1989 (9) TMI 373 - HC - VAT and Sales Tax

Court upholds constitutionality of tax law differentiating State/private dealers; interest accrual during stay orders; notices meet fairness standards.

The court upheld the constitutionality of section 59 of the Haryana General Sales Tax Act, 1973, finding the differentiation between the State and private ... - Issues Involved:1. Legality and constitutional validity of section 59 of the Haryana General Sales Tax Act, 1973.2. Imposition of interest and penalty under sections 59 and 30 of the Act.3. Alleged violation of principles of natural justice.4. Whether the State is obligated to pay interest on excess tax collected.5. The impact of stay orders on the accrual of interest.6. Procedural fairness in the issuance of notices for interest and penalty.Detailed Analysis:1. Legality and Constitutional Validity of Section 59:The petitioners challenged the constitutional validity of section 59 of the Haryana General Sales Tax Act, 1973, arguing it violated Article 14 of the Constitution of India. They contended that the provision subjected assessees to hostile discrimination by charging interest from the date the tax or penalty first became due, without a corresponding obligation on the State to pay interest on excess amounts collected.The court held that the classification between the State and private dealers is reasonable and based on intelligible differentia. The differentiation has a rational relation to the object sought to be achieved by the statute, which is to ensure prompt collection of revenue. The court concluded that the provisions of section 59 do not offend Article 14 of the Constitution.2. Imposition of Interest and Penalty:The petitioners argued that the interest should only be charged on the amount ultimately found due, and since the matter was still sub judice, the interest should not have been levied. The court rejected this argument, stating that the liability to pay interest accrues automatically by operation of law, even if the recovery of tax is stayed by appellate authorities or courts. The court emphasized that interest starts running by operation of law and the expression 'ultimately found due' indicates modifications or adjustments made in orders on appeal.3. Alleged Violation of Principles of Natural Justice:The petitioners claimed that no notice was issued before determining their liability to pay interest. The court found this argument meritless, noting that a show cause notice had been issued, and the petitioners had contested it. The court held that the service of notice is excluded when the liability to pay interest is automatic and arises by operation of law. The Assessing Authority is not obligated to issue a show cause notice before levying interest on the arrears of tax assessed.4. Obligation of the State to Pay Interest on Excess Tax Collected:The petitioners argued that the State should be obligated to pay interest on excess amounts collected. The court held that no provision is necessary for coercing the State to refund excess tax collected, as the State forms a class in itself and does not fall within the category of dealers. The tax is collected in exercise of the sovereign powers of the State, and the classification between the State and private dealers is reasonable and has a direct nexus with the object of the Act.5. Impact of Stay Orders on Accrual of Interest:The petitioners contended that interest should not be charged for the period during which the recovery of tax was stayed. The court rejected this contention, citing the Supreme Court's decision in Haji Lal Mohd. Biri Works v. State of U.P., which held that the liability to pay interest is created by statute and is not affected by stay orders. The court affirmed that interest accrues automatically by operation of law, regardless of stay orders.6. Procedural Fairness in Issuance of Notices:The petitioners argued that no notice was given before imposing the penalty. The court found that a notice had been issued, and the petitioners were fully aware of the case they had to meet. The court held that the flaw in the notice (mentioning the wrong section) was not fatal to the penalty proceedings, as the petitioners had been afforded an opportunity to explain their position.Conclusion:The court dismissed the writ petitions, finding no merit in the arguments presented by the petitioners. The provisions of section 59 of the Haryana General Sales Tax Act, 1973, were upheld as constitutionally valid, and the imposition of interest and penalty was found to be in accordance with the law. The court also held that the procedures followed did not violate principles of natural justice.