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TMI Blog2010 (6) TMI 722X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty under section 27(3) of the Pondicherry General Sales Tax Act, 1967. Heard Mr. R.L. Ramani, learned senior counsel for the petitioner and Mr. R. Natarajan, learned Additional Government Pleader (Pondicherry). The petitioner is a registered dealer under the Pondicherry General Sales Tax Act and Central Sales Tax Act, 1956 for the resale of petroleum products. The petitioner was filing sales tax returns on monthly basis in form A2, as provided under section 18(2) of the Pondicherry General Sales Tax Rules, 1967. In respect of the assessment year 2005-06, the assessing officer issued a pre-assessment notice dated December 7, 2007, on the basis that the verification of the supply details from Hindustan Petroleum Corporation Ltd., revealed suppression of actual turnover. Immediately the petitioner voluntarily remitted the tax due on the differential turnover. Therefore, an order of assessment was passed on January 9, 2009, confirming the proposals made in the pre-assessment notice. (Actually the assessment order dated January 9, 2009 gives the date of the pre-assessment notice as June 5, 2007, though the affidavit of the petitioner in support of this writ petition and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty on the tax found due under the original assessment. However, it is the contention of the respondents that the total and taxable turnover for the year ending March 31, 2006 was reported correctly in the revised return only on February 18, 2009 and that since the correct turnover was not reflected in the monthly returns filed in form A2, the levy of penalty under section 27(3) was in accordance with law. The respondents rely upon the provisions of section 13(2) of the Punjab General Sales Tax Act, 1967 and rule 18(3) of the Punjab General Sales Tax Rules, 1967. The respondents further contend that the waiver of penalty under section 16(3), would not absolve the petitioner of the liability to penalty under section 27(3). The penalty under section 27(3) is nothing but charging of interest on that portion of the tax which remained unpaid due to incorrect monthly returns. The petitioner having retained the tax which ought to have otherwise been paid at the appropriate time, was obliged to pay it along with interest. In order to appreciate the rival contentions, it is necessary to have a look at the scheme of the Pondicherry General Sales Tax Act, 1967. Section 13(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the date of service of the assessment order, apply to the assessing authority for reassessment, along with the correct and complete return as prescribed. On such application the assessing authority shall, if it is satisfied that the failure to submit the return in time or the submission of the incorrect or incomplete return was due to reason beyond the control of the applicant, cancel the assessment made and make a fresh assessment on the basis of the return submitted: Provided that no application shall be entertained under this sub-section unless it is accompanied by satisfactory proof of the payment of tax admitted by the applicant to be due or any such instalment thereof as might have become payable, as the case may be. (2) If the amount of tax on the basis of the cancelled assessment has already been collected and if the amount of tax arrived at as a result of the fresh assessment is different from it, any amount overpaid by the dealer shall be refunded to him without interest, or the further amount of tax, if any, due from him shall be collected in accordance with the provisions of this Act, as the case may be. (3) Penalty, if any, imposed and collected under sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof after the date specified for its payment. A plain reading of section 27(3) shows that in order to attract liability to pay penalty, two conditions are to be satisfied, viz., (i) the tax ought to have been assessed and (ii) the tax so assessed or any instalment thereof, should not have been paid within the time specified for such payment either in the notice of assessment or in the order permitting payment by instalment. The first condition would stand satisfied by any of the modes of assessment, viz.: (i) self-assessment under section 13(1) read with rule 18(2) or (ii) best of judgment assessment under section 13(2) or (iii) a fresh assessment under section 16(1) or (iv) an assessment of escaped turnover under section 18(1) or 18(2). Let us now see how the first condition prescribed in section 27(3) is satisfied in the case of each of these four types of assessments. For a self-assessment under section 13(1) read with rule 18(2), a timelimit is prescribed for payment of the amount reflected in form A2, by rule 18(3) itself. Since rule 18(3) makes it clear that no notice of demand is required, for making payment of the amount of tax reflected in form A2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 27(3) is not punitive but compensatory in nature. This is why, a fixed rate of two per cent per annum is prescribed, unlike section 13(3) which prescribes only the maximum of one and half times. Moreover, section 27(3) does not confer any discretion upon the assessing authority to reduce or waive the penalty prescribed thereunder. Consequently, if a best of judgment assessment is passed under section 13(2) requiring the dealer also to pay penalty under section 13(3) and such dealer fails to make payment, but allows the assessment to become final, he becomes obliged by virtue of section 27(3) to make 3 payments, viz. (i) tax assessed under section 13(2), (ii) penalty imposed under section 13(3) and (iii) penalty imposed under section 27(3). If a fresh assessment is made under section 16(1), the penalty imposed under section 13(3) gets cancelled, by virtue of section 16(3). In such cases, the order of assessment prescribes the amount of tax payable, the amount of tax already paid and the difference if any. If this different is not paid, within the time prescribed, the tax becomes payable together with penalty under section 27(3). Therefore, two things happen when a fresh orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before we find an answer to the above question, it is necessary to understand the essential difference between a levy which is purely punitive and a levy which is compensatory. As pointed out earlier, the levy under sections 13(3) and 18(3) are punitive, while a levy under section 27(3) is compensatory. This is despite the fact that the word penalty is used loosely, in sections 13(3) and 18(3) as well as in section 27(3). None of these provisions uses the word interest , despite the fundamental difference in the nature of the levies prescribed therein. The Tamil Nadu General Sales Tax Act, 1959 contains a similar provision in section 24(3). Before its amendment under Tamil Nadu Act, 22 of 1982, section 24 (3) of the TNGST Act, contemplated by way of penalty a sum calculated at the rate of one rupee for every hundred rupees, if the tax assessed was not paid within the time specified in the notice of assessment. After its amendment, the words by way of penalty was substituted with the words by way of interest . When a batch of cases was filed, challenging the validity of section 24(3) of the TNGST Act, 1959, a Division Bench of this court considered in Sakthi Sugars Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, no difficulty that the tax which is payable on the basis of the return becomes statutorily payable and it also becomes due on the date on which the return has been received or on the last due date under sub-rule (2). The question which arises, however, is, when rule 18(3) makes the tax payable on the date of the return and tax also becomes due on the date of the return, non-payment of the whole or part of the tax becoming payable and due under rule 18(3) will attract the provisions of section 24(3). Undoubtedly, the return has to be provisionally accepted under the terms of sub-rule (3) of rule 18, but the liability under section 24(3) would be attracted only if the case falls expressly within the words of section 24(3). When section 24(3) refers to a notice of assessment, that notice of assessment is the notice which is contemplated by section 12 of the Act read with rule 16 of the Rules which refers to the making of final assessment. . . Therefore, when section 24(3) refers to a notice of assessment, it contemplates a positive act on the part of the assessing authority, calling upon the dealer to pay the tax which has not been paid, and it is only if in spite of such noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilal [1965] 16 STC 318 (SC); AIR 1965 SC 1454. In paragraph 40 of the judgment, the majority (of two-judges) opined that even as per Ghasilal [1965] 16 STC 318 (SC), the tax becomes payable, for the purpose of section 11B, before assessment is made, though it becomes due when return is filed under section 7(2) or ascertained under section 10. Relying upon the observations of Sikri J., in Ghasilal [1965] 16 STC 318 (SC), the majority in Associated Cement Company [1981] 48 STC 466 (SC) held that a tax can become payable, even before assessment is made. However P.N. Bhagwati. J., in his minority opinion held that so long as the assessee pays the amount of tax, which according to him is due on the basis of the return filed by him, there would be no default on his part and that the liability of the assessee to deposit the amount of tax cannot depend upon a future discretionary event of final assessment by the assessing authority. After the amendment to section 24(3) of the TNGST Act, a Division Bench of this court held in Apollo Tubes Limited v. Additional Deputy Commercial Tax Officer [1994] 93 STC 339, that the liability to pay interest is not only automatic but that the section en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether an assessee was liable to pay interest on the turnover tax for the period during which, the recovery of tax was stopped by orders of the court. After distinguishing J.K. Synthetics [1994] 94 STC 422 (SC); [1994] 4 SCC 276 on facts, the Supreme Court held that the challenge to the constitutional validity of a charging provision (which resulted in a stay order and subsequent belated payment), cannot be equated to a dispute as to whether the freight charges would form part of the sale price or not. Similar views, as expressed by the apex court in paragraph 16 of Calcutta Jute Manufacturing Co. [1997] 106 STC 433 (SC), (extracted in the preceding paragraph) were expressed by a Division Bench of this court in E.I.D. Parry (India) Limited v. Assistant Commissioner of Commercial Taxes [2002] 126 STC 399. Though the Division Bench that decided E.I.D. Parry (India) Limited [2002] 126 STC 399 (Mad), did not seek to distinguish the decision of the Constitution Bench in J.K. Synthetics [1994] 94 STC 422 (SC); [1994] 4 SCC 276, another Division Bench distinguished it in Ashok Leyland Limited v. Assistant Commissioner (CT) [2002] 127 STC 73 (Mad). The distinction so made as above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt held in paragraph 13 as follows: . . . In the absence of any assessment, even provisional, and a notice of demand, no interest would be payable under section 24(3) . . . There is no provision under the Act which permits charging of interest unless and until there has been a provisional assessment and a notice of demand prescribing the period within which the tax was to be paid. In paragraph 16, the Supreme Court also held categorically, that the principles laid down in J.K. Synthetics [1994] 94 STC 422 (SC); [1994] 4 SCC 276 would fully apply, even though the provisions of the Tamil Nadu General Sales Tax Act and the Rajasthan Act may not be identical. After holding that the principles in J.K. Synthetics [1994] 94 STC 422 (SC); [1994] 4 SCC 276 would squarely apply even if the Acts are not identical, the Supreme Court went on to hold as follows (at page 25 of 141 STC): . . . The default arising on non-payment of tax on an admitted liability in the case of self-assessment falls under section 24(3) read with rule 18(3) which attracts automatic levy of interest whereas the default in filing incomplete and incorrect return falls under rule 18(4) which attracts best judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted for payment of the tax due, the liability to pay interest arises automatically. The tax due is the cause and interest is the consequence and both stand separated only for a specified period. But unfortunately, in a fiscal statute, it is not the task of the court to go beyond the plain words of the statute and impose a liability upon the dealer, on the ground that the same would subserve the objects of the provision more than a plain reading would do. Section 27(3) does not use the expression within the time prescribed for payment under the Act or the expression from the time the liability to pay tax arises under the Act . If these or any such expressions had been used, a default would certainly arise, even without a notice of assessment prescribing a time for payment. But the expression used is within the time specified in the notice of assessment . There may be a variety of defaults on the part of a dealer. The failure to file a monthly return in time may be a default. The failure to make payment before or along with the return, may be a default. The failure to file a return containing correct and complete particulars, may also be a default. But section 27(3) is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . . The default arising on non-payment of tax on an admitted liability in the case of self-assessment falls under section 24(3) read with rule 18(3) which attracts automatic levy of interest whereas the default in filing incomplete and incorrect return falls under rule 18(4) which attracts best judgment assessment in which the levy of interest is based on the adjudication by the assessing officer. . . Therefore, in a case where the best of judgment assessment under section 13(2) was set aside and a fresh assessment made under section 16(1), leading even to the cancellation of penalty under section 16(3), it may not be possible to charge interest under section 27(3) on the ground that the tax assessed became payable from the date contemplated under rule 18(2). It is true, as contended by the learned Additional Government Pleader that the petitioner is guilty of collection of sales tax from its customers over a period of time and of retaining the same, wilfully or otherwise, thereby enriching itself. But the petitioner has acted cleverly enough (which I suppose he is entitled to), by applying for a fresh assessment under section 16(1), against the best of judgment assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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