9911796707
TMI Blog1969 (9) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... rest at the rate of eighteen per cent. per annum shall run on the amount then remaining due from the date of expiry of the time specified in the said notice, or from the commencement of the said Adhiniyam, as the case may be, and shall be added to the amount of tax and be deemed for all purposes to be part of the tax: Provided that where as a result of appeal, revision or reference, or of any other order of a competent court or authority, the amount of tax is varied, the interest shall be recalculated accordingly: Provided further that the interest on the excess amount of tax payable under an order of enhancement shall run from the date of such order if such excess remains unpaid for six months after the order." (underlined by me) Section 3 of the amending Act introduced section 33 in the Principal Act. It provides that in respect of a sum recoverable under the Act as arrears of land revenue the assessing authority could forward to the Collector a certificate of recovery specifying the sum due. This provision further provides that the certificate would be conclusive evidence of the existence of the liability, the amount of liability and the person so liable. The Collector is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onths after the order. The entire argument of Mr. Kacker is based upon the words "and be deemed for all purposes to be part of the tax". He contends that inasmuch as the law makes the interest a part of the tax, the formalities required for the enforcement of the tax liability must be followed in the case of the enforcement of interest liability also and that inasmuch as in the case of the enforcement of liability of tax simpliciter, a notice of assessment and demand should issue, in the case of interest also a notice of assessment and demand should issue. In support of this contention it has been contended that the language of the statute is clear and that inasmuch as it declares that the interest shall "be deemed for all purposes to be part of the tax", it must be treated to be tax. Learned counsel has contended that there is no reason to whittle down the clear language of section 8(1-A) of the Act. It is contended that the words being clear, full effect should be given to them and the full benefit of the legal fiction should be extended to the petitioners. In this connection it has been contended that in case restricted meanings are given to these words, the result would be th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake the recovery of interest also as arrears of tax whether it be recovery from a living assessee or partners of a dissolved firm (section 3-C) or executors, administrators and other legal representatives of a deceased assessee (section 7-C) or it was the invocation of section 14 of the Act, i.e., to launch prosecution with a view to realise or recover interest. It has been contended on the basis of section 8(8) of the Act that the amount of interest could be recovered as arrears of land revenue under that provision and for that reason the object of creating the legal fiction under section 8(1-A) could not be to recover the interest as arrears of land revenue. Section 8(8) reads: "Any tax or other dues payable to the State Government under this Act, or any amount of money which a person is required to pay to the assessing authority under sub-section (3) or for which he is personally liable to the assessing authority under sub-section (6) shall be recoverable as arrears of land revenue." (underlined by me) The argument is that interest would be comprehended in the expression "other dues" and for that reason it could be recovered as arrears of land revenue even though the legal fic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt then remaining due in contradistinction to the words "determine" the turnover and "assess" the tax used in section 7 of the Act which deals with assessments. The use of the word "run" indicates that the liability to pay interest is automatic and a separate proceeding in respect of it is not required. This conclusion also follows from the words "shall be added to the amount of tax". The addition of interest to the amount of tax is also automatic. Therefore, it appears to me that no separate order for interest is required nor is it necessary to issue a demand notice. Default in payment of the tax would automatically attract the liability of interest being calculated on the amount under default and the liability to pay interest follows from the provisions of section 8(1-A) of the Act and is not dependent on any order passed or proceedings started for the assessment of the amount of interest. (3) The first proviso to section 8(1-A) shows that the matter of interest is one of pure calculation, the word used being "recalculated", and not one of assessment. That being the position, neither an assessment order nor a notice of demand is necessary. (4) It would be noticed that no ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x. In respect of interest, no such considerations exist. The law itself provides that the interest shall run on the unpaid tax at eighteen per cent. and shall be added to it. There is thus only a question of calculation and not one of determination as is the case with the orders of assessment of tax. (7) I find no merits in the submission that if the legal fiction created by section 8(1-A) is confined only to recovery proceedings, the assessee would be without a remedy in respect of interest. The assessee can always resort to the remedy open to him in cases where tax is sought to be recovered in excess of the amount due. While making such objections, he can also say that the interest has been wrongly calculated or charged. The relief in respect of the interest would clearly be consequential and the Sales Tax Officer would have full jurisdiction to go into the matter. No analogy can be drawn from the Income-tax Act, the provisions of the Act and the Income-tax Act being different. Mr. Kacker has placed reliance upon Beni Ram Mool Chand, Perfumers, Kannauj v. Sales Tax Officer, Fatehgarh[1969] 23 S.T.C. 423; 1968 A.L.J. 970. This decision, no doubt, supports his contention, but w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of the Act may first be noticed. Section 3 of the U.P. Sales Tax Act creates liability to sales tax. Under it, every dealer is liable to pay the tax on his turnover of each assessment year which is to be determined in such manner as may be prescribed. Section 7 provides for determination of the turnover and assessment of tax. Section 8 deals with payment and recovery of tax. Under its subsection (1) the tax assessed under the Act is to be paid within such time not being less than 15 days from the date of service of the notice of assessment and demand, as may be specified in the notice. In default of such payment, the whole of the amount remaining due becomes recoverable in accordance with sub-section (8). Under sub-section (8) any tax or other dues payable to the State Government under the Act is recoverable as arrears of land revenue. Section 14 provides for offences and penalties. If a person fails to pay the tax within the permitted time he is liable on conviction to a fine which may extent to Rs. 1,000. Under sub-section (2) such a person is also liable to punishment with simple imprisonment which may extend to six months if he evades payment of tax. These provisions di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtificate conclusive. The assessee cannot dispute his liability before the Collector. The assessee would, therefore, be without any remedy. Cases may arise involving serious dispute between the revenue and the assessee as to the chargeability or the quantum of interest; but the assessee would have no forum for adjudication of his pleas. It was also submitted that the Legislature could not have contemplated the incorporation of the legal fiction only for the purposes of recovery, because under sub-section (8) of section 8, not only the tax but "other dues" payable under the Act are also recoverable as arrears of land revenue. The interest would certainly be dues payable under the Act. It was hence unnecessary to provide for the same thing by creating a legal fiction. In my opinion sub-section (1-A) does not require the assessment of interest. Section 7 of the Act authorises the levy of tax. The subjectmatter of the tax is the turnover, which is required by section 7 to be determined by the assessing authority on the basis of the return filed by the assessee. The tax is, even though its rate is fixed by the Act, required to be assessed on the turnover. The liability to pay the tax ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest, but at once is deemed to merge into and swell the amount of the unpaid tax, for all purposes. The idea appears to be to make the interest payable or recoverable along with the unpaid tax, at the same time, without any further ado. Separate recovery proceedings are not needed. This was one purpose to be subserved by the legal fiction. The Act by section 3-C fastens liability of a dissolved firm to pay tax and penalty, on its partners. It does not apply to interest. In order to attract section 3-C to interest, the legal fiction to make it part of the unpaid tax became necessary. Under section 7-C, the executor, administrator or other legal representative of the deceased is liable to pay the tax due from the deceased. On its language, this provision also deals with tax alone. So, to fix the liability to pay interest on the executors etc., interest was made part of the tax. This was another purpose. Similarly the penalty and prosecution provisions of section 14 will become applicable. In my opinion, the phrase "for all purposes" was meant to attract the provisions which otherwise would not have applied to interest, as well as to facilitate recovery. The other aspect emphasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order for the interest followed by a fresh notice of demand would entail a great deal of practical difficulties. Under section 8(1-A) interest runs from the mentioned date till the date of actual payment of the tax. Until the date of payment is known, the exact amount payable as interest cannot be found. Consequently, a complete assessment order cannot be passed. Further, even if the original demand of tax has been paid, but the interest which may have accrued thereon till then, has not been paid, its non-payment would entail the accrual of interest under sub-section (1-A). Before this further interest can be recovered, another assessment order would be required. Since the amount of interest has not been paid, an assessment order cannot be passed indicating any specific amount as the additional interest. In pratice, it will be virtually impossible to conclude a particular case. For all these reasons I am not inclined to accept the submission advanced on behalf of the petitioner that the making of an assessment order and the issuance of a notice of demand were conditions precedent to the recovery of penal interest. The decision in Beni Ram Mool Chand's case[1969] 23 S.T.C. 42 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1957-58 and 1958-59 under two separate assessment orders dated 10th June, 1959, and 12th February, 1963, levying Rs. 3,62,725 and Rs. 81,994 as tax for the two years respectively. The petitioner had applied for composition of the sales tax under section 7F of the Act and the Commissioner of Sales Tax had stayed the recovery of the tax during the pendency of the petitioner's application for composition. According to the petitioner's allegation without deciding its application for composition and without any prior notice to it, the State Government by its order dated 25th May, 1967, vacated the stay order. Consequent upon the cancellation of the stay order, the Sales Tax Officer, Allahabad, issued to the Collector of Allahabad two recovery certificates-one dated 9th October, 1967, and the other dated 25th October, 1967, requiring the Collector to recover from the petitioners as arrears of land revenue, the arrears of sales tax which at that time stood at Rs. 1,65,648 and Rs, 26,238 for the two years respectively. In the recovery certificates there is a direction that the Collector should realise, besides the arrears of sales tax mentioned therein, the interest at the rate of 18 per c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e commencement of the said Adhiniyam, as the case may be, and shall be added to the amount of tax and be deemed for all purposes to be part of the tax: (underlining is mine) Provided that where as a result of appeal, revision or reference, or of any other order of a competent court or authority, the amount of tax is varied, the interest shall be recalculated accordingly: Provided further that the interest on the excess amount of tax payable under an order of enhancement shall run from the date of such order if such excess remains unpaid for six months after the order." The plain purpose of this amendment appears to be to levy interest at a rate which appears to be penal in character in order to exert pressure on the defaulters to pay up the arrears of tax. But while enacting this provision the Legislature has incorporated a legal fiction to the effect that the interest so imposed "shall be deemed for all purposes to be part of the tax". The question arises as to what is the purpose, scope and the effect of this legal fiction. While this question came up before brother Pathak, J., and myself, I expressed the opinion that one of the effects of the legal fiction would be that inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or other dues payable to the State Government under this Act, or any amount of money which a person is required to pay to the assessing authority under sub-section (3) or for which he is personally liable to the assessing authority under sub-section (6) shall be recoverable as arrears of land revenue." The "other dues" mentioned in sub-section (8) of section 8 are obviously penalty, composition fee, exemption fee and interest. Previously, there was no provision in the Act requiring the Sales Tax Officer to forward to the Collector a certificate of recovery authorising him to recover the amount due from the assessee as arrears of land revenue. Such a provision has, however, now to be found in section 33 which has been added by U.P. Act No. 3 of 1964 which introduces the provisions relating to levy of interest, viz., sub-section (1-A) of section 8. Section 33 provides: "Section 33. Further provisions regarding recovery.-In respect of any sum recoverable under this Act as arrears of land revenue the assessing authority may forward to the Collector a certificate under his signature specifying the sum due. Such certificate shall be conclusive evidence of the existence of the liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dues as arrears of land revenue is not restricted to the sales tax only. But it comprehends "other dues" payable to the Government. The term "other dues" would obviously include interest also. That being the position, there was no necessity at all for the Legislature to have enacted the legal fiction for the purposes of realising interest as arrears of land revenue because that purpose could be achieved by the already existing provision in section 8(8). The second contention is that the legal fiction would operate only. at the time when the Sales Tax Officer commences proceedings for the recovery of sales tax as arrears of land revenue. This contention is again unsound and, if accepted, would lead to anomalous result. For instance, in a case where the tax has already been paid, there will be no occasion for the Sales Tax Officer to commence recovery proceeding and the legal fiction would become inoperative with the result that the interest which might have been payable by the assessee by reason of his having delayed the payment of the tax for more than six months, would not be recoverable as arrears of land revenue. That would defeat the very purpose for which the legal fiction is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that something which is unreal, is treated to be real and all facts necessary for the operation of such a legal fiction must be deemed to exist and the consequences which ensue as a result of such a fiction must also be given effect to. In this connection reference may be made to the following observations of Lord Asquith of Bishopstone in East End Dwellings Co. Ltd. v. Finsbury Borough Council[1952] A.C. 109 at 130.: "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of those in this case is emanicipation from 1939 level of rents. The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." This observation of Lord Asquith of Bishopstone has become classical and has been cited with approval by the Supreme Court in cases which are a legion. To quote some of such cases under the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision for rectification of an apparent error under section 22, become available in respect of interest also. Yet another result which would ensure would be to attract the provisions contained in sections 3-C and 7-C of the Act and the partners of a dissolved firm or the legal representative of a deceased assessee would be liable to interest also in the same manner as they would be liable for the payment of the tax I cannot persuade myself to believe that it could have been the intention of the Legislature to prevent these consequences ensuing from the legal fiction. On behalf of the opposite parties it is contended that the levy of interest is automatic requiring no assessment or any other order inasmuch as the rate of interest being fixed and the arrears of sales tax being known, ascertainment of the quantum of interest would involve merely a simple arithmetical calculation. I find no substance in this argument. The word "assessment" is a comprehensive word, at least it is so understood under the Income-tax Act. It may mean either the entire process of determination of the income and the assessment of tax or it may mean only the calculation of tax. The fact that rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion, makes available to him such a forum, as already discussed above. In reply it was suggested that no forum was necessary because interest being directly linked with the amount of the tax, the assessee would automatically get relief, if the amount of tax is reduced in appeal or other proceedings. That argument is plainly wrong. There might be cases where there may be no dispute about the tax at all and the dispute may relate only to levy of interest. The instant case is an example of that type. The petitioner has not disputed the quantum of tax which in fact it has already paid up. It disputes the levy of interest only. It was then suggested that a remedy under section 22 may be open to an assessee in case there is a mistake in the calculation of interest. There is no substance in that contention either. Section 22 applies only where an order is sought to be rectified and if according to the contention of the opposite parties, no order levying interest is contemplated, section 22 goes out of the picture. The same is true about the argument that a revision under section 10 may lie. That section also applies where the revising authority has to satisfy itself as to the legality or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the State appears to have been labouring throughout when he argued that as the interest runs from day to day, the Sales Tax Officer will be required to issue a notice of demand every day in order to make the assessee liable for interest. That is not so. There is a distinction between the liability of an assessee to pay interest and the mode in which it is recovered. The liability to pay interest is imposed by the statute and it continues, just as in the case of any other creditor, until the debt is paid. In order to create such a liability, it is not necessary to issue any notice of demand. But the necessity of issuing a notice of demand arises when the interest is sought to be recovered through the coercive machinery provided under the Act. There are several modes in which the interest may be realised from an assessee. Section 8(8) is not exhaustive but provides only one of such modes which is of a summary nature. The State may enforce the liability by means of a suit or by other means open to it under the general law. In such a case it would not be necessary for the State to issue any notice of demand, but if the State wishes to enforce the liability through the summ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt on which interest was payable under this section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded. (3) Without prejudice to the provisions contained in sub-section (2), on an application made by the assessee before the expiry of the due date under sub-section (1), the Income-tax Officer may extend the time for payment or allow payment by instalments, subject to such conditions as he may think fit to impose in the circumstances of the case. (4) If the amount is not paid within the time limited under subsection (1) or extended under sub-section (3), as the case may be, at the place and to the person mentioned in the said notice the assessee shall be deemed to be in default." Section 222 reads: "222. Certificate to Tax Recovery Officer.-(1) When an assessee is in default or is deemed to be in default in making a payment of tax, the Income-tax Officer may forward to the Tax Recovery Officer a certificate under his signature specifying the amount of arrears due from the assessee, and the Tax Recovery Officer on receipt of such certificate, shall proceed to recover from such assessee the amount specified there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is, however, one difference so far as the recovery is concerned. It would be noticed that under section 222 recovery certificate is issued when the assessee is in default in making payment of the tax. Interest, penalty or other dues are not mentioned therein. From this omission it might appear that recovery proceedings can be taken against an assessee only in respect of the arrears of tax. But this omission has been made good by the Legislature in section 229 which says: "229. Recovery of penalties, fine, interest and other sums.-Any sum imposed by way of interest, fine, penalty, or any other sum payable under the provisions of this Act, shall be recoverable in the manner provided in this Chapter for the recovery of arrears of tax." The procedure under the Income-tax Act for the levy and collection of interest is, therefore, completely identical with the procedure prescribed under the U.P. Sales Tax Act and no one has ever contended that under the Income-tax Act, the Income-tax Officer can proceed to recover the interest from an assessee without following the procedure for the recovery of income-tax. The last distinction that was pointed out between the scheme of the two Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds. Therefore even if one was to assume everything else against the petitioner, the petitioner would still be entitled to succeed on the simple ground that the amount of interest not having been specified in the recovery certificates the recovery proceedings are bad in law. Looking at the matter from that view, the question which has been referred to the Full Bench to my mind is rather hypothetical, couched as it is in an abstract form divorced from the facts of the case and in any case is too widely stated. I would, therefore, prefer to reframe the question to read: "Whether on the facts and circumstances of the case the proceedings for the recovery of interest from the petitioner by the Collector are valid?" and would answer it in the negative. The wider proposition of law embodied in the question referred is comprehensive and goes beyond the scope of the controversy which arises in this and the connected cases. However, as I have dealt with it quite exhaustively I would not hesitate to answer the question referred to the Full Bench. My answer is: "In order to recover the interest under section 8(1-A) of the U.P. Sales Tax Act as arrears of land revenue, it is necessary for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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