Suo motu revision and tax interest principles: audit note-based initiation upheld, but pre-liability interest rejected.

Suo motu revision under section 40 of the Haryana General Sales Tax Act was valid because an audit note could be used as source material, provided the authority independently examined the assessment record and formed its own view; the reassessment of liability on consignment sales was therefore sustained. Interest could not be charged for any period before the revisional order first fixed the tax liability, because the assessee was not in default before that date; the rule in J.K. Synthetics applied, while Calcutta Jute Manufacturing was distinguished. Interest was confined to the period after the revisional determination.

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Issues: (i) Whether initiation of suo motu revision under section 40 of the Haryana General Sales Tax Act, 1973 was vitiated because it was based on an audit note. (ii) Whether interest could be levied for the period prior to the revisional order dated May 7, 1998, when tax liability on consignment sales was determined.

Issue (i): Whether initiation of suo motu revision under section 40 of the Haryana General Sales Tax Act, 1973 was vitiated because it was based on an audit note.

Analysis: The power under section 40 enables the Commissioner or the delegated authority to call for the record and satisfy himself as to the legality or propriety of an assessment order. Material coming from an audit note may be used as source information, but the notice and the resulting order are not invalid merely because an audit note exists, provided the authority has independently examined the assessment record and formed its own opinion. The notice in the present matter showed examination of returns and trading accounts, and the reasons recorded disclosed an independent conclusion that rice sold in Haryana had been procured from paddy purchased outside the State.

Conclusion: The challenge to the revisional initiation failed; the suo motu revision was valid and the finding on tax liability was sustained.

Issue (ii): Whether interest could be levied for the period prior to the revisional order dated May 7, 1998, when tax liability on consignment sales was determined.

Analysis: Interest liability cannot precede the date on which tax liability is first fastened where the assessee was not previously liable to pay that tax. The rule in J.K. Synthetics Ltd. applied because the assessee could not be treated as in default before the revisional determination. The later decision in Calcutta Jute Manufacturing Co. was distinguishable on its facts, since there the tax was already payable but withheld during litigation. Here, the liability on consignment sales arose only with the revisional order.

Conclusion: Levy of interest for the period before May 7, 1998 was illegal, but interest could be charged from that date onward.

Final Conclusion: The assessment-related liability on consignment sales stood confirmed, while the pre-determination interest demand was set aside and interest was confined to the period after the revisional order.

Ratio Decidendi: A revisional notice under section 40 is not invalid if the authority independently applies its mind to the assessment record, even where an audit note is one of the materials considered; interest on tax cannot be levied for any period before the assessee is legally made liable to pay that tax.

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