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TMI Blog2009 (10) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent in form No. 29, demanding interest under section 24(3) of the Tamil Nadu General Sales Tax Act, 1959, in respect of the assessment years 1992-93, 1993-94, 1994-95, 1995-96 and 1996-97. Heard Mrs. R. Hemalatha, learned counsel appearing for the petitioner and Mr. R. Mahadevan, learned Additional Government Pleader (Taxes) for the respondent. In respect of the assessment years 1992-93, 1993-94 and 1994-95, the petitioner reported a total and taxable turnover in the monthly returns filed in form A1. However, their accounts were called for and checked by the respondent and thereafter, revised assessment orders were passed on February 20, 1995, February 20, 1995 and June 5, 1996, respectively. After 11 years of the passing of those orders, the petitioner filed applications under section 16D before the Special Committee, in 2007, but the Special Committee rejected the applications, by orders dated October 30, 2007 passed in SCP Nos. 117, 115 and 116 of 2007 in respect of the assessment years 1992-93, 1993-94 and 1994-95, respectively. Thereafter, the petitioner filed writ petitions in W.P. Nos. 902, 907 and 963 of 2008. Those writ petitions were allowed by this court, by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2007, on the ground that the cancellation of registration certificate led to inter-State purchases of cotton being treated as local purchases and that since registration had been obtained afresh, the petitioner could be given an opportunity. In pursuance of the orders of the Special Committee, the assessing officer reopened the assessment and passed fresh orders of assessment on March 26, 2009 and April 28, 2009 in respect of the assessment years 1995-96 and 1996-97. Consequent upon the fresh orders of assessment, the assessing officer issued form 29 demanding interest under section 24(3) for the belated payment of tax. Therefore challenging this demand for interest, the petitioner has filed two writ petitions in W.P. Nos. 16150 and 16223 of 2009. Since all the writ petitions raise a common question as to the liability of the petitioner to pay interest, all of them were taken up together for disposal. The assessment orders, relating to the five assessment years, viz., 1992-93, 1993-94, 1994-95, 1995-96 and 1996-97, have now attained finality, in the sense that the time-limit for filing statutory appeals have expired and the petitioner has not filed any statutory appeal agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l order of assessment, so as to attract interest under section 24(3). In paragraph 9 of its decision in Philips India [2004] 136 STC 636, the Supreme Court held that once the original assessments are set aside and remanded for re-computation, the original orders ceased to exist and that therefore the liability would be to pay the amount before the date set out in the fresh notices. Therefore, the learned counsel for the petitioner contended that the demand under section 24(3) is unsustainable. The issue of interest on belated payment of tax has always been a vexed one, with judicial decisions swinging from one extreme to the other. The reason for the judicial mind acting like a pendulum, on this issue, is perhaps the fact that many times courts were confronted either with the question of penalty (not interest) or with genuine disputes which led to non-payment/belated payment of tax. In State of Rajasthan v. Ghasilal [1965] 16 STC 318; AIR 1965 SC 1454, a Constitution Bench of the Supreme Court, while considering the liability to pay penalty, held that till the tax payable is ascertained by the assessing authority under section 10 or by the assessee under section 7(2) (of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the statutory liability under section 11B(a) arises wherever there is default in payment of the tax within the period allowed by law irrespective of any doubt which an assessee may be entertaining about the liability to pay the tax. 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. Therefore, he held that where the assessee paid the full amount of tax due as per the return filed by him, no interest would be leviable on the tax further payable by him in the revised returns on account of freight charges being included. In so far as the Tamil Nadu General Sales Tax Act, 1959 is concerned, section 12(3) imposes penalty and section 24(3) levies interest. In Sakthi Sugars Ltd. v. Assistant Commissioner of Commercial Taxes [1985] 59 STC 52, a Division Bench of this court considered the constitutional validity of section 24(3) and held that the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the dealers liable to pay tax under the statute. Section 11B provides for levy of interest on failure of the dealer to pay tax due under the Act and within the time allowed. Should this provision be strictly construed or should it receive a broad and liberal construction, is a question which we will have to consider in determining the sweep of the said provision. . . After pointing out in paragraph 16 that ordinarily the charging section which fixes the liability is strictly construed, while the rule of strict construction is not extended to the machinery provisions, the Bench held that the machinery provisions must be so construed as would effectuate the object and purpose of the statute and not defeat the same. But the Bench also made a small distinction, between other machinery provisions and the provision relating to levy of interest, in the following words (at page 437 of 94 STC): . . . But it must also be realised that provision by which the authority is empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage, interest can be levied under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee to predicate the final assessment and expect him to pay the tax on that basis to avoid the liability to pay interest. That would be asking him to do the near impossible. Therefore, the Constitution Bench in J.K. Synthetics [1994] 94 STC 422 (SC); [1994] 4 SCC 276, overruled the majority view in Associated Cement Co. [1981] 48 STC 466 (SC); [1981] 4 SCC 578 and upheld the minority view of Bhagwati, J. However, the decision in J.K. Synthetics [1994] 94 STC 422 (SC); [1994] 4 SCC 276, was distinguished by a Division Bench of this court in Godrej Boyce Manufacturing Co. Ltd. v. Joint Commissioner of Commercial Taxes [1995] 97 STC 44, on the ground that the provisions of sections 7(2), 7(2A) and 11B of the Rajasthan Sales Tax Act, are not in pari materia with the provisions of sections 13(2), 24(1) and 24(3) of the Tamil Nadu Act and rule 18(2) of the Tamil Nadu Rules. The Division Bench, after distinguishing J. K. Synthetics [1994] 94 STC 422 (SC); [1994] 4 SCC 276, chose to follow the earlier Division Bench in Apollo Tubes [1994] 93 STC 339 (Mad) and held that there need not be an order of assessment, before interest is levied under section 24(3) of the Act. Again i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n including therein the correct taxable turnover admitting the liability for payment of further amounts by way of tax, and then claim that it is not liable for payment of any interest for the delay in remitting the tax from the date of original return to the date of the revised return. 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 J. K. Synthetics [1994] 94 STC 422 (SC); [1994] 4 SCC 276 on the following lines, in Ashok Leyland Limited v. Assitant Commissioner (CT) [2002] 127 STC 73 (Mad) (at page 90 of 127 STC): Thus, the language employed in the Tamil Nadu provision as 'actual turnover for each month' and the requirement of the provision that the dealer has to furnish the return showing his 'actual turnover for each month' and pay tax on the basis of such return is in contradistinction to the expression employed the 'tax payable' under section 11B of the Rajasthan Act, which only mean the full amount of tax becomes due under sub-sections ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity had to determine the tax payable and issue a notice of demand, without which no interest would be payable under section 24(3). With such a premise, the Supreme Court 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. It requires a deeper examination to find out if this opinion of the apex court, by implication, overrules the consistent view taken by the various Division Benches of this court right from Apollo Tubes [1994] 93 STC 339 up to E.I.D. Parry (India) Limited [2002] 126 STC 399 (Mad), on the basis that both Acts are not in pari materia. Since that question does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax under sub-section (2) of section 13 shall be paid without any notice of demand. In default of such payment the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or interest under this Act. (2) Any tax assessed on or has become payable by, or any other amount due under this Act from a dealer or person and any fee due from him under this Act, shall, subject to the claim of the Government in respect of land revenue and the claim of the land development bank in regard to the property mortgaged to it under section 28(2) of the Tamil Nadu Co-operative Land Development Banks Act, 1934 (Tamil Nadu Act 10 of 1934), have priority over all other claims against the property of the said dealer or person and the same may without prejudice to any other mode of collection be recovered, (a) as land revenue; or (b) on application to any magistrate, by such magistrate as if it were a fine imposed by him: Provided that no proceedings for such recovery shall be taken or continued as long as he has, in regard to the payment of such tax, other amount or fee, as the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount had been specified in the order of assessment. The second proviso to sub-section (3) of section 24, as seen from its plain language, operates at two levels, viz., (i) the interest payable on the amount in dispute in the appeal or revision, is postponed till the disposal of the appeal or revision, whenever an appeal or revision is filed and (ii) the interest in such cases will be worked out on the basis of the order passed in the appeal or revision, as if such amount had been specified in the order of assessment. Three things are indicated, in clear terms, by the second proviso and they are as follows: (i) The liability to pay interest is merely postponed, if an appeal or revision is filed. In other words, the liability arises even at the first instance, but its payment stands postponed till the disposal of the appeal or revision. (ii) What is postponed is only the interest component on the disputed amount alone. The liability to pay tax is not postponed (unless there was stay). The liability to pay interest if any, on the amount which is not the subject-matter of the appeal or revision is also not postponed. In other words, the admitted tax should have been paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cause and interest is the consequence and both stand separated only for a specified period. The decision in Philips India [2004] 136 STC 636 (SC), relied upon by the learned counsel for the petitioner, arose out of the demand for interest made after the orders of the appellate authority, directing re-computation, which ultimately resulted in reduction of tax. But as pointed out earlier, the Supreme Court was concerned in Philips India [2004] 136 STC 636 (SC) with section 10A of the Bengal Finance (Sales Tax) Act, 1941. The said section 10A read as follows: 10A. Interest payable by dealer. (1) Where a registered or certified dealer furnishes a return referred to in section 10 in respect of any period by the prescribed date or thereafter, but fails to make full payment of tax payable in respect of such period by such prescribed date, he shall pay a simple interest at the rate of two per centum for each English calendar month of default from the first day of such month next following the prescribed date up to the month preceding the month of full payment of such tax or up to the month prior to the month of assessment under section 11 in respect of such period, whichever i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of tax payable by him according to such notice as remains unpaid at the commencement of each such month. (4) Where as a result of an order under section 20 or section 21 the amount of tax payable is reduced, the interest payable under subsection (3) shall be determined or redetermined on the basis of such reduced amount and the excess interest paid, if any, shall be refunded. A comparative study of section 10A of the Bengal Act, which fell for consideration in Philips India [2004] 136 STC 636 (SC), and section 24(3) of the TNGST Act, 1959, shows that section 10A(4) of the Bengal Act, stands on a different footing from the second proviso to sub-section (3) of section 24 of the TNGST Act, 1959. Section 10A(4) of the Bengal Act, states in simple terms that if the amount of tax payable is reduced on appeal or revision, the interest should be re-determined on the basis of the reduced amount of tax. On the contrary, the second proviso to section 24(3), as pointed out earlier, makes three things very clear, viz., (i) that the liability to pay interest is just postponed, (ii) that what is postponed is only the interest component of the disputed tax and not the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve assessment years, is not in respect of the entire total and taxable turnover, but only in respect of a portion thereof. Since the second proviso enables postponement of payment of only the disputed tax, the petitioner ought to have paid at least the tax on the turnover not in dispute. Admittedly, in the cases on hand, the petitioner did not even pay the tax on the admitted turnover. Therefore, the petitioner cannot take refuge under the theory of merger and contend that the original order of assessment stood erased. To recapitulate the facts, the orders of assessment for the assessment years 1992-93, 1993-94 and 1994-95 were passed on February 20, 1995, February 20, 1995 and June 5, 1996. For a period of more than 10 years, the petitioner did not challenge these orders. It was only in the year 2007 that the petitioner filed applications before the Special Committee under section 16D. These applications were rejected by orders dated October 30, 2007. The orders of the Special Committee alone were set aside by this court and the matter remitted back to the assessing officer, on condition that the petitioner pays the entire amount of tax. The orders of assessment dated February ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an in-built safeguard. Section 24(3) makes a dealer liable to pay interest if the tax due is not paid either within the date specified in sub-section (1) or within the date specified in the order permitting payment in instalments. Deferral scheme is nothing but a scheme of postponement of the tax due. Therefore section 17A(2) has a correlation to what is stipulated in section 24(3). But the moment a dealer commits breach of the conditions laid down under the deferral scheme, the protection granted under section 17A(2) would go, since the very availability of the benefit under section 17A(2) is made contingent upon the satisfactory compliance with the conditions laid down in the deferral scheme. Admittedly, the petitioner in this case, has defaulted in payment of the amounts, as per the deferral scheme. Therefore, the protection under section 17A(2) is no more available to them. Hence the second contention of the petitioner also cannot be accepted. Third contention The third contention of the petitioner is that there cannot be any liability to pay interest on the disputed portion of the tax, till the dispute is resolved. But the answer to this contention is also found in t ..... 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