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TMI Blog1952 (12) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... S.N. Bhattacharya, a Barrister-at-Law practising in this Court, was appointed Official Liqui- dator. The Liquidator had the list of creditors settled and made some realisations and at that stage a certificate, demanding payment of a sum of Rs. 760-10-9 as arrears of sales tax due from the company for the four quarters ending on the 31st March, 1948, was served on him. As far as it appears from the papers before us, the Sales Tax Authorities did not previously make any attempt to prove their claim in the liquidation. The assets of the company are sufficient to pay the preferential creditors in full, including the Sales Tax Authorities, if they are allowed to rank as such, but the Official Liquidator thought that they were not entitled to any preferential payment, but only entitled to share in the distribution as unsecured creditors. Accordingly, on the 8th May, 1952, he took out a Master's Summons in respect of an application to be made by him to the Court for directions in regard to the payment of the sales tax demand and other directions. The application came to be heard by Banerjee, J., who made the present reference. The facts relating to the sales tax demand did not appear fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate or to local authority, due from the company at the date hereinafter men- tioned and having become due and payable within the twelve months next before that date." "The date hereinafter mentioned" is, under sub-section (5)(a) of the section, the date of the winding-up order in the case of a compulsory winding up of a company which had not previously commenced to be wound up voluntarily, as is the case here. It is clear that in order to be entitled to priority, the amount of the certificate must first come under one or other of the categories mentioned in Section 230(1)(a). There can be no question that out of it, a sum of Rs. 759-8-9 is tax. But even that amount must satisfy two other condi- tions, viz., (i) it must have been due at the date of the winding up order and (ii) it must have become due and payable within twelve months before that date. If it satisfies both of those conditions, it cannot be denied preferential payment, but if it fails to satisfy either of them, it cannot claim priority. The small balance of Rs. 1-2-0 must be left out of account, because whatever it may be, it is not tax, nor was it due at the date of the winding up order. It will make for clarity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich gave rise to the tax were made and ultimately he submitted that it became due and payable when returns for the quarters concerned became due to be filed. The dealer in the present case was a registered dealer, liable to furnish quarterly returns and under Rule 21 of the rules framed under the Act, such returns were to be filed within thirty days from the expiry of each quarter. The last of the quarters concerned in the present case ended on the 31st March, 1948, and the return for that quarter was required to be filed on or before the 30th April, 1948. Accordingly, if the sales tax for a particular quarter became due and payable when the return for that quarter became due to be filed, the latest date on which the tax in the present case could be said to have become due and payable was the 30th April, 1948, by which date the return for the last of the four quarters had to be filed and that date was much more than twelve months from the date of the winding-up order. A short answer to Mr. Chaudhuri's contention is that we are not concerned in this case with the whole of the tax for which the company became liable on the sales made by it during the four quarters in question, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return furnished appears to be incorrect and incomplete, but those two cases are provided for in the Indian Act in Section 23 (4) and Section 23(3) and the effect of an assessment and the steps to be taken subsequently are common to all types of assessment under the section. In the case before the Judicial Committee, the assessment was one under Section 23 (4). In view of the complete identity between the provisions of the two Acts regarding assessed taxes, I see no reason why the principle enunciated by the Judi- cial Committee should not apply to the sum of Rs. 759-8-9 involved in the present case which is due under an assessment. Mr. Chaudhuri (1) [1945] 13 I.T.R. 285; 49 C.W.N. 334. contended that there was some difference between the two Acts in that an assessee. not paying the assessed income-tax within the time mentioned in Section 45 of the Income-tax Act, was to be deemed a defaulter, whereas there was no such provision in the Bengal Act or the rules framed thereunder. I do not think that it was the presence of the words "in default" in Section 45 which was the reason for the judicial Com- mittee's view that the tax was due when a demand was made under Sections 29 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the returns but on an assessment being made, a further amount was charged, such further amount bore different character, but was a part of the whole amount, chargeable in law on the sales, which had become due and payable before the assessment. No practical question can ever arise under Section 230(1)(a) of the Indian Companies Act with regard to amounts of sales tax paid along with the returns. Having been paid, they do not survive as debts and there can be no question of any priority being claimed in respect of them in a liquidation. It is therefore prima facie futile to enquire about the true character of any amount of sales tax other than amounts due under assessments, except perhaps in a case where a return has been submitted under Section 10(3), but no payment or full payment according to the return has been made as required by the section and there has also been no assessment. That a case where a return is made without full pay- ment according to it, may occur, is indicated by Section 11(3) of the Act. In such a case, if a winding-up order is made before an assessment has taken place, a practical question may arise as to whether the admitted liability under the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf registered. Under Section 10(2), every registered dealer must furnish such returns by such dates as may be pres- cribed and under Rule 21, the class of dealers to which the company in the present case belongs, are to furnish returns quarterly within thirty days from the expiry of each quarter. Under Section 10(1), the tax payable under the Act must be paid "in the manner hereinafter provided at such intervals as may be prescribed". Under Section 10(3) every registered dealer must, before he furnishes returns, pay into the Treasury or the Reserve Bank of India, "the full amount of tax due from him under the Act according to such returns" and file, along with the returns, a receipt showing the payment of such amount. Under Rule 36, every dealer for whom quarterly returns have been prescribed must pay the tax due for any quarter before furnishing the return for that quarter. When a mistake or omission is discovered in a return, a revised return may be furnished under Section 10(4) before the date of the next return and when further tax is payable according to such revised return, it must be accompanied by a receipt showing the payment of the extra amount. Section 11(1) provides tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e other hand, spoke only of "tax due under this Act according to such returns" and what it contemplated was not tax truly payable under the Act at all, but only what the dealer believed to be payable by him. It was only an estimated sum offered by the dealer himself. The tax really payable under the Act was dealt with in Section 11(3)(b) and that became due and payable only when, after an assessment, a demand was made. I do not think the case cited by Mr. Chaudhuri is of much assistance to him. It was concerned with a local rate and with regard to rates, it is well-settled that they become payable as soon as they are "made and published", whether they are demanded or not: Davis v. Burrell(2). As Cockburn, C.J., said in R. v. Price(3) "the rate itself is an order to pay". With regard to a rate, therefore, there has to be a payment as soon as it accrues due and it was for that reason that the Court of Appeal held in the case cited by Mr. Chaudhuri that an increase of a rate in respect of a period prior to a receiving order, but made on appeal after the order, which, under a certain statutory provision took effect as from the com- mencement of the period, became due and payable before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole amount of tax due on the sales during the period, "is payable". To my mind, it is clear that the tax becomes really payable as such only at that point of time when the tax is declared to be payable and the balance out- standing demanded. The learned Advocate-General was perhaps not strictly correct in saying that subsection (1) of Section 10 stood by itself, because the manner provided for in sub-section (3) is also a manner of paying the tax. But it is paying it on account, as it were, on the dealer's own estimate of the possible liability, subject to adjustment if need be and the provision for such payment is no indication that the tax has already become due and payable. It may well be that the dealer over- estimates his liability or even makes a payment, although in fact there is no taxable turnover and no liability to pay anything at all. If Mr. Chaudhuri's contention be correct and whatever is paid according to the return and before the return is furnished, is tax due and payable, the amount wrongly paid in the above circumstances would also be tax due and payable under the Act which is plainly absurd. Indeed, it is not possible to see how the amount paid under Section 10( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the reasoning of Mr. Chaudhuri, there is a debt which is due and payable. In my opinion, the absurdity of such a situation is clear proof that at least for the purposes of Section 230(1)(a), a tax debt is due and payable only when it he has been ascertained, quantified and notified to the assessee with a demand for payment and that seems to me to be the effect of the Sales Tax Act itself, as much as of the Income-tax Act. The above is the result of a negative approach to the question. Looking at the matter from the positive point of view, it is clear that in a case where the full amount of tax according to the returns was paid at the time when the returns were furnished, there cannot be any further tax claim or tax debt except on the basis of an assessment, since made. In such a case, the appropriate amount of tax according to the returns having been paid, the dealer does not think that there is anything more to pay and the Department also cannot claim anything further forthwith. At that stage, therefore, there is no tax debt due and payable, at least none that is payable in the sense of having to be paid. It is only when an assessment is made thereafter and the amount paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and the tax is calculated thereon at the prescribed rates. Every man who goes to a shop and buys an article is of course familiar with this item of taxation. It is entered with alacrity by the dealer at the bottom of the Bill under the heading "Sales Tax", and the purchaser pays it, ruefully if he is a mere man, or with a justifiable glow of pride if he is a citizen who likes to feel that he is doing his bit to keep the wheels of administration running. It has however been held authoritatively that in paying what is styled as "Sales Tax" the pur- chaser is paying no tax at all. The tax is leviable not on him but the dealer, who merely increases his price and seeks to pass on the burden to the purchaser. Whether the dealer in his turn pays it over to the Govern- ment as "Sales Tax", properly so-called, is however entirely a different story. But the instant problem before us arises from the fact that the dealer in this case was a limited company, "Recols (India) Ltd." which has gone into liquidation by an order of this Court, dated the 18th July, 1950. Prior to the winding-up proceedings which commenced on the 25th May, 1950, the company had filed returns on the 2nd of April, 1948, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gross turnover, the returns to be furnished by such dealer under this sub-section shall be annual returns. (3) Before any registered dealer furnishes the returns required by sub-section (2), he shall, in the prescribed manner, pay into a Govern- ment Treasury or the Reserve Bank of India the full amount of tax due from him under this Act according to such returns, and shall furnish along with the returns a receipt from such Treasury or Bank showing the pay- ment of such amount. (4) If any dealer discovers any omission or other error in any return furnished by him, he may at any time before the date prescribed for the furnishing of the next return by him furnish a revised return; and if the revised return shows a greater amount of tax to be due than was shown in the original return, it shall be accompanied by a receipt showing payment in the manner provided in sub-section (3) of the extra amount." Section 11 is the assessment section. But here there is a marked departure from the assessment in case of income-tax. In the case of income-tax, an assessment must always be made and as has been pointed out by the Privy Council in Doorga Prosad v. Secretary of State(1), although income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderstand him, he argues that a tax is due and payable when a person is compelled to pay it, and this under Section 10, is the point of time exactly before he has to file his return under Section 10 of the Act. Learned counsel has put great stress upon the wording of Section 10(1) which runs as follows:" Tax payable under the Act shall be paid in the manner hereinafter provided at such intervals as may be prescribed". It is argued that the section clearly lays down when the tax payable under the Act was to be paid, so that it was unnecessary to enter into any further investigation. It is pointed out that the word "hereinafter" can only refer to the provisions of sub-section (3) and the reference is quite clear, as the only interval prescribed is in Rules 17 to 25 of the Act and refers to the return to be made. Under Section 10(3), the amount is to be paid before the return is filed. In fact, under Rule 43, unless a receipt of payment is produced, no return can be accepted. It is further pointed out that sub-section (3) requires that the "full amount of tax due from him under the Act according to such return" shall be paid. The learned Advocate-General argues that the word "hereinaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount must be a specific sum and secondly, it must become legally recoverable, or in other words, the creditor must acquire the right to enforce immediate payment. When a dealer files his return under Section 10, he has himself determined the amount payable by him and paid it. To the extent he has admitted liability, the amount becomes immediately payable and indeed Section 10 prescribes that he is bound to pay it at once into a Government Treasury or the Reserve Bank of India, and under Rule 43, he must attach a copy of the receipted challan to his return, or else the return will not be accepted. Therefore both the tests are satisfied. The amount is a specific sum and no question of recovery arises as it has already been paid. Sup- pose the dealer has filed a correct return and paid in the entire sum, no further question can arise of proceeding under Section 11. Can it be said then that no part of the tax due under the Act had become payable when it was paid? I do not think so. Under no circumstances can it be called advance payment, which it must necessarily be, if it had not become payable when it was paid. If however he has paid in excess, the excess amount is not a payme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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