Pahalgam Hotel vs State of J&K and Anr.

Petitioner challenges the constitutional, validity of section 12 of the J&K Hotel (Amenities and Services) Tariff Taxation Act, 1980 and prays

that the said section be declared ultra vires the Constitution. It also challenges the order dated 10. 2. 1983 in so far as it raises demand under the

provisions of the impugned section.

The court had given three months time to the respondents to file counter on 14. 7. 1987. Thereafter rejoinder was to be filed by the petitioner

within one month. Right of any of the parties who would default in filing the counter or rejoinder, as the case may be, was deemed to be closed and

the case was to come up for bearing without counter or rejoinder, as the case may be, if the same was not filed. Respondents have not filed the

counter. Therefore, by virtue of the foresaid order they have lost the right to file the same. The writ petition was consequently listed for hearing

without counter,

Facts pleaded in the writ petition as also the grounds of challenge lie in a short compass.

The Act known as J&K Hotel (Amenities and Service) Tariff Taxation Act, 1980 Act No. IX of 1980, hereinafter called Act No. IX was applied

to the State from 1st of July, 1980. The said Act provided for the levy of tax on the amenities and services in a Hotel and for matters connected

therewith. The petitioner is said to have by a separate writ challenged the constitutional validity of Act No. IX. The challenge was based when the

tax was levied on the income and the State Legislature under the Constitution had no power to levy tax on income. This argument was based on

Entry No. 80 of the Union List. The said writ petition is said to have been dismissed by the Court.

The accounting year of the petitioners Hotel runs from 17th of the October of year to 16th of October of the following year. Petitioner is said to

have filed the returns under the provisions of Act on 29.10.1981. It covered the period of one quarter and 16 days. Thereafter it filed the revised

return which covered the period from 1. 7.1980 to 16. 10. 1980. Petitioner is said to have deposited the tax under the Act No. IX on 28th

October, 1981. The total tariff tax which the petitioner deposited was Rs 58,335.54. Respondent No. 2 thereafter is said to have directed

determination of interest at the rate of 3% of the tariff tax. The amount of tax was deposited on 28.10.1981 and its payment was delayed by 11

months. An amount of Rs. 19,250.72 was charged as interest from fee petitioner's Hotel. Respondent No. 2 also directed payment of interest

under sub section 3 of section 12 of the Act IX This was done because the petitioner had not filed the returns within the prescribed time. An

additional amount of interest of Rs 19,250.72 was chargeable from the petitioner and a total of Rs. 38,501.44 charged from the petitioner by way

of interest under sub section 1 and sub section 3 of section 12 is demanded. The petitioner challenges this demand notice. Petitioner challenges the

rate of interest under section 12 and submits that section 12 of the Act is in nature, unreasonable and unconscionable.

In the grounds of attack petitioner submits that under sub section 1 of section 12 of Act No. IX of 1980 interest for non payment of tax within

the period specified in the notice of demand or the period prescribed under section 11 is linked. Under the section 3 of section 12 interest is

payable for nonfurnishing of returns within time. The interest charged from the petitioner for withholding the tax is said to be unreasonable and

unconscionable and the rate of interest under subsection I annual is 36% which rate is usurious. The rate of interest is discriminatory contrary, to

public policy and unconstitutional. The market rate of interest paid and realised by businessmen is only 18%. The object underlying the Act is

destroyed by levying the interest at exorbitant rate Sub section 3 is also discriminatory in nature. In respect of one default petitioner has to pay two

interests. The impugned provisions of the said section are violative of Articles 14 and. 19 (1) (g) of the Constitution of India. The impugned

provison cannot be said to be compensatory in any case and is neither incidental nor ancillary but |s exfacie confiscator and offends the

fundamental rights, of the, petitioner. Section 12 of the Act is violative of Art. 265 of the Constitution of India State has power to recover the tax

only fey authority of law. The impugned provision is violative of fundamental right. Section 12 is charging section and is penal in nature.

Mr. Riyaz Rasool has not filed the counter. But be has drawn my attention to an authority of the Supreme court in Khazan Chand Vs. State of

Jammu and Kashmir and ors (AIR 1984; S. C: 762) in which the payment of interest for belated payment of tax and for belated filling of the

returns under the General, Sales Tax was held to be valid.

The Supreme court was considering the validity of section 8 (1), (2) of the General Sales Tax Act which is the charging section and while

recovering the tax interest could be levied and recovered if the payment of tax was belated. The Supreme Court observed as under:

The power to make a law with respect to a tax includes a power to make provisions in the relevant statute with respect to all matters ancillary and

incidental to the levy assessment, collection and recovery of tax. Thus payment of interest in case of default in payment of tax is a means of

compelling an assessee to pay the tax due by the prescribed date. It is a mode to recover the tax and well within the legislative powers of the

State.

The constitutional validity of section 8 was upheld but the rate of interest quarterly per month, and after six months was directed to be charged in a

reasonable manner which was laid down by the Supreme court.

In view of the aforesaid authority the charging section in the Act No. IX of 1980 cannot be said to be ultra vires nor can rate of interest be said

to be bad because the charging section provides the method of collection of tax also and for compelling the assessee to make the payment of tax

interest is levied which is mode of recovery of tax.

I examined the provisions of section 12 of Act IX of 1980 and section 8 of the General Sales Tax Act. The two provisions with regard to

payment of interest are almost identical and purport of the two provisions is substantially the same. Therefore the principle Which is laid down in

the Supreme court can very well be applied to the impugned provisions of Act No IX of 1980. The matter is no more reintegrate as it would be

deemed to be set at rest in Khazan Chand's case supra.

The result is that the writ petition fails and is dismissed. There will be no order as to costs.