, 1991, outlined the repayment schedule for the tax deferred. The Court noted that the assessment proceedings under the Act were distinct from the deferment scheme, and the rules did not provide for the payment of interest. The Court highlighted that exemption schemes must be strictly interpreted, and in this case, the deferment scheme did not include provisions for interest payment.

Issue 3: Application of interest provisions in tax enactments
The Court emphasized that interest under tax enactments is permissible only if provided for in agreements or statutory provisions. It rejected the application of interest based on equity and referred to the principle that exemption schemes require strict interpretation. The Court differentiated between regular tax assessments and deferment schemes, noting that the latter did not involve the collection of tax but rather the deferral of payment. It explained that the deferment scheme operated as a loan from the State to the assessee, allowing the retention of tax collected for working capital needs without accruing interest.

Issue 4: Refund of tax amount without interest
Ultimately, the Court allowed the appeal in part, setting aside the High Court's direction to refund the tax amount with interest. It clarified that the assessee was entitled to the refund of the tax collected during the specified period without interest. The Court concluded that the deferment scheme did not provide for interest payment on the tax collected by the assessee, as it was treated as a loan from the State without accruing interest. The judgment highlighted the distinction between tax deferment schemes and regular tax assessments, emphasizing the absence of interest provisions in the deferment rules.

In conclusion, the Supreme Court ruled in favor of the Department, holding that the assessee was not entitled to interest on the tax refund amount under the deferment scheme and rules. The Court clarified the interpretation of tax enactments, emphasizing the strict application of exemption schemes and the absence of provisions for interest in deferment schemes.

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