Retrospective taxability of REP licence sales upheld, but interest limited to the date the law was settled.

A judicial declaration that REP licences are "goods" was treated as a clarification of the existing law and therefore operated retrospectively, so sales of REP licences could be included in taxable turnover for an assessment period before that declaration, provided the assessment was otherwise within limitation. Interest on the resulting tax liability was recoverable only from the date the law was settled, because the assessee could not be in default before the tax obligation became ascertainable. The assessment was upheld, but the interest component was restricted to the period commencing on 1 May 1996.

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Issues: (i) Whether tax could be levied on sales of REP licences for an assessment period prior to the Supreme Court's decision declaring REP licences to be goods; (ii) whether interest on the tax attributable to such sales could be demanded, and if so, from what date.

Issue (i): Whether tax could be levied on sales of REP licences for an assessment period prior to the Supreme Court's decision declaring REP licences to be goods.

Analysis: The declaration that REP licences are goods was treated as a clarification of the existing legal position and not as the creation of a new rule. Such a declaration was held to operate retrospectively unless the Supreme Court itself expressly limited it to prospective operation. As the assessment for the relevant quarter was not barred by limitation when made, the taxing authority was competent to include the sale proceeds of REP licences in the taxable turnover under the Bengal Finance (Sales Tax) Act, 1941.

Conclusion: Tax on the sales of REP licences was validly leviable, and this issue was decided against the assessee.

Issue (ii): Whether interest on the tax attributable to sales of REP licences could be demanded, and if so, from what date.

Analysis: Interest was held recoverable once the tax liability became ascertainable after the Supreme Court's decision, because payment of tax then became obligatory. However, for the period before that decision, the assessee could not be faulted for not having included or paid tax on the sales of REP licences, since the legal character of such licences was unsettled. Accordingly, interest was not chargeable for the pre-decision period, but became chargeable from the date of the Supreme Court's judgment.

Conclusion: Interest could be demanded only from 1 May 1996, and not for the period preceding that date; this issue was decided partly in favour of the assessee.

Final Conclusion: The assessment on sales of REP licences was upheld, but the interest component was restricted to the period commencing on the date of the Supreme Court's decision, with corresponding modification of the assessment order.

Ratio Decidendi: A judicial declaration that a commodity is goods for sales tax purposes ordinarily operates retrospectively as a statement of the law, but interest on the resulting tax liability cannot be imposed for the period before the law was settled when the assessee was not in default on a known liability.

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