Tax recovery interest must follow the statute's graduated scale; dealers stay liable despite credit sales and unpaid invoices.

Section 8 of the Jammu and Kashmir General Sales Tax Act, 1962 was within legislative competence as part of the tax recovery machinery, and the challenge under Article 265 failed. The graduated interest provisions were not discriminatory or arbitrary under Article 14 and were upheld. Dealers remained liable to pay quarterly tax on taxable turnover even where sales were on credit or the sale price had not been received, and absence of prior demand did not excuse default. Interest could not be charged at the maximum rate for the entire default period; it had to be computed strictly under the statutory graduated scale, so the impugned interest demands were modified to that extent.

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Issues: (i) whether sub-sections (1), (2) and (3) of section 8 of the Jammu and Kashmir General Sales Tax Act, 1962 were unconstitutional for want of legislative competence under Article 265 of the Constitution of India; (ii) whether sub-section (2) of section 8 was discriminatory, arbitrary or unreasonable under Article 14 of the Constitution of India; (iii) whether dealers who sold goods on credit or whose purchasers had not yet paid the sale price were nevertheless bound to pay quarterly tax by the prescribed date and liable for interest on default; and (iv) whether interest could be levied at the maximum rate for the whole period of default instead of the graduated rates prescribed by section 8(2).

Issue (i): whether sub-sections (1), (2) and (3) of section 8 of the Jammu and Kashmir General Sales Tax Act, 1962 were unconstitutional for want of legislative competence under Article 265 of the Constitution of India.

Analysis: The levy and collection of tax include not only the charging provision and assessment machinery but also the ancillary and incidental power to provide effective recovery measures. Quarterly tax under section 8(3) was a statutorily prescribed mode of advance collection before assessment, and interest on default operated as a means of compelling timely payment. The State Legislature was therefore competent to enact the impugned provisions as part of the tax recovery mechanism.

Conclusion: The challenge under Article 265 failed and the provisions were held valid.

Issue (ii): whether sub-section (2) of section 8 was discriminatory, arbitrary or unreasonable under Article 14 of the Constitution of India.

Analysis: Differential fiscal treatment among States does not by itself establish hostile discrimination, because sales tax is a State subject and each State may adopt its own methods for raising and securing revenue. The graduated rates of interest were treated as a recovery measure in fiscal legislation and were also balanced by the corresponding interest payable by the State on delayed refunds under the Act.

Conclusion: The challenge under Article 14 failed and sub-section (2) was upheld.

Issue (iii): whether dealers who sold goods on credit or whose purchasers had not yet paid the sale price were nevertheless bound to pay quarterly tax by the prescribed date and liable for interest on default.

Analysis: Liability to sales tax attached to the dealer on the taxable turnover and did not depend on receipt of the sale price from customers. The statutory scheme required quarterly tax to be paid before filing the return, and section 64-A of the Sale of Goods Act, 1930 governed the inter se rights of buyer and seller, not the seller's statutory liability to the State. The absence of a prior demand notice did not exempt a dealer from the statutory obligation to pay quarterly tax within time.

Conclusion: The dealers remained liable to pay quarterly tax and interest notwithstanding credit sales or absence of a prior demand notice.

Issue (iv): whether interest could be levied at the maximum rate for the whole period of default instead of the graduated rates prescribed by section 8(2).

Analysis: Section 8(2) fixed a graded scale of interest depending on the length of default, and the assessing authority could not apply the highest rate retrospectively to the entire period of default. Interest had to be calculated by applying one per cent per month for the first three months, two per cent per month for the next three months, and three per cent per month only for the period beyond six months.

Conclusion: The impugned interest orders were to the extent they applied the maximum rate to the whole period, and the assessees succeeded on this limited ground.

Final Conclusion: The constitutional validity of section 8 was sustained, but the interest demands were modified so that recovery could be made only according to the statutory graduated scale for the period of default; the challenges succeeded only to that limited extent.

Ratio Decidendi: A taxing statute may validly include interest for delayed payment as part of its recovery machinery, but such interest must be levied strictly in the manner and rates prescribed by the statute.

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