1984 (2) TMI 301 - SC - VAT and Sales Tax

Court upholds constitutionality of J&K Sales Tax Act sections but limits interest rates, allows appeals.

Khazan Chand Versus State of Jammu and Kashmir & Vidyawanti Devi jain Versus State of Jammu and Kashmir

The court upheld the constitutionality of sub-sections (1), (2), and (3) of Section 8 of the Jammu and Kashmir General Sales Tax Act, 1962. However, it ... Constitutional validity of sub-sections (1), (2) and (3) of section 8 of the Jammu and Kashmir General Sales Tax Act, 1962 (J & K Act 20 of 1962) challenged Held that:- Appeal partly allowed. Though we uphold the constitutionality of sub-sections (1), (2) and (3) of section 8 of the Jammu and Kashmir General Sales Tax Act, 1962, we make the rule issued in each of the writ petitions before us absolute only to the extent that we restrain the State of Jammu and Kashmir from recovering from the assessees who are petitioners before us interest on the amount of quarterly tax paid after the expiry of the date prescribed for payment thereof by sub- section (3) of section 8 of the Act at a rate other than the rate of one per cent per month for the first three months of default and at the rate of two per cent per month for the next three months of default and at the rate of three per cent per month for the period of default exceeding six months. We also allow the appeals filed by the assessees who are appellants before us to the same limited extent by setting aside the order of dismissal of their writ petitions passed by the Jammu and Kashmir High Court and making the rule issued in each of those writ petitions absolute only to the limited extent specified above. Issues Involved:1. Constitutionality of Sub-sections (1), (2), and (3) of Section 8 of the Jammu and Kashmir General Sales Tax Act, 1962.2. Violation of Article 265 of the Constitution of India.3. Violation of Article 14 of the Constitution of India.4. Payment of tax by assessees who sold goods on credit.5. Legality of interest exceeding the amount of tax.6. Necessity of notice of demand for interest.7. Imposition of interest at maximum rates.Detailed Analysis:1. Constitutionality of Sub-sections (1), (2), and (3) of Section 8The court upheld the constitutionality of sub-sections (1), (2), and (3) of Section 8 of the Jammu and Kashmir General Sales Tax Act, 1962. The court found that the provisions were within the legislative competence of the State Legislature and did not violate any constitutional provisions.2. Violation of Article 265 of the Constitution of IndiaThe assessees argued that charging interest for late payment of tax violated Article 265, which states 'no tax shall be levied or collected except by authority of law.' The court held that the legislative power to impose a tax includes the power to provide for its collection and recovery, which encompasses the imposition of interest for late payment. Therefore, the provisions of Section 8 were not violative of Article 265.3. Violation of Article 14 of the Constitution of IndiaDiscrimination Argument:The assessees contended that the high rates of interest were discriminatory compared to other states. The court rejected this argument, stating that the Constitution allows states to have different laws based on local needs and conditions.Arbitrariness Argument:The court acknowledged that the interest rates were high but found them to be neither arbitrary nor unreasonable. The court noted that the same rates applied to the State Government in cases of delayed refunds, ensuring fairness.4. Payment of Tax by Assessees Who Sold Goods on CreditThe assessees argued that they should not be liable to pay tax until they received payment from their customers. The court rejected this argument, clarifying that the liability to pay sales tax is on the dealer, irrespective of whether the sale price has been received.5. Legality of Interest Exceeding the Amount of TaxThe court found no merit in the argument that interest exceeding the amount of tax was illegal. The court emphasized that the provisions were designed to ensure prompt payment and were not meant for the benefit of defaulting taxpayers.6. Necessity of Notice of Demand for InterestThe assessees argued that interest could not be levied without a notice of demand. The court clarified that under sub-section (3) of Section 8, the time for payment of quarterly tax is statutorily fixed and does not depend on the issuance of a notice of demand. Therefore, the argument was dismissed.7. Imposition of Interest at Maximum RatesThe court found that the assessing authorities had incorrectly imposed interest at a uniform rate for the entire period of default. The correct interpretation of sub-section (2) of Section 8 required a graduated rate of interest: 1% per month for the first three months, 2% per month for the next three months, and 3% per month for any period exceeding six months. The court restrained the State from recovering interest at rates higher than those specified.ConclusionThe court upheld the constitutionality of sub-sections (1), (2), and (3) of Section 8 but restrained the State from recovering interest at rates other than those specified. The court allowed the appeals to the limited extent of correcting the interest rates and granted three months' time for payment of the recalculated interest. No order as to costs was made.