Compensatory interest on delayed sales tax payment upheld; rational classification and accrual from the prescribed due date confirmed.

Section 47(4-A) of the Gujarat Sales Tax Act was explained as a compensatory interest provision incidental to the power of levy and collection of tax, not a penal measure, so it fell within legislative competence and was not a colourable exercise of power. The classification between a dealer in default and the State as a refunding authority was held to be rational, so different interest treatment did not violate article 14. Interest was construed as running from the expiry of the prescribed time or specified date when tax became payable, including sums later determined on assessment or reassessment.

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Issues: (i) Whether section 47(4-A) of the Gujarat Sales Tax Act, 1969 was within the legislative competence of the State Legislature and was not a colourable exercise of power. (ii) Whether section 47(4-A) was violative of article 14 of the Constitution of India on the ground of discrimination between dealers and the State. (iii) Whether section 47(4-A) required to be construed as making interest payable from the date of filing of the declarations or returns, or only from the later stage urged by the petitioners.

Issue (i): Whether section 47(4-A) of the Gujarat Sales Tax Act, 1969 was within the legislative competence of the State Legislature and was not a colourable exercise of power.

Analysis: Payment of interest for delayed payment of tax was treated as an incident of the power to provide for levy and collection of tax. The provision was held to be a recognised method of ensuring realisation of revenue and to operate as a compensatory measure for deprivation of the State's funds. Since the Act separately contained a provision for penalty, section 47(4-A) was not regarded in substance as a penal provision merely because the rate of interest was fixed by the Legislature. The absence of discretion with the sales tax authorities and the absence of inquiry provisions did not affect competence, because the provision was not characterised as a penalty.

Conclusion: Section 47(4-A) was within legislative competence and was not a colourable exercise of power.

Issue (ii): Whether section 47(4-A) was violative of article 14 of the Constitution of India on the ground of discrimination between dealers and the State.

Analysis: The distinction between a dealer who defaults in payment of tax and the State which is liable to refund excess tax was held to be a real and rational classification. The State was treated as a separate class because its dues are public dues and its funds are deployed for public purposes. Different rates of interest and different starting points for interest were therefore held not to be arbitrary merely because they did not mirror one another. The challenge based on parity with refund provisions was rejected because the two situations were not and did not require identical treatment under article 14.

Conclusion: Section 47(4-A) was not violative of article 14.

Issue (iii): Whether section 47(4-A) required to be construed as making interest payable from the date of filing of the declarations or returns, or only from the later stage urged by the petitioners.

Analysis: The provision was construed in the context of the scheme of section 47 and the rules governing payment of tax. The Court held that sales tax becomes due when the taxable event occurs, even though collection may be postponed. A dealer is expected to file true and complete returns and pay the correct tax within the prescribed time. If the correct amount is not paid then the State is deprived of its money from that point onward, and interest is payable to compensate that deprivation. The provision was therefore read as covering tax unpaid from the expiry of the prescribed time or specified date, including amounts later found due on assessment or reassessment.

Conclusion: Interest under section 47(4-A) was payable from the expiry of the prescribed time or specified date, as applicable, and the demand of interest on that basis was valid.

Final Conclusion: The petitions challenging the constitutional validity and operation of section 47(4-A) failed, and the impugned interest demands were upheld.

Ratio Decidendi: A statutory provision imposing interest for delayed payment of tax is compensatory and incidental to the power of levy and collection of tax, and a rational classification may validly differentiate between tax defaulters and the State in matters of interest liability.

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