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TMI Blog1984 (2) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeding six months. We also allow the appeals filed by the assessees who are appellants before us to the same limited extent by setting aside the order of dismissal of their writ petitions passed by the Jammu and Kashmir High Court and making the rule issued in each of those writ petitions absolute only to the limited extent specified above. - Writ Petition No. 12695, 13478, To 13482, 13352 of 1983, 99, 100, 133, 134, 231, 234, 235 of 1984, Civil Appeal No. 322, To 351, Writ Petition No. 430, 886 of 1982, - - - Dated:- 9-2-1984 - BHAGWATI P.N. AND MADON D.P. JJ. Writ Petition No. 12695, 13478, To 13482, 13352 of 1983, 99, 100, 133, 134, 231, 234, 235 of 1984, Civil Appeal No. 322, To 351, Writ Petition No. 430, 886 of 1982, 364 of 1981, Writ Petition No. 478 of 1981, Writ Petition No. 132 of 1982, Writ Petition No. 338 of 1980, Writ Petition No. 525 of 1980, Writ Petition No. 485 of 1980, Writ Petition No. 67 of 1983, Writ Petition No. 404 of 1982, Writ Petition No. 681 of 1982, Writ Petition No. 679 of 1981, Writ Petition No. 688 of 1982, Writ Petition No. 472 of 1981, Writ Petition No. 678 of 1982, Writ Petition No. 230 of 1981, Writ Petition No. 229 of 1983, Writ Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such time not being less than fifteen days from the date of the notice of demand, as may be specified in the notice. In default of such payment the whole of the amount then remaining due shall become recoverable in accordance with sections 16 and 16-A. .................. (2) If the tax or any other amount due under this Act is not paid by the dealer or any other person, by whom it is payable, within the period specified in demand notice, the dealer or such other person shall be liable to pay interest on the tax or other amount from the date it was payable to the date of actual payment at the following rates.- (a) if the default is for a period not exceeding three months at 1 per cent per month; (b) if the default is for a period exceeding three months but less than six months at 2 per cent per month; (c) if the default is for a period exceeding six months at 3 per cent per month: Provided that where, as a result of an order under sections 11, 12, 24 or an order of the court, the amount of tax or other sum on which interest was payable under this sub-section has been reduced, the interest shall be reduced accordingly and excess interest paid, if any, shall be refunded. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest. These writ petitions were heard along with other writ petitions in which other questions arose. The High Court dismissed all these writ petitions but made no order as to the costs thereof. The petitioners before the High Court fell into four categories, namely: (1) Dealers who had neither filed their returns nor deposited the tax due from them and the assessing authority had determined the amount of tax payable by them and issued a composite notice of demand calling upon them to deposit the amount of tax along with interest due on it. (2) Dealers who had filed their returns but had not deposited the full amount of tax due according to such returns and the assessing authority, having accepted the returns, had issued a composite notice of demand calling upon them to pay the amount of tax along with interest due on it. (3) Dealers who had filed their returns but had paid the tax due according to such returns after the expiry of the prescribed time and in whose cases the assessing authority had accepted the returns and had issued a notice of demand asking them to pay interest on the amount of tax for the period for which such payment was delayed. (4) Dealers who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as bad in law. (5) The assessees were not liable to pay any interest on the amount of tax not paid in time without a notice of demand for payment of such amount of tax having been first issued to them. (6) Interest was levied by the Assessing Authority for the entire period of default at the maximum rate prescribed by sub-section (2) of section 8 which was contrary to the provisions of that sub-section. We will first examine the correctness of the contention that the impugned provisions of section 8 of the Act are violative of article 265 of the Constitution of India. Article 265 of the Constitution provides that "no tax shall be levied or collected except by authority of law". Thus, article 265 postulates that before any tax can be levied and collected there must be a valid law enacted by an appropriate legislature imposing such tax and providing for its collection. The submission on behalf of the assessees was that under the Constitution the Legislature of the State of Jammu and Kashmir has no legislative power to provide for payment of interest in case of late payment of tax. It was not the contention of the assessees, as indeed it could not be, that the Legislature of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f clause (1) of article 370 the State of Jammu and Kashmir is one of the States which form the Union of India and by virtue of sub-clause (d) of clause (1) of that article so far as the provisions of the Constitution, other than those of articles 1 and 370, are concerned, the President of India has the power, with the concurrence of the Government of the State of Jammu and Kashmir, to issue an order specifying which of them shall apply to that State and whether such provisions shall apply in their entirety or subject to such exceptions and modifications as may be specified in that order. Article 370 also envisages the convening of a Constituent Assembly for that State and the framing of a separate Constitution for it. In exercise of the power conferred by clause (1) of article 370 the President of India, with the concurrence of the Government of the State of Jammu and Kashmir, has made the Constitution (Application to Jammu and Kashmir) Order, 1954 (C.O. 48). This Order deals with the entire constitutional position of the State of Jammu and Kashmir within the framework of the Constitution of India, except only the internal Constitution of the State Government to be framed by the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d equally provides that "no tax shall be levied or collected except by authority of law". The question which we, therefore, have to consider is "whether in the exercise of its power to make a law with respect to taxes on the sale or purchase of goods taking place within the State, the legislature of that State has the legislative competence to provide for payment of interest on the amount of tax due according to the return filed by an assessee but not paid within the prescribed time." As was pointed out by Lord Dunedin in Witney v. Commissioner of Inland Revenue [1926] AC 37, 51 (HL); 10 Tax Cas 88, 110, a passage cited with approval by the Federal Court in Chatturam v. Commissioner of Income-tax, Bihar [1947] FCR 116, 126; [1947] 15 ITR 302, 308 (FC) and by this Court in Chatturam Horilram Ltd. v. Commissioner of Income-tax, Bihar and Orissa [1955] 2 SCR 290, 297-298; [1955] 27 ITR 709, 715-716 (SC): "Now, there are three stages in the imposition of a tax. There is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to require that tax due according to the quarterly returns should be paid before filing such returns and it was within the legislative competence of the Legislature of the State of Jammu and Kashmir to provide for recovery of the amount of tax due under quarterly returns if default is made in paying such amount by the prescribed time. This has been done by the State Legislature by enacting sub-section (8) of section 8 under which the provisions of sub-section (2) of section 8 and of sections 16 and 16-A are made applicable mutatis mutandis to the recovery of tax payable by a dealer if he fails to pay it. Sub-section (2) of section 8 provides for payment of interest, section 16 provides for recovery of tax as arrears of land revenue, and section 16-A provides for issue of a garnishee notice to a person from whom money is due, or may become due, to the assessee or to a person who holds, or may subsequently hold, money for or on account of the assessee to pay to the assessing authority as much of the money as is sufficient to pay the amount due by the assessee by way of tax. Thus, payment of interest in case of default in payment of tax is a means of compelling an assessee to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of goods taking place in the course of inter-State trade or commerce has been put in List I and made a Union subject. Taxes on the sale or purchase of goods taking place within the State affect only those who carry on the business of buying and selling goods within the State and therefore, this subject has been put in List II of the Seventh Schedule, namely, the State List. Sales tax is the biggest source of revenue for a State and it is for the State to decide how and in what manner it will raise this revenue and to determine which particular transactions of sale or purchase of goods taking place within the State should be taxed and at what rates, and which particular transactions of sale or purchase of goods should be exempted from tax or taxed at a lower rate having regard to the subject-matter of sale, as for instance, where particular goods constitute necessities for the poorer classes of people or where the goods in question are of such a nature as are required to be exempted from tax or taxed at a lower rate in order to encourage a local industry. Consideration of these matters must, from the nature of things, differ from State to State. Similarly, it is for each State t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was granted and in case of delay in refunding the excess amount, interest at the rate of 24 per cent per annum if the refund is granted beyond a period of three months but before the expiry of six months from the date of the appellate or revisional order and at the rate of 36 per cent per annum if it is granted thereafter. Thus, under the Act, the same rates of interest apply both to the dealer who has made default in payment of tax due by him and to the State Government in case of default made by it in making payment of the amount of tax or penalty which has become refundable as a result of an appellate or revisional order. The graduated rates of interest provided by sub-section (2) of section 8 cannot, therefore, be characterised as arbitrary or unreasonable. The remaining contentions are directed not against the constitutionality of the impugned statutory provisions but against the legality of the impugned orders. The first of these contentions is that the assessees, having sold goods on credit basis, are not liable to pay the quarterly tax until they have received from their customers the price of goods sold to them. This contention is founded upon an assumption that the lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and for the purposes of sales tax, it is immaterial whether the price of goods has been paid to the dealer or is payable to him. The fact that a dealer has sold goods on credit is, therefore, wholly immaterial. The Act imposes the liability to pay sales tax on dealers. This liability is irrespective of the fact whether he has made profit or loss in his business and whether he has received the sale price or not. When the liability to pay sales tax is cast by the statute on the dealer, he may pass on to his customer the amount of tax payable by him but he can only do so as a term of the contract of sale. Unless and until the purchaser agrees to pay to his vendor the amount of sales tax payable by the vendor, he is not bound to pay it to the vendor. Where, however, the purchaser agrees to pay such amount, it forms part of the sale price on which sales tax would be payable to the State. Under the sales tax laws of some States, a dealer is permitted to recover or collect from the purchaser the amount of sales tax payable by him. Even then the dealer can recover or collect such amount only if the purchaser agrees to pay it. In such cases, under those sales tax laws the amount so recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not contain any stipulation as to payment of duty or tax, or in case the goods are sold duty paid or tax paid, where the rate of such duty or tax is increased, to add the extra duty or tax to the contract price. That section also gives a corresponding right to the buyer to deduct so much from the contract price as will be equivalent to the decrease of duty or tax or remitted duty or tax where any decrease or remittance in duty or tax takes place after the making of. the contract of sale. Section 64-A thus provides for the rights and liabilities inter se of a seller and buyer of goods, where any customs or excise duty or any sales tax or purchase tax is imposed or its rate increased or decreased, or such duty or tax remitted in whole or in part after the making of the contract of sale. This section does not deal with the liability of the seller to pay sales tax to the Government. Under section 8-B of the Act, where a registered dealer realises any amount by way of tax from the purchaser, he is required to deposit it in the Government treasury or in the office of the Deputy Sales Tax Commissioner within one month of its realisation. Where a dealer so deposits the tax, he would get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded, under the Act is to be paid in such manner and within such time, not being less than fifteen days from the date of the notice of demand, as may be specified in the notice and it is when default is made in making such payment that the whole of the amount then remaining due becomes recoverable in accordance with sections 16 and 16-A of the Act. Sub-section (2) of section 8 lays down that if the tax or any other amount due under the Act is not paid within the period specified in the notice of demand, the defaulter will become liable to pay interest on the tax or other amount from the date it was payable to the date of actual payment at the rates mentioned in the said sub-section. Under sub-section (3) of section 8, quarterly tax is to be paid before furnishing the quarterly return but not later than the date prescribed under sub-section (2) of section 7. As we have seen, under sub-section (2) of section 7 quarterly returns are to be furnished within thirty days from the expiry of the quarter and such return is to be accompanied by a treasury receipt or any other proof of payment of tax due according to that return. This requirement implies that the tax due according to a quarterl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court in Royal Boot House v. State of Jammu and Kashmir [1984] 56 STC 212 (SC). (C.M.P. Nos. 32413 and 32414 of 1983 decided on January 6, 1984, by P.N. Bhagwati, Ag. C.J., and Venkataramiah and Varadarajan, JJ.) We now turn to the last contention raised before us, namely, that the assessing authority was not entitled to charge interest at the maximum rate but could only charge interest at the graduated rate specified in sub-section (2) of section 8. It appears that in most, if not in all, orders which have been impugned in these petitions and appeals, interest on the amount of quarterly tax not paid in time has been imposed at a uniform rate for the full period of default and not according to the scale of rates prescribed by sub-section (2) of section 8. Thus where the default was for a period exceeding three months but not exceeding six months, interest has been levied for the full period of default at the rate of two per cent per month and where the default was for a period exceeding six months, interest at the rate of three per cent per month has been levied for the entire period of default. In our opinion, this is not warranted by the terms of sub-section (2) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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