1973 (4) TMI 78 - SC - VAT and Sales Tax

Supreme Court Upholds Automatic Interest Recovery in Sales Tax Case

The Supreme Court dismissed the appeal, upholding the Full Bench of the Allahabad High Court's decision on the recovery of interest under section 8(1-A) ... Recovery as arrears of land revenue - deeming provision making interest part of tax for recovery - automatic liability to interest by operation of law - no requirement of separate assessment for interest - no requirement of separate notice of demand for interest - arithmetical determination of interest on payment - commencement of statute upon publication in the official GazetteDeeming provision making interest part of tax for recovery - no requirement of separate assessment for interest - no requirement of separate notice of demand for interest - recovery as arrears of land revenue - arithmetical determination of interest on payment - Whether the Sales Tax Officer must make a separate assessment order and issue a notice of demand in respect of interest under section 8(1-A) before forwarding a recovery certificate to the Collector. - HELD THAT: - The Court held that nothing in the Act requires a separate assessment or a separate notice of demand in respect of interest under section 8(1-A). Sub-section (1-A) adds interest to the amount of tax and deems it part of the tax for all purposes, and sub-section (8) permits recovery of tax as arrears of land revenue; section 33 enables the assessing authority to forward a certificate to the Collector which is conclusive evidence of liability and amount. The liability to pay interest is created by statute and arises automatically by operation of law; the precise quantum is a matter of simple arithmetical calculation ascertainable on the date of payment because the rate, base, and commencement date are known and the interest accrues daily. Consequently there is no statutory warrant for requiring a fresh assessment order or a preliminary demand notice prior to issuing a recovery certificate for interest.No separate assessment order or separate notice of demand is necessary before recovery of interest under section 8(1-A); interest may be recovered by forwarding a recovery certificate and treated as part of the tax recoverable as arrears of land revenue.Automatic liability to interest by operation of law - deeming provision making interest part of tax for recovery - Whether the statutory interest under section 8(1-A) ceases to run or is excluded during the period when recovery of the sales tax was stayed. - HELD THAT: - The Court observed that section 8(1-A) contains no provision suspending the running of interest by reason of a stay of recovery. The liability to pay interest is statutorily created and the assessing authority has no discretion to exempt a defaulter from the payment of interest because of a stay. Therefore, the operation of a stay order does not prevent interest from accruing under section 8(1-A).A stay of recovery does not prevent the running or recovery of interest under section 8(1-A); interest continues to accrue as provided by the statute.Commencement of statute upon publication in the official Gazette - The date on which U.P. Act No. 3 of 1964 (amending the Sales Tax Act) came into force. - HELD THAT: - The Court applied clause (b) of sub-section (1) of section 5 of the U.P. General Clauses Act, 1904, holding that where an Uttar Pradesh Act made after the commencement of the Constitution is not expressed to come into force on a particular day, it comes into operation on the day the assent is first published in the official Gazette. Although presidential assent was earlier, the Act was published in the Gazette on February 1, 1964; accordingly the amending Act came into force on that date. The appellant itself had pleaded that date in the High Court.U.P. Act No. 3 of 1964 came into force on February 1, 1964, the date of its publication in the official Gazette.Final Conclusion: The appeal is dismissed. The Court upheld the Full Bench majority: interest under section 8(1-A) is automatically part of the tax recoverable as arrears of land revenue without a separate assessment or demand notice; interest continues to run during a stay; and the amending Act came into force on publication in the Gazette on February 1, 1964. Issues:1. Interpretation of section 8(1-A) of the U.P. Sales Tax Act regarding the recovery of interest.2. Requirement of assessment order and notice of demand for the recovery of interest.3. Applicability of U.P. Sales Tax (Second Amendment) Act, 1963.4. Determination of the date of enforcement of U.P. Act 3 of 1964.5. Liability for interest during the period of stay on sales tax recovery.6. Entitlement to relief in case of reduction of sales tax amount on appeal.Analysis:1. The judgment dealt with the interpretation of section 8(1-A) of the U.P. Sales Tax Act regarding the recovery of interest on arrears of sales tax. The court emphasized that the liability to pay interest is automatic and arises by operation of law, with interest accruing at a specified rate from a particular date. The court clarified that the amount of interest is part of the tax and can be recovered in the same manner as sales tax under the Act.2. The issue of whether an assessment order and notice of demand were necessary for the recovery of interest was also addressed. The court held that there is no statutory requirement for the Sales Tax Officer to issue a separate assessment order or notice of demand specifically for interest. The court explained that the interest amount is calculated based on a predetermined rate and date, making it a matter of simple arithmetic calculation.3. The judgment discussed the applicability of the U.P. Sales Tax (Second Amendment) Act, 1963, which introduced section 8(1-A) regarding the payment of interest on unpaid tax amounts. The court highlighted that the provision was added to strengthen tax collection mechanisms and deter tax evasion, emphasizing the automatic nature of interest accrual under this provision.4. The determination of the date of enforcement of U.P. Act 3 of 1964 was also addressed. The court clarified that the Act comes into operation on the day it is published in the official Gazette, as per the U.P. General Clauses Act, 1904. The court rejected the argument that the Act came into force upon receiving the President's assent.5. The judgment considered the liability for interest during the period of stay on sales tax recovery. The court dismissed the contention that interest could not accrue during a stay order, emphasizing that the statutory liability to pay interest is not subject to the discretion of the Sales Tax Officer and continues to accrue despite any stay on tax recovery.6. Lastly, the issue of entitlement to relief in case of a reduction in the sales tax amount on appeal was briefly discussed. The court noted that any relief due to a reduction in the tax amount on appeal should be pursued through appropriate legal proceedings separate from the issue addressed in the judgment.In conclusion, the appeal was dismissed by the Supreme Court, upholding the majority decision of the Full Bench of the Allahabad High Court regarding the recovery of interest under section 8(1-A) of the U.P. Sales Tax Act.