Bombay High Court
Commissioner Of Sales Tax, Maharashtra ... vs Machinery Sales Service on 29 January, 1990
Author: Sujata Manohar
Bench: Sujata V. Manohar
JUDGMENT Smt. Sujata Manohar, J.
1. These references arise from a common judgment of the Sales Tax Tribunal dated 2nd November, 1981, in Second Appeal Nos. 1361 and 1362 of 1980 and Nos. 1717 and 1718 of 1980. Arising from the judgment a number of questions have been referred to us for decision under section 61(1) of the Bombay Sales Tax Act, 1959. Some of these are at the instance of the department while some are at the instance of the assessee. By consent of all parties the questions have been condensed and reframed as follows. The first question is at the instance of the Commissioner of Sales Tax while the next three questions are at the instance of the assessee. These are as follows :
(1) Whether, on the facts and in the circumstances of the case, was the Tribunal justified in law in holding that no penalty under section 36(3) was legally imposable on the respondent-dealer for non-payment of the amount of tax payable as per rule 29(1A) of the Rules for each of the first two months of the relevant quarters, both under the Bombay Sales Tax Act and the Central Sales Tax Act, as the case may be ?
Questions at the instance of the assessee :
(1) Whether, on the facts and in the circumstances of the case was the Tribunal justified in law under the Bombay Sales Tax Act or the Central Sales Tax Act, as the case may be, in upholding the levy of penalty under section 36(3) of the Bombay Sales Tax Act, 1959, for non-payment of part or whole of the tax payable along with the returns without issue of a notice from the department in form No. 26, as required under section 38(4) of the Bombay Sales Tax Act, 1959, read with rule 31 of the Bombay Sales Tax Rules ?
(2) In cases where penalty under section 36(3) of the Bombay Sales Tax Act, 1959, read with section 9 of the Central Sales Tax Act, 1956, is levied for a period prior to 7th September, 1976, the date of promulgation of the central Sales Tax (Amendment) Act, 1976, the circumstances of there being no such provision under the Central Sales Tax Act, 1956, prior to the amendment of 1976, constitute a reasonable cause within the meaning of section 36(3) in the facts and circumstances of the case ?
(3) Whether, the circumstances set out in question No. 2 above constitute a ground for remission of penalty in whole or in part under the proviso to section 36(3) of the Bombay Sales Tax Act, 1959, in the facts and circumstances of the present case ?
2. The assessee, Machinery Sales and Services, is a dealer in textile machinery and scrap. The assessee is a registered dealer under the Bombay Sales Tax Act, 1959, as also under the Central Sales Tax Act, 1956. The assessments in question relate to assessment years 1974-75 and 1975-76. In the year previous to the assessment year 1974-75, that is to say, in the year commencing from 1st April, 1973 and ending on 31st March, 1974, the turnover of sales and purchases of the assessee exceeded Rs. 10 lakhs. Under the relevant Bombay Sales TAX Rules the assessee was required to file quarterly returns. The assessee filed such quarterly returns for the periods in question on the dates which are set out in the statement of the case.
3. As the turnover of the assessee in the previous year exceeded Rs. 10 lakhs, the assessee was required to comply with rule 29(1A) of the Bombay Sales Tax Rules as then in force. Under rule 29(1A) the assessee was required to pay the tax every month as set out in that rule from the quarter beginning in April till the end of the year, although the returns were to be filed quarterly. The assessee did not pay the tax for the months of April, May, July, August, October and November.
4. The Sales Tax Officer at the time of assessment levied penalty under section 36(3) of the Bombay Sales Tax Act as well as under section 36(3) read with section 9 of the Central Sales Tax Act, inter alia, for non-payment of taxes for the above months. A penalty of Rs. 6,121 was levied under section 36(3) of the Bombay Sales Tax Act for the period 1st April, 1974 to 31st March, 1975. for the same period, a penalty of Rs. 84,706 was levied under section 36(3) of the Bombay Sales Tax Act read with section 9(2) of the Central Act. For the period 1st April, 1975 to 31st March, 1976, a penalty of Rs. 26,135 was levied under section 36(3) of the Bombay Act while a penalty of Rs. 14,520 was levied for the same period under section 36(3) of the Bombay Act read with section 9(2) of the Central Act.
5. The Sales Tax Officer did not issue any notice in form 26 as per the provisions of section 38, sub-section (4) of the Bombay Sales Tax Act, 1959.
6. The assessee had earlier pleaded difficulty in payment of taxes. The assessee had urged that during the said period the textile machinery market was in a slump and the assessee was faced with financial difficulties on account of non-recovery of sale proceeds. On his application, the Additional Commissioner of Sales Taxes had granted installments for the payment of tax due as per returns. In these circumstances the assessee contented that there was no negligence or bad intention on his part in respect of non-payment of tax. Therefore, a penalty should not be levied. The contentions of the assessee were negatived by the Sales Tax Officer who Levied penalties as stated earlier.
7. Being aggrieved by the orders of the Sales Tax Officer against the levy of penalty the assessee filed first appeals before the Assistant Commissioner of Sales Tax (Appeals) III. Bombay City Division. The appeals, however, failed. The assessee thereafter filed seconds appeals before the Tribunal. Two second appeals were filed by the assessee, one under the bombay Act and the other under Central act for the first assessment period. Similarly two appeals were filed - one under the Bombay Act and other under the Central Act - by the assessee for the second assessment period. The Tribunal confirmed the levy of penalty. It, however, held that the levy of penalty for the delay in payment of the monthly dues when no monthly returns were required to be filed, was not proper. The Tribunal remanded the case to the Assistant Commissioner of Sales Tax for recomputation of penalty in the light of its decision that no penalty should be charged for delay in payment of tax every month up to the date specified for filing the return. From this decision of the Tribunal the present references have been filed.
8. In order to decide the first question it is necessary to examine in brief the relevant provisions of the Bombay Sales Tax Act, 1959. Under section 32 of the Bombay Sales Tax Act, 1959, every registered dealer shall furnish returns for such period, by such date and to such authority, as may be prescribed. Rule 22(2)(c) of the Bombay Sales Tax Rules, inter alia, requires a registered dealer to file quarterly returns. Under the said rule, however, every such dealer who is ordinarily liable to furnish quarterly returns shall, for each of the months of the quarter immediately following the quarter in which 31st day of December occurs, furnish a monthly return as set out therein.
9. The assessee was thus required to file quarterly return. But in addition, he was also required to file monthly returns for the months of January and February.
10. Section 38 of the Bombay Sales Tax Act prescribes payment of tax and deferred payment of tax. Section 38 at the material was as follows :
"38. (1) Tax shall be paid in the manner herein provided and at such intervals as may be prescribed.
(2) A registered Dealer Furnishing returns as required by sub-section (1) of section 32, shall first pay into a Government treasury, in the manner prescribed the whole of the amount of tax due from him according to such return along with the amount of any penalty payable by him under section 36.
(3) A registered dealer furnishing a revised return in accordance with sub-section (3) of section 32, which revised return shows that a larger amount of tax that already paid is payable, shall first pay into a Government treasury the extra amount of tax.
(4) (a) The amount of tax -
(i) due where returns have been furnished without full payment therefor, or
(ii) assessed or reassessed for any period under section 33 or 35 less any sum already paid by the dealer in respect of such period, or
(iii) assessed under sub-section (3) of section 41, and
(b) the amount of penalty (if any) levied under section 36 or 37, and
(c) and (d) .........
shall be paid by the dealer or the person liable therefore into a Government treasury, by such date as may be specified in a notice issued by the Commissioner for this purpose, being a date not earlier than thirty days from the date of service of the notice :
Provided that, the Commissioner or an appellate authority in an appeal under section 55 may, in respect of any particular dealer or person, and for reasons to be recorded in writing, extend the date of payment, or allow him to pay the tax or penalty (if any) or the sum forfeited, by installments :"
Under section 36, sub-section (3), as it stood at the material time, it is provided as follows :
"36. (3) If a dealer does not, without reasonable cause, pay tax within the time he is required by or under the provisions of this Act to pay it, the Commissioner may, after giving the dealer an opportunity of being heard, by an order in writing, impose upon the dealer by way of penalty, in addition to the amount of tax a sum equal to -
(a) and (b) ..........
Provided that, the Commissioner ar any appellate or revisional authority, may remit the whole or any part of the penalty payable in respect of any period :"
Under section 74(xii), the State Government may make rules, inter alia, prescribing the intervals at which, and the manner in which, the tax shall be paid under section 38 and the conditions subject to which penalty may be remitted under section 36. Accordingly, as set out earlier, under rule 22, a registered dealer is required to file quarterly returns. He is, therefore, required to pay the tax as per his quarterly return before filing the return at the end of every quarter.
11. Where such quarterly returns have been furnished without full payment of tax, the Commissioner may, by notice, call upon the dealer to pay the requisite tax by such date as may be specified in the notice, being a date not earlier than 30 days from the date of service of the notice. The date of payment may be extended by the Commissioner, or the dealer may be permitted payment of tax by installments. If a registered dealer does not pay the tax as per notice prescribed in section 38(4) he is liable to penalty under section 36(3).
12. In the present case, however, rule 29(1A) (as it stood at the material time) is attracted. When the turnover of a registered dealer who is required to furnish quarterly returns exceeds Rs. 10 lakhs in the previous year, rule 29(1A) (as it stood at the material time) requires that the assessee "(i) shall make monthly payments of the actual amount of the tax payable for the first two months of every quarter, or (ii) shall make monthly payments, each at the rate of one-third of the amount of tax payable according to the return for the corresponding quarter of the immediately preceding year, for the first two months of the quarter, ..... and make the payment of the balance amount of the tax due from him according to the return ........ on or before the date prescribed for submission of such return. "In other words, although under the substantive provisions of the Act the dealer is required to pay the tax as per his return before filing the return, rule 29(1A) the dealer to pay tax every month although no return is to be filed for that month, if his turnover exceeds Rs. 10 lakhs.
13. The question is whether the penal provisions of section 36(3) are attracted if the dealer commits a default in making such monthly payment of tax under rule 29(1A).
14. Now, penal provisions of section 36(3) are attracted if tax is not paid within the time prescribed. Section 38(2) requires a registered dealer furnishing returns to first pay into the treasury the whole of the amount of tax due from him according to such returns. It does not lay down any specific dates by which such tax is to be paid. Rule 29(1A) prescribes more specifically the manner in which tax as per return is to be paid when the turnover of the previous year exceeds Rs. 10 lakhs. In other words, where the tax to be paid is substantial, a more detailed schedule of payment as per section 38(2) read with rule 29(1A) is provided to facilitate proper recovery of tax. Rule 29(1A) is, therefore, a corollary to section 38(2). The aim of rule 29(1A) is to ensue payment of tax before furnishing a return as laid down in section 38(2). If tax is not paid or is not paid in full before filing the return, then, the tax due shall be paid by the dealer by such date as may be specified in a notice which is required to be issued by the Commissioner for this purpose. A minimum of 30 days' notice is required to be given to the assessee for the payment of tax. If the dealer does not pay the tax within the time given in such notice without any reasonable cause, penal provisions of section 36(3) are attracted. Rule 29(1A), therefore, operates at a stage prior to the insurance of notice under section 38(4). It is only when the notice under section 38(4) is not complied with that penalty is attracted under section 36(3). Therefore, section 36(3) has no application to non-compliance with rule 29(1A) in the absence of any notice under section 38(4).
15. This interpretation of sections 38 and 36(3) is also supported by the prescribed form of the notice which is to given under section 38, sub-section (4). The form of such a notice is form 26, which is prescribed under rule 31 of the Bombay Sales Tax Rules, 1959. The relevant part of this form 26 notice is as follows :
" * * * You are hereby directed to pay the sum of Rs. .......... (in words rupees .............) into the Government treasury at .......... on or before (date) ................. and to produce the receipted copy of the Challan in proof of payment before me on a date not later than the .......... day of ............. failing which the said sum of Rs. .............. will be recoverable from you as an arrear of revenue.
2. You are hereby informed that if you fail to pay the amount of tax aforesaid without any reasonable cause, you would be liable under sub-section (3) of section 36 of the Bombay Sales Tax Act, 1959, for payment of an additional sum, by way of penalty, equal to 1 1/2 per cent of the amount of tax for the first three months from .............."
The notice, therefore, clearly contemplates that penal provisions of section 36(3) are attracted only if the dealer fails to pay tax within the period prescribed in the notice. Without any notice under section 38, sub-section (4) a penalty 36(3) cannot be levied.
16. Similar provisions of the Bombay Sales Tax Act, 1953, were considered by the Gujarat High Court in the case of Viswa & Co. v. State of Gujarat reported in (1966) 17 STC 581. Under section 16, sub-section (2) of the Bombay Sales Tax Act, 1953, also the full amount of tax due from the assessee according to his return was required to be paid by him into Government treasury before he filed the return. If the Tax due as per return was not paid, a notice was required to be furnished in terms similar to section 38, sub-section (4) of the Bombay Sales tax Act, 1959. Under section 16, sub-section (4), if the dealer failed to pay the amount of tax within the time prescribed in the notice he became liable to levy of penalty.
17. The Gujarat High Court held that Section 16, sub-section (2), merely fixed the liability of the assessee to pay the amount of the tax according to his return. He was required to pay the tax by such date as may be prescribed in the notice issued under section 16, sub-section (5). If the assessee paid the amount of tax before the date specified in the notice, the notice was complied with and there would be no default. The Gujarat High Court held that in such a case, the penalty under section 16, Sub-section (4), cannot be imposed. It said (page 594) "This sub-section [section 16(2)] merely declares the liability of the assessee to pay the full amount of tax due according to the return before furnishing the return; ........ it must be remembered that sub-sections (20, (4) and (5) of section 16 form part of a connected whole and they must be so construed as to make a consistent and harmonious enactment of the whole section. If the construction contended for on behalf of the Revenue were accepted, the assessee would be in default as soon as he files the return without payment of the full amount of the tax and he would render himself liable to penalty which would be mounting from day to day under section 16(4). But even so, under section 16(4). But even so, under section 16(5), he would be entitled to notice of not less than thirty days within which to pay up the amount of the tax remaining unpaid. He would even be entitled in a proper case to obtain extension of time for payment of the amount of the tax and also installments if sufficient reasons are shown. It is a little difficult of imagine that the legislature should have given a minimum of thirty days' time to a defaulting assessee who had already incurred penalty and against whom penalty was mounting from day to day and should have also made it possible for him to obtain extension of such time as also instalments for making payment of the amount of the tax."
18. The Gujarat High Court relied upon a judgment of this High Court in this case of Mahomed Tayoob Daruwala v. State of Bombay reported in [1960] 11 STC 612, in which a Division Bench of this High Court held that once the tax had been assessed, the prescribed time for payment tax was the time prescribed in the notice given to him under section 16(5) of the Bombay Sales Tax Act, 1953. The Gujarat High Court observed (Page 596) : "Now if section 16, sub-section (5) prescribes the time for payment of the amout of the tax in case of tax assessed under section 14 or 15, it is difficult to imagine that so far as the amount of tax due according to the return is concerned, the sub-section does not perform the function of prescribing the time for payment of the amount of the tax but merely lays down a condition precedent which must be fulfilled before the amount of tax remaining unpaid can be recovered as an arrear of land revenue."
19. This decision of the Gujarat High Court has been subsequently distinguished by the Gujarat High Court in the case of Motilal Joitaram Patel v. Sales Tax Officer reported in 1975 Tax LR 1589. The Gujarat High Court in this later case held that the provisions of the Bombay Sales Tax Act, 1959, in this connection were different from the provisions of the Bombay Sales Tax Act, 1953, inasmuch as the penalty provision is under a separate section in the Bombay Sales Tax Act, 1959 and does not form part of the present section 38 of the Bombay Sales Tax Act, 1959. We do not see how that makes any difference to the interpretation of the two sections.
20. The Gujarat High Court in the case of Motilal Joitaram Patel v. Sales Tax Officer 1975 Tax LR 1589, has also distinguished the earlier case by saying that unlike section 16 of the previous Act the provisions of section 38, sub-section (4), relating to the giving of notice are not attracted where the tax is paid by the assessee on the basis of his return. It is only when the tax assessed is required to be paid that a notice under section 38(4) is required. Hence when a dealer us required to pay tax before filing his return under section 38(2), the provisions of section 38(4) are not attracted.
21. With all respect to the learned Judge of the Gujarat High Court, we fail to see the point of distinction sought to be made out. Under section 38(4) of the Act in terms there is a provision for giving of notice when the amount of tax due as per returns is not paid before filing the return. Section 38, sub-section (4), therefore, does not deal only with a case where the tax which is assessed is not paid. It also deals with the case where the full tax as per return has not been paid. In our view, therefore, there is no material distinction between the Bombay Sales Tax Act, 1953 and the Bombay Sales Tax Act, 1959, in respect of these provisions and we do not see any reason for differing from the ratio laid down by the Gujarat High Court in the case of Viswa & Co. [1966] 17 STC 581.
22. A similar view has been taken by the Mysore High Court (as it then was) in the case of M. G. Automobiles v. Commercial Tax Officer, Bellary reported in [1973] 32 STC 366 and by the Kerala High Court in the case of Joy Varghese v. State of Kerala reported in [1986] 62 STC 227.
23. In the case of Income tax Officer, Kolar Circle v. Seghu Buchiah Setty reported in [1964] 52 ITR 538 at page 555, the Supreme Court considered the provisions of the Income Tax Act, relating to the notice of demand. Under section 29 of the Income-Tax Act, when any tax, penalty or interest is due in consequence of any order passed under or in pursuance of this Act the Income-Tax Officer shall serve upon the assessee or any other person liable to pay such tax, penalty or interest, notice of demand in the prescribed form specifying the sum so payable. The Supreme Court observed at page 551 that when the notice of demand is not complied with the assessee can be treated as a person in default and he is liable to pay penalty as prescribed under section 46(1) of the Income-tax Act. And lastly, on the failure of the assessee to pay after the notice of payment, recovery proceedings can be started within the time-limit and the amount of tax can be treated as arrears of land revenue. It held that the notice of payment is a vital document and disobedience to it makes the assessee a defaulter.
24. In our view, therefore, a notice of demand, when tax as per return has not been paid in full, is essential before the penalty provisions of section 36, sub-section (3), are attracted.
25. Rules 29(1A) on which strong reliance is placed by the Revenue authorities merely prescribes the method of paying tax before filing the return where the turnover of sales or purchases of a registered dealer exceeds Rs. 10 lakhs in the previous year. Section 38, sub-section (2), requires the registered dealer to pay tax before filing return and it is only if full tax is not paid before filing the return that a notice is required to be given and the penal provisions of section 36, sub-section (3), are attracted for its non-compliance. Non-compliance with rule 29(1A), therefore, does not attract the penal provisions of section 36, sub-section (3).
26. As pointed out by Mr. Sheth, learned Advocate for the assessee, the rule-making power under section 74(xii) is in respect of the intervals at which and the manner in which tax shall be paid under section 38. Rule 29(1A) merely furthers the objectives of section 38. It does not enlarge the scope of section 38 so as to attract the penalty provisions of section 36(3) even when a notice as required under section 38(4) is not given. The rule, in our view, merely prescribes the manner of paying tax which may be large because the turnover of sales and purchases have exceeded Rs. 10 lakhs in the previous year. The rule facilitates full payment of tax before the return is filed. It cannot take the place of substantive provisions of law prescribed under section 38. In the absence, therefore, of a notice under section 38(4), penalty under section 36(3) is not attracted for non-payment of monthly amounts as per rule 29(1A) where no monthly return is required to be filed.
27. Whether full tax has been as per return or not can be ascertained only when a return is filed. The monthly payments under rule 29(1A) are not with reference to any monthly returns. It is only when a quarterly return is filed that one can ascertain whether full tax as per this return has been paid in the preceding months. Only thereafter will section 38(4) comes into operation, and thereafter section 36(3). The Tribunal was, therefore, right in not levying penalty under section 36(3) for not paying the monthly amounts under rule 29(1A).
28. The questions which have been raised on behalf of the assessee relate to payment of penalty under the provisions of the Central Sales Tax Act, 1956, as in force at the material time. Under section 9, sub-section (2), of the Central Sales Tax Act, 1956, the authorities for the time being empowered to assess, reassess, collect and enforce payment of any tax under the general sales tax law of the appropriate State Shall assess, reassess, collect and enforce payment of tax, including and penalty, payable by a dealer under the provisions of the Central Sales Tax Act. Under section 9, sub-section (2), therefore, any penalty which can be levied under the Central Sales Tax Act can be assessed and collected by the appropriate State authority. Sub-section (2A) has been added retrospectively to section 9 by Act 103 of 1976. Under section 9(2A) all the provisions relating to offences and penalties of the general sales tax law of each State shall, with necessary modifications, apply in relation to the assessment, reassessment, collection and the enforcement of payment any tax required to be collected under the Central Sales Tax Act in such a State. As a result of the retrospective inclusion of sub-section (2A) in section 9, the penalties which are imposed under the Bombay Sales Tax Act can be levied and collected under the Central Sales Tax Act also.
29. There is no dispute that even under the Central Sales Tax Act the assessee is required to file returns and pay tax according to such returns. Under rule 11 of the Central Sales Tax (Registration and Turnover) Rules, 1957, the period of turnover in relation to any dealer liable to pay tax under the Central Sales Tax Act shall be the same as the period in respect of which he is liable to submit returns under the general sales tax law of the appropriate State.
30. Under rule 5 of the Central Sales Tax (Bombay) Rules, 1957, every dealer registered under the Central Sales Tax Act shall, unless he has been exempted in this behalf by the Commissioner, by an order in writing in this behalf, furnish a return in form III-B in respect of each period for which his turnover is required to be determined under rule 11 of the Central Sales Tax (Registration and Turnover) Rules, 1957. Form III-B shall consist of return-cum-challan. Each such return is required to be accompanied by a challan showing the payment of tax due and payable according to the return in the Government treasury. Therefore, if full tax is not according to the return by a registered dealer under the Central Sales Tax Act, provisions of section 38(4) and, for non-compliance with notice, provisions of section 36, sub-section (3) of the Bombay Sales Tax Act, 1959, are attracted.
31. In the present case however, a notice in form 26 under section 38, sub-section (4) of the Bombay Sales Tax Act was not given in connection with penalty to be levied under the Central Sales Act. For reasons set out earlier penalty cannot be levied under section 36(3) of the Bombay Sales Tax Act read with section 9(2A) of the Central Sales Tax Act in the absence of any notice under section 38(4) which if not complied with, would attract penalty.
32. In this view of the matter it is not necessary for us to consider the other submissions made on behalf of the assessee relating to there being a reasonable cause for non-payment of tax or existence of ground for remission of penalty. It is also not necessary for us to consider whether satisfaction for levy of penalty has to be recorded at the time of assessment for invoking the provisions of section 36(3).
33. In the premises, the questions referred to us are answered as follows :
The question referred by the State is answered in the affirmative and in favour of the assessee.
Question No. (1) referred to us at the instance of the assessee is answered in the negative and in favour of the assessee.
It is not necessary for us to answer question Nos. (2) and (3) raised at the instance of the assessee, in view of our answers to the earlier questions. We, therefore, decline to answer these questions.
There will be no order as to costs in the circumstances of the present case.
34. References answered accordingly.