Rajasthan Wool Industries vs The State of Punjab

A.L. Bahri, J.—Vide this order two General Sales Tax Reference Nos. 24 and 25 of 1984 are being disposed of as common question of law stands referred to this Court. The petitioner in both the cases is the same i.e. Messrs Rajasthan Wool Industries, Ludhiana, a registered dealer under the Punjab General Sales Tax Act, doing the business of manufacture of wool and yarn.

For the assessment years 1974-75 and 1975-76, quarterly returns were filed by the petitioner in time. The assessments were finalised in May 1980 by passing two separate orders for the two assessment years referred to above. Apart from imposing the tax, order of payment of penalty and interest was also made by the Assessing Authority. Two appeals were filed against such orders The Appellate Court maintained the orders with respect to the tax. However, with respect to imposition of penalty and charging interest, orders of the Assessing Authority were quashed. This was done on October 11, 1982. Amount of tax was determined at Rs. 15,639/-. During the pendency of the appeal, a sum of Rs. 10,000/- was paid on March 24, 1992. Remaining amount of the Tax was paid on January 21, 1983.

After serving fresh notices, the Assessing Authority on March 8, 1983 raised demands of penalty and interest on delayed payments of the tax as aforesaid. These demands were for Rs. 5400/- for the year 1974-75 and Rs. 6,000/- for the year 1975-76 The orders were passed on March 8, 1983 Against these orders two appeals were filed by the petitioner before the Deputy Excise and Taxation Commissioner which were dismissed on August 4, 1983 and thereafter the matter was taken to the Sales Tax Tribunal, Punjab who on January 27, 1984 upheld the orders. The following question of law in the two cases was thus referred to this Court for adjudication:-

"Whether Section 11D(2) of the Punjab General Sales Tax Act, 1948, covers the assessment framed or demand created after induction of Section 11D(2) into the Act ibid, whether the year of assessment was prior to such amendment".

With respect to the penalty the claim was not disputed before the Tribunal, it was only with respect to the interest that the appeals were dismissed and the Tribunal also dismissed the appeals on January 27, 1984. Thus the question referred to above relates to charging of interest on the delayed payment of tax as assessed.

Section 11D of the Act reads as under:-

"11D Payment of Interest: (1) If any dealer fails to pay the amount of tax due from him as required by sub-section (4) of Section 10, he shall, in addition to the amount of tax, be liable to pay simple interest on the amount of tax due from him at the rate of one per centum per month from the date immediately following the last date for the submission of the return under sub-section (3) of that section for a period of one month and thereafter at the rate of one and a half per centum per month till the default continues.

(2) If the amount of tax or penalty due from a dealer is not paid by him within the period specified, in the notice of demand or, if no period is specified, within thirty days from the service of such notice, the dealer shall in addition to the amount of tax or penalty, be liable to pay simple interest on such amount at the rate of one per centum per month from the date immediately following the date on. which the period so specified in the notice or the period of thirty days, as the case may be, expires, for a period of one month and thereafter at the rate of one and a half per centum per month till the default continues.

Provided that where the recovery of any tax or penalty is stayed by an order of any court, the amount of tax or penalty shall after the order of stay is vacated, he recoverable alongwith interest at the aforesaid rate on the amount ultimately found to be due and such interest shall be payable from the date the tax or penalty first became due.

(3) The amount of interest payable under this section shall-.

(i) be calculated by considering part of a month and any amount less than one hundred rupees as one hundred rupees,

(ii) for the purposes of collection and recovery, be deemed to be tax under this Act,

(iii) be in addition to the penalty, if any, imposed under this act.

Explanation:-If payment of the amount of tax is made by any dealer through cheque and the same is dishonoured by the bank concerned, it will amount to failure on the part of the dealer to pay the amount of tax."

The contention of learned counsel for the petitioner is that Section 11D aforesaid is a charging section imposing a tax liability and such a statute is to be given effect to prospectively and not retrospectively with respect to the earlier assessment years. In support of this contention, reliance has been placed on the decision of the Supreme Court in Karimtharuvi Tea Estate Ltd. Vs. State of Kerala, . That was a case of amendment made in the Income Tax Act and its applicability. The Supreme Court observed as under:-

"Now it is well settled that the Income Tax Act, as it stands amended on the first day of April of any financial year, must apply to the assessment of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force."

The aforesaid observations were relied upon by this Court in L. Rajeshwar Pershad Vs. Commissioner of Income Tax, , also a case under the Income Tax Act.

A perusal of the aforesaid judgments would show that the ratio laid down therein can not be applied to the cases in hand. The amendment made in the Income Tax Act with respect to charging tax on income were to be given effect to the returns filed in respect of assessment year. Any amendment made after start of such an assessment year would not be applicable to the same. Claim for interest on delayed payment of tax assessed would stand at a different footing. Such a claim is not a tax, but is a procedural matter providing machinery for recovery of tax which is compensatory in nature. If order for imposition of lax is passed after enforcement of Section 11D of the Act, as reproduced above and if the amount of tax so assessed is not paid within the period prescribed the liability to pay interest on delayed payment of the tax so assessed could be fastened. Almost identical matter cropped up with regard to charging interest on payment of arrears of tax under the U. P. Sales Tax Act. The matter was considered by the Supreme Court in Prahlad Rai and others Vs. Sales Tax Officer, Meerut and others, . The view expressed by the High Court, as under, was approved:-

"Now Section 8(1-A), no doubt, was added to the U.P. Sales Tax Act with effect from 25th of January 1964, but it provides that if any amount on account of sales tax is in arrears, for a period of six months from the date of service of notice of demand, or from the commencement of the provision, it shall carry interest at the rate of 18%. Admittedly, the Sales tax was in arrears against the petitioners when Section 8 (1-A) came into force and it remained unpaid after the expiry of six months from 25th of January, 1964, when the provision came into force. Interest, therefore, started automatically running on the arrears irrespective of the years to which they related. There is thus no force in this contention."

The provision made u/s 11D of the Act, as reproduced above, is almost on the similar lines as was made in the U.P. Sales Tax (Amendment) Act.

In view of the discussion above, the question referred is answered in the affirmative in both these references, i.e. Section 11D(2) of the Punjab General Sales Tax Act would cover the assessment framed or demand created after induction of the aforesaid provision into the Act, in respect of the year of assessment, prior to such amendment.