Madras High Court
M/S.Jagadeeswaran Textiles (P) Ltd vs The Commercial Tax Officer on 20 October, 2009
Author: V. Ramasubramanian
Bench: V. Ramasubramanian
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 20-10-2009 CORAM: THE HONOURABLE MR. JUSTICE V. RAMASUBRAMANIAN W.P.Nos.15265, 15546, 15818, 16150 and 16223 of 2009 And M.P. Nos.1, 2, 1, 2, 1, 2, 1, 2 and 1, 2 of 2009 M/s.Jagadeeswaran Textiles (P) Ltd., Represented by its Managing Director P.Govindasamy, Kottamangalam Road, Thungavi (PO), Udumalpet Taluk, Coimbatore District. .. Petitioner in all WPs vs. The Commercial Tax Officer, Udumalpet (North), Udumalpet, Coimbatore District. .. Respondent in all WPs These writ petitions are filed under Article 226 of the Constitution of India, praying for the issue of Writs of Certiorari, calling for the records on the file of the respondent in Form No.29 made in Roc/4212/99 (92-93), in Form No.29 made in TNGST/281714/93-94, in Form No.29 made in TNGST 281714/94-95, Form No.29 made in Roc/4212/99 (95-96) and Form No.29 made in Roc/4212/99 (1996-97) dated 29.5.2009, 29.5.2009, 29.5.2009, 29.5.2009 and 29.5.2009 quash the same as illegal and violative of the orders passed by this Court in W.P.Nos.963, 902, and 907 of 2008 dated 4.2.2008 as well as Section 24 of the TNGST Act, 1959. For Petitioner in all WPs : Mrs.R.Hemalatha For Respondent in all WPs : Mr.R.Mahadevan, Additional Govt. Pleader (Taxes) C O M M O N O R D E R
All these writ petitions arise out of separate demands made by the respondent 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 1992-1993, 1993-1994, 1994-1995, 1995-1996 and 1996-1997.
2. Heard Mrs.R.Hemalatha, learned counsel appearing for the petitioner and Mr.R.Mahadevan, learned Additional Government Pleader (Taxes) for the respondent.
3. In respect of the assessment years 1992-1993, 1993-1994 and 1994-1995, the petitioner reported a total and taxable turnover in the monthly returns filed in Form A-1. However, their accounts were called for and checked by the respondent and thereafter, revised assessment orders were passed on 20.2.1995, 20.2.1995 and 5.6.1996 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 30.10.2007 passed in SCP Nos.117, 115 and 116 of 2007 in respect of the assessment years 1992-1993, 1993-1994 and 1994-1995 respectively.
4. 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 common order dated 4.2.2008, subject to the condition that the petitioner pays the entire tax and penalty within 12 weeks. In the meantime, the petitioner was directed to produce necessary records and also peruse the relevant records as permitted by the respondent and after such perusal, the Assessing Officer was directed to pass fresh orders of assessment.
5. In accordance with the said order of this Court, the Assessing Officer summoned the petitioner and the petitioner appeared before him on 28.1.2009 and 3.2.2009 and produced the records. Finding that there was no variation, the Assessing Officer issued a final notice inviting objections to be filed on or before 12.2.2009 and 18.2.2009. Since the petitioner did not respond to the notices, the Assessing Officer passed fresh orders of assessment dated 16.2.2009, 16.2.2009 and 18.2.2009.
6. After passing fresh orders of assessment in respect of the assessment years 1992-1993, 1993-1994 and 1994-1995, on 16.2.2009, 16.2.2009 and 18.2.2009 respectively, the Assessing Officer took note of the belated payments of tax made by the petitioner in respect of all these assessment years and consequently issued Form 29 under Section 24(3) of TNGST Act, 1959, demanding interest for the delay in making payments.
7. Therefore, challenging the assessment orders dated 16.2.2009, 16.2.2009 and 18.2.2009 in respect of the assessment years 1992-1993, 1993-1994 and 1994-1995, the petitioner came up with three writ petitions in W.P.Nos.15040 to 15042 of 2009, contending that the Assessing Officer did not comply with the directions of this Court in the earlier batch of writ petitions. The petitioner also filed three writ petitions in W.P.Nos.15265, 15546 and 15818 of 2009, challenging the demand of interest.
8. Similarly, in respect of the assessment years 1995-1996 and 1996-1997, the petitioner reported a total and taxable turnover in their monthly returns. But after calling for the accounts and checking them, the Assessing Officer passed orders dated 24.3.2000. After 7 years of the passing of those orders, the petitioner filed applications under Section 16D before the Special Committee in SCP Nos.114 and 118 of 2007 respectively. The Special Committee allowed the applications by separate orders dated 30.10.2007, on the ground that the cancellation of Registration Certificate led to interstate 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 26.3.2009 and 28.4.2009 in respect of the assessment years 1995-1996 and 1996-1997. 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 2 writ petitions in W.P.Nos.16150 and 16223 of 2009.
9. 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.
10. The assessment orders, relating to the five assessment years viz., 1992-1993, 1993-1994, 1994-1995, 1995-1996 and 1996-1997, 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 against any of them. The assessment orders relating to the years 1992-1993, 1993-1994 and 1994-1995, were challenged directly in W.P.Nos.15040 to 15042 of 2009, but by a separate order passed today, I have dismissed the writ petitions.
11. Admittedly, the petitioner has also paid the entire amount of tax as on date in respect of all these assessment years. Therefore, there is no dispute as on date, about two essential factors viz., (i) the quantum of tax liability and (ii) the dates on which the petitioner discharged the liability by making payments.
12. For determining a dealer's liability to pay interest under Section 24(3), there are three essential factors viz., (i) the quantum of tax liability (ii) the date on which the liability arose and (iii) the date on which the liability was discharged. Out of these three factors, the factors 1 and 3 are not in dispute as on date. But there is a dispute as to the date on which the liability can be said to have arisen, for the purpose of determining whether the petitioner is a defaulter, liable to pay interest.
13.The liability to pay interest is disputed by the petitioner, primarily on three grounds viz., (i) that the date on which fresh orders of assessment were passed, is the date on which the liability to pay tax could be construed to have arisen, for the purposes of Section 24(3); (ii) that when the liability is covered by a deferral scheme, no interest is payable, by virtue of Section 17-A (2) of the Act and (iii) that in any case, there cannot be any liability to pay interest on disputed turnover, until such dispute got resolved.
FIRST CONTENTION:
14. Placing reliance both upon the second proviso under sub-section (3) of Section 24 and upon the decision of the Supreme Court in Philips India Ltd vs. Assistant Commissioner, Commercial Taxes {(2004) 136 STC 636}, Mrs.R.Hemalatha, learned counsel for the petitioner, contended that the petitioner could be construed as a defaulter, only if he had failed to make payment of the tax determined in the fresh orders of assessment passed after remand by this Court in the first three cases and after remand by the Special Committee in the remaining two cases. It is her contention that the fresh orders of assessment effaced, substituted or replaced the original order of assessment and hence the petitioner cannot be stamped as a defaulter, from the date of the original order of assessment, so as to attract interest under Section 24(3). In paragraph-9 of its decision in Philips India, 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.
15. 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.
16. In State of Rajasthan vs. Ghasilal (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 assesseee under section 7(2) (of the Rajasthan Act) no tax can be said to be due within section 16 (1)(b) of the Act, for till then there is only a liability to be assessed to tax." It was held therein that there must be a tax due and there must be a failure to pay the tax due within the time allowed, so as to attract penalty.
17. When the above observations of the Constitution Bench in Ghasilal were sought to be relied upon by an assessee, in a subsequent case, Associated Cement Co. Ltd., Vs. Commercial Tax Officer {(1981) 4 SCC 578}, a three judges Bench made a distinction between penalty and interest. On the question of penalty, the Judges were of the unanimous opinion that no penalty can be levied for non inclusion of freight charges in the taxable turnover and non payment of tax in respect of such charges. But on the question of payment of interest under section 11B of the Rajasthan Sales Tax Act, the Judges were divided even on the purport of the decision of the Constitution Bench in Ghasilal. In paragraph-40 of the judgment, the majority (of 2 Judges) opined that even as per Ghasilal, 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, the majority in Associated Cement Company held that a tax can become payable, even before assessment is made. In paragraph 41 and 42, the majority view in Associated Cement Company was expressed as follows:-
"41. We are of opinion that either by delaying the filing of the return or not filing it at all or by filing a return wrongly claiming that a certain part of the turnover is not taxable or by not disclosing a part of the taxable turnover in the return an assessee cannot escape the liability to pay interest under Section 11-B(a) on the amount of tax withheld, as a consequence of his own action or inaction, from the last date on which it had to be paid as per sub-section (2) or sub-section (2A), of Section 7, as the case may be read with the Rules."
"42. We are of the view that the statutory liability under Section 11-B (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.
18. In so far as Tamilnadu General Sales Tax Act, 1959 is concerned, section 12 (3) imposes penalty and section 24 (3) levies interest. In Sakthi Sugars vs. Assistant Commissioner {(1985) 59 STC 52}, a Division Bench of this Court considered the constitutional validity of Section 24(3) and held that the payment stipulated by Section 24(3) is compensatory and not penal in character.
19. Though it was held in Sakthi Sugars that a provisional assessment under Rule 18(3) of the Tamil Nadu General Sales Tax Rules, would not be covered by Section 24(3), the Act was amended thereafter by Act 78 of 1986 with effect from 1.1.1986. It is only by the said amendment that sub-section (3) of Section 24 and the two provisos thereunder, as they stand on date, replaced the then existing provision.
20. After the amendment to Section 24(3), a Division Bench of this Court held in Apollo Tubes Ltd vs. Additional Deputy Commercial Tax Officer {(1994) 93 STC 339}, that the liability to pay interest is not only automatic but that the Section enjoins a liability to pay interest in addition to the amount due by way of tax.
21. But again, the question as to whether an assessee is required to pay interest on the additional sales tax upon the inclusion of freight charges in the sale price and whether interest under Section 11-B of the Rajasthan Sales Tax Act was payable only upon final assessment being made and a notice of demand being issued, was referred to a Constitution Bench in J.K.Synthetics Ltd vs. Commercial Tax Officer {1994 (4) SCC 276}. While the assessee relied upon the decision of the Constitution Bench in Ghasilal, the Revenue relied upon the decision of the three Judges Bench in Associated Cement Company. Even at the outset, the Constitution Bench in J.K.Synthetics, made it clear in paragraph-9 that the penalty provisions in a Statute have to be strictly construed and that the considerations which may weigh with the authority as well as the Court in construing penal provisions would be different from those which would weigh in construing a provision for payment of interest on unpaid amount of tax. While emphasising that the rule of interpretation of a charging provision may be different from the interpretation adopted in respect of a machinery provision, the Bench pointed out in paragraph-9 as follows:-
"But the machinery provisions need not be strictly construed. The machinery provisions must be so construed as would enable smooth and effective collection of the tax from the dealers liable to pay tax under the Statute. Section 11-B 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:-
"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 law and it cannot be recovered by way of damages for wrongful detention of the amount."
22. After referring to two earlier decisions, which held that the provision for charging interest was to compensate for the loss occasioned to the Revenue due to delay, the Bench opined that even then the provision has to be given only its plain meaning. In the later part of paragraph-16, the Bench held (in J.K.Synthetics) as follows:-
"But then interest was charged on the strength of a statutory provision, may be its objective was to compensate the Revenue for delay in payment of tax. But regardless of the reason which impelled the Legislature to provide for charging interest, the Court must give that meaning to it as is conveyed by the language used and the purpose to be achieved. Therefore, any provision made in a statute for charging or levying interest on delayed payment of tax must be construed as a substantive law and not adjectival law. So construed and applying the normal rule of interpretation of statutes, we find, as pointed out by us earlier and by Bhagwati, J., in the Associated Cement Co. case, that if the Revenue's contention is accepted it leads to conflicts and creates certain anomalies which could never have been intended by the Legislature."
"The conjoint reading of Sections 7(1), (2) and (2-A) and 11-B of the Act leaves no room for doubt that the expression 'tax payable' under Section 11-B can only mean the full amount of tax which becomes due under sub-sections (2) and (2-A) of the Act when assessed on the basis of the information regarding turnover and taxable turnover furnished or shown in the return. Therefore, so long as the assessee pays the tax which according to him is due on the basis of information supplied in the return filed by him, there would be no default on his part to meet his statutory obligation under Section 7 of the Act and, therefore, it would be difficult to hold that the 'tax payable' by him 'is not paid' to visit him with the liability to pay interest under clause (a) of Section 11-B. It would be a different matter if the return is not approved by the authority but that is not the case here. It is difficult on the plain language of the section to hold that the law envisages the assessee 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, overruled the majority view in Associated Cement Company and upheld the minority view of Bhagwati, J.
23. However, the decision in J.K.Synthetics, was distinguished by a Division Bench of this Court in Godrej & Boyce Manufacturing Co. Ltd vs. Joint Commissioner of Commercial Taxes {1995 (97) STC 44}, on the ground that the provisions of Sections 7(2), 7(2-A) and 11-B 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 Tamilnadu Act and Rule 18(2) of the Tamilnadu Rules. The Division Bench, after distinguishing J.K.Synthetics, chose to follow the earlier Division Bench in Apollo Tubes and held that there need not be an order of assessment, before interest is levied under Section 24(3) of the Act.
24. Again in Calcutta Jute Manufacturing Co. and Another vs. Commercial Tax Officer {1997 (106) STC 433}, a two Judges Bench of the Apex Court was concerned with the question 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 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 whether the freight charges would form part of the sale price or not. Thereafter, the Bench held in paragraph-16 as follows:-
"16. The tax amount which they should have paid as per Section 6B remained with the appellant during the entire period and they would have earned good profit with that amount. The State, to which the tax amount should necessarily have gone, was not able to utilize it for public purposes. When appellants had the advantage of keeping the amount of tax without paying it to the State exchequer only because the High Court granted orders restraining the State from recovering that amount from the assessee, no act of the Court shall cause prejudice to any party. The prestine doctrine couched in the maxim "actus curiae neminem gravabit" has ever remained a salutary and guiding principle."
25. Similar views, as expressed by the Apex Court in paragraph-16 of Calcutta Jute Manufacturing Co., (extracted in the preceding paragraph) were expressed by a Division Bench of this Court in E.I.D. Parry (India) Ltd vs. Assistant Commissioner of Commercial Taxes {2002 (126) STC 399}, paragraph-36 of which reads as follows:-
"36. For the purpose of Section 13(2), the tax payable by the assessee is not an amount which is confined to the erroneous original returns filed by the assessee, but is an amount which is payable in terms of the revised corrected returns filed by the assessee. The returns being returns of self-assessments, the basis for calculating the tax is the figures set out in that return. It is wholly impermissible for an assessee to file a defective return, disclaim liability for payment of tax as also of any interest for delayed payment of tax on the basis of that incorrect return and thereafter file a revised return 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."
26. Though the Division Bench that decided E.I.D. Parry (India) Ltd., did not seek to distinguish the decision of the Constitution Bench in J.K.Synthetics, another Division Bench distinguished J.K.Synthetics on the following lines, in Ashok Leyland Ltd vs. Assistant Commissioner (CT) {2002 (127) STC 73}:-
"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 contra distinction to the expression employed the 'tax payable' under Section 11-B of the Rajasthan Act, which only mean the full amount of tax becomes due under sub sections (2) and (2-A) of the Act make clear that the provisions of the Rajasthan Act and the Tamil Nadu Act are not comparable provisions."
27. The distinction so made as above, was also reiterated by another Division Bench of this Court in Indian Commerce and Industries Co. Pvt. Ltd vs. Commercial Tax Officer {2003 (129) STC 509}, on the ground that the provisions of the Rajasthan Act are not in pari materia with the provisions of the Tamil Nadu Act. Thus, almost all the Division Benches of this Court, right from Apollo Tubes Ltd., Godrej & Boyce Manufacturing Co. Ltd., and E.I.D. Parry (India) Ltd., upto Indian Commerce and Industries Co. Pvt. Ltd., were of the view that interest under Section 24(3) was automatic. All these Division Benches of this court, were also of the view that the provisions of the Rajasthan Act are not comparable to Tamilnadu Act.
28. However, the decision of the Division Bench in E.I.D. Parry (India) Ltd., was reversed by the Supreme Court in E.I.D. Parry (India) Ltd vs. Assistant Commissioner of Commercial Taxes {2005 (141) STC 12}, by a Bench of three Judges. It is seen from paragraph-5 of the said decision that two questions arose for consideration in that case. While one related to the inclusion of the advance paid to the sugarcane growers, in the monthly turnover, the other related to the liability to pay interest under Section 24(3). After holding that the advance paid will have to be included as part of the turnover in the monthly returns, the Supreme Court held in paragraph-10 of the said decision that the price of sugarcane, fixed under Clause 5-A cannot be known till the end of the sugar year, but was decided much later. Therefore, there was no question of including the price ultimately fixed under Clause 5-A in the monthly returns. Consequently, the Supreme Court pointed out in paragraph-13 (after extracting Section 24) that tax under Section 13(2), in the absence of any determination by the Assessing Authority, is tax as per the returns. If default is made in payment of the tax as per the returns, interest automatically becomes payable. The tax payable under Section 13(2), as per the returns, has to be paid without any notice of demand. But when an incorrect or incomplete return is filed, the Assessing Authority 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 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, over rules the consistent view taken by the various Division Benches of this Court right from Apollo Tubes upto EID Parry, on the basis that both Acts are not in pari materia. Since that question does not arise here, I do not wish to stray into that area.
29. After holding that the principles in J.K.Synthetics would squarely apply even if the Acts are not identical, the Supreme Court went on to hold as follows:-
"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".
Thus, from Ghasilal to E.I.D. Parry, the law appears to have come a full circle. Though the distance travelled was not too long, the road was certainly bumpy and the Supreme Court had clearly indicated in E.I.D. Parry that though the provisions of the Rajasthan Act are not in pari materia with the provisions of the Tamil Nadu Act, the principle enunciated in J.K.Synthetics had to be kept in mind.
30. Keeping the above principles in mind, if we look at the issue on hand, it is seen that none of the above decisions was concerned with an interpretation to the second proviso to Section 24(3). All the above decisions arose either out of a challenge to the charging section, or out of a challenge to the inclusion of certain charges in the taxable turnover or out of filing of revised returns or out of revised orders of assessment. Consequently, the second proviso to Section 24(3) of the TNGST Act or any provision similar to this provision or in pari materia, in any other enactment, did not fall for jural exploration in those cases.
31. Therefore, it is necessary to have a close look at Section 24. Therefore, it is extracted as follows:-
"Section 24. Payment and recovery of tax (1) Save as otherwise provided for in sub-section (2) of Section 13, the tax assessed or has become payable under this Act from a dealer or person and any other amount due from him under this Act shall be paid in such manner and in such instalments, if any, and within such time as may be specified in the notice of assessment, not being less than twenty-one days from the date of service of notice. The 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 X 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, the amount or fee, as the case may be, complied with an order by any of the authorities to whom the dealer or person has appealed or applied for revision, under Sections 31, 31-A, 33, 35, 36, 37 or 38.
(3) On any amount remaining unpaid after the date specified for its payment as referred to in sub-section (1) or in the order permitting payment in instalments, the dealer or person shall pay, in addition to the amount due, interest at two per cent per month of such amount for the entire period of default:
Provided that if the amount remaining unpaid is less than one hundred rupees and the period of default is not more than a month, no interest shall be paid:
Provided further that where a dealer or person has preferred an appeal or revision against any order of assessment or revision of assessment under this Act, the interest payable under this sub-section, in respect of the amount in dispute in the appeal or revision, shall be postponed till the disposal of the appeal or revision, as the case may be, and shall be calculated on the amount that becomes due in accordance with the final order passed on the appeal or revision as if such amount had been specified in the order of assessment or revision of assessment as the case may be."
32. Primarily, the liability to pay interest at 2% per month, on the amount remaining unpaid, arises under any one of the two contingencies prescribed in Section 24(3). They are (i) that the amount remains unpaid after the dates specified for its payment as referred to in sub-section (1) or (ii) that the amount remains unpaid after the date specified for its payment in the order permitting payment in instalments. But this liability is circumscribed by two provisos under sub-section (3). By the first proviso, any liability of less than Rs.100/- is exempt from the liability to pay interest, if it remains unpaid for not more than a month. By the second proviso, the liability to pay interest is postponed, if an appeal or revision against an order of assessment has been made, till the appeal or revision is disposed of. But the postponement of the liability to pay interest is only in respect of the amount in dispute in the appeal or revision. However, after the disposal of the appeal or revision, the interest is bound to be calculated on the amount that ultimately becomes due as per the final order passed on the appeal or revision, as if such amount had been specified in the order of assessment.
33. 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.
34. 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 and the interest arising out of any belated remittance of such admitted liability is also not postponed.
(iii) After the disposal of the appeal or revision, the amount determined in such appeal or revision, will be taken to be the amount specified in the original order of assessment. In simple terms, the liability determined in the appeal or revision, relates back to the date of the original order of assessment.
35. What is incorporated in the last part of the second proviso to sub-section (3) of Section 24, is "the Doctrine of relation back". Black's Law Dictionary defines it as "the Doctrine that an act done at a later time is, under certain circumstances, treated as though it occurred at an earlier time". It is a fiction of law and is aptly stated in the Latin Maxim "relatio est ficiio juris et intenta ad unum" meaning "Relation is a fiction of law, and is intent to one point". Ramanatha Iyer's Law Lexicon defines Relation Back as follows:-
"Relation Back" is where a thing or act constructively relates back to an antecedent thing or act.
It is said that relation is a fiction of law, resorted to for the promotion of justice and for promoting the lawful intention of parties, by giving effect to acts or instruments which without it would be invalid. It has its most frequent application to contracts of sale where the deed is not made for sometime after the sale, but, when it is made, relates back to the sale."
36. Thus the second proviso to Section 24(3) creates a fiction of law. It is created for the purpose of promoting the object of preventing unjust enrichment. After all, sales tax, unlike income tax, is not something that is paid by a dealer out of his pocket. In normal circumstances, it is something which is collected by the dealer from his customer. The dealer is permitted by law, to retain the sales tax so collected from his customers, for a brief period of time. During the said period, the dealer retains the tax collected by him, in trust for the Government. If the period of retention exceeds the period statutorily fixed, the dealer will be guilty of unjust enrichment, though not of temporary misappropriation. This is why, the levy of interest under Section 24(3) is held by Courts to be automatic. Upon the expiry of the period stipulated 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.
37. The decision in Philips India Ltd {(2004) 136 STC 636}, 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 with Section 10-A of the Bengal Finance (Sales Tax) Act, 1941. The said Section 10-A read as follows:-
"10.A. 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 is earlier, upon so much of the amount of tax payable by him according to such return as remains unpaid at the commencement of each such month:
Provided that where such dealer admits in writing that the amount of tax payable in respect of such period is an amount which is either more or less than what has been originally shown as payable in the return and where the Commissioner is satisfied on the point of such admission, the interest shall be payable upon so much of the amount of tax payable according to such admission as remains unpaid at the commencement of each such month.
(2) Where a registered or certified dealer fails to furnish a return referred to in Section 10 in respect of any period by the prescribed date or thereafter before the assessment under Section 11 in respect of such period, and on such assessment full amount of tax payable for such period is found not to have been paid by him 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 the month next following the prescribed date up to the month preceding the month of full payment of tax for such period or up to the month prior to the month of assessment under Section 11 in respect of such period, whichever is earlier, upon so much of the amount of tax payable by him according to such assessment as remains unpaid at the commencement of each such month:
Provided that where an assessment under Section 11 is made for more than one return period and such assessment does not show separately the tax payable for the period in respect of which interest is payable under this sub-section, the Commissioner shall estimate the tax payable for such period on the basis of such assessment after giving the dealer an opportunity of being heard.
(3) Where a dealer fails to make payment of any tax payable after assessment by the date specified in the notice issued under sub-section (3) of Section 11 for payment thereof, 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 the month next following the date specified in such notice up to the month preceding the month of full payment of such tax or up to the month preceding the month of commencement of proceedings under sub-section (4) of Section 11, whichever is earlier, upon so much of 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 sub-section (3) shall be determined or redetermined on the basis of such reduced amount and the excess interest paid, if any, shall be refunded."
38. A comparative study of Section 10-A of the Bengal Act, which fell for consideration in Philips India, and Section 24(3) of the TNGST Act, 1959, shows that Section 10-A(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 10-A(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 component of the admitted tax and (iii) that once an appeal or revision is disposed of, the determination made would relate back to the order of assessment.
39. In view of such a fiction created by the second proviso, I am of the considered view that the decision in Philips India may not be of any assistance to the petitioner. The second proviso to Section 24(3) may operate to exclude the general principles stated in paragraph-9 of the decision in Philips India Ltd., that once the original assessment is set aside and the matter remitted for re-computation, the original orders ceased to exist and that the liability arises only thereafter. Since the second proviso to Section 24(3) invokes the "Doctrine of Relation Back" and also since by a fiction, it merely postpones but not erases the liability, the decision in Philips India would not go to the rescue of the petitioner.
40. Since the Apex court has pointed out in EID Parry that though the Acts (Bengal and Tamilnadu Acts) may not be identical, the principles will have to be applied, I have not simply gone by hair splitting distinctions between the Bengal Act which was considered by the Supreme Court in Philips India case and the Tamilnadu Act, with which we are now concerned. I have gone only by the plain language of the second proviso to section 24(3). The mandate of the Constitution Bench in J.K.Synthetics was that regardless of the reason which impelled the Legislature to provide for charging interest, the Court must give that meaning to it as is conveyed by the language used and the purpose to be achieved and that therefore, any provision made in a statute for charging or levying interest on delayed payment of tax must be construed as a substantive law and not adjectival law. Applying the said principle, I find that the orders of assessment passed after remand, related back to the original orders and hence interest is an inevitable consequence of belated payment.
41.Even on facts, it is seen that in respect of the assessment years 1992-1993, 1993-1994 and 1994-1995, what were set aside by this Court were only the orders of the Special Committee and not the orders of assessment. In any case, the dispute raised by the petitioner in respect of all the five 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.
42. To recapitulate the facts, the orders of assessment for the assessment years 1992-1993, 1993-1994 and 1994-1995 were passed on 20.2.1995, 20.2.1995 and 5.6.1996. 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 30.10.2007. 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 20.2.1995, 20.2.1995 and 5.6.1996 were not set aside by this Court. Similarly, in respect of the assessment years 1995-1996 and 1996-1997, the orders of assessment were dated 24.3.2000. Without challenging these orders for about 7 years, the petitioner approached the Special Committee under Section 16D only in the year 2007 and the Special Committee gave a small reprieve. Thereafter fresh orders were passed. Therefore, the first contention that the fresh orders of assessment passed in the year 2009 provided the crucial date for determining whether the petitioner was a defaulter or not, cannot be accepted, as these fresh orders related back to the date of the original orders of assessment, by virtue of the second proviso to Section 24(3).
SECOND CONTENTION:
43. The second ground of attack of the petitioner to the impugned orders is that the deferred payment of tax under a scheme, would not attract interest, in view of Section 17-A(2) of the TNGST Act, 1959. Section 17-A of the Tamil Nadu General Sales Tax Act, 1959, reads as follows:-
"17-A. Power of Government to notify deferred payment of tax for new industries, etc. - (1) The Government may, in such circumstances and subject to such conditions as may be prescribed, by notification issued whether prospectively or retrospectively, defer the payment by any new industrial unit or sick unit or sick textile mill of the whole or any part of the tax payable in respect of any period:
Provided that such retrospective effect shall not be earlier than the 9th May 1998.
(1-A) The Government may by general or special order authorise the Territorial Assistant Commissioner to exercise such of their powers specified in sub-section (1).
(2) Notwithstanding anything contained in this Act, the deferred payment of tax under sub-section (1) or sub-section (1-A) shall not attract interest under sub-section (3) of Section 24 provided the conditions laid down for payment of the tax deferred are satisfied."
44. It is true that Section 17-A(2) begins with a non abstante clause. But the benefit of Section 17-A(2) will be available, only if the conditions laid down for payment of the tax deferred are satisfied. In fact, even without a non abstante clause, interest may not be chargeable on the tax due, if the dealer has been granted the benefit of deferred payment under a scheme. This is because Section 24(3) itself contains 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 17-A(2) has a correlation to what is stipulated in Section 24(3).
45. But the moment a dealer commits breach of the conditions laid down under the deferral scheme, the protection granted under Section 17-A (2) would go, since the very availability of the benefit under Section 17-A(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 17-A(2) is no more available to them. Hence the second contention of the petitioner also cannot be accepted.
THIRD CONTENTION:
46. 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 the second proviso to Section 24(3) itself. As pointed out by me, while dealing with the first contention, the effect of the second proviso is merely to postpone and what is postponed is only the interest on the disputed portion of the tax. This is made clear by the use of the expression "the interest payable under this sub section, in respect of the amount in dispute in the appeal or revision". After a final order is passed, the order relates back to the original order of assessment. Therefore the third contention is also not well founded.
47. The dispute raised by the petitioner can also be looked at, from another angle. Suppose a dealer was assessed to tax in the first instance and he also makes payment of the tax so assessed. But later on, if the tax assessed is found to be in excess, the refund of the excess amount is to be made within 90 days, failing which the Government is also liable to pay interest to the dealer, by virtue of Section 24(4). Though the interest payable by the dealer under Section 24(3) is higher than the interest payable by the Government under Section 24(4), the choice is with the dealer, either to make full payment and claim refund under Section 24(4) or to make part payment and run the risk of being imposed with a penal interest under Section 24(3).
48. In view of the above, there are no merits in the writ petitions. Hence they are dismissed. No costs. Consequently connected miscellaneous petitions are also dismissed.
Svn To The Commercial Tax Officer, Udumalpet (North), Udumalpet, Coimbatore District