Retrospective tax validation upheld, but interest cannot be charged on interest or on amounts already deposited.

Retrospective validation of section 9(2B) of the Central Sales Tax Act and clause 120 of the Finance Act, 2000 was treated as curing the earlier absence of a substantive charging basis for interest, and the constitutional challenge under Articles 14 and 19(1)(g) failed. The deeming fiction was held capable of sustaining levy and collection proceedings despite limitation objections under the Rajasthan Sales Tax Act, 1994, though pending rectification matters were left for decision by the authorities. However, interest cannot be charged on interest, and no interest can be levied on amounts already deposited and lying with the department; those factual questions were left for case-by-case examination.

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Issues: (i) Whether the amendment inserting section 9(2B) of the Central Sales Tax Act, 1956 and the validating provision in clause 120 of the Finance Act, 2000 were unconstitutional or ineffective for want of retrospective operation. (ii) Whether the validating provision could sustain levy of interest and authorise further action notwithstanding the limitation period under the Rajasthan Sales Tax Act, 1994. (iii) Whether interest could be levied on amounts already representing interest or on amounts already deposited and lying with the department.

Issue (i): Whether the amendment inserting section 9(2B) of the Central Sales Tax Act, 1956 and the validating provision in clause 120 of the Finance Act, 2000 were unconstitutional or ineffective for want of retrospective operation.

Analysis: The legislative history showed that interest was initially absent from the substantive charging provision and the defect noticed in prior judicial decisions was later addressed by inserting interest into the substantive part of section 9 and by providing that the State interest provisions shall be deemed always to have applied. The deeming language used in the validation clause reflected retrospective incorporation and cured the earlier absence of a substantive charging basis. The challenge under Articles 14 and 19(1)(g) therefore failed.

Conclusion: The amendment and validating provision were held valid and effective against the constitutional challenge.

Issue (ii): Whether the validating provision could sustain levy of interest and authorise further action notwithstanding the limitation period under the Rajasthan Sales Tax Act, 1994.

Analysis: The Court held that the retrospective deeming clause in clause 120 was intended to validate proceedings for levy and collection of interest and to permit action that could have been taken earlier if the deeming fiction had existed then. In that context, the limitation objection under the rectification provisions could not defeat the retrospective operation of the validating law. Pending rectification matters were nevertheless left to be decided by the authorities in accordance with the relevant provisions and by speaking orders.

Conclusion: The limitation-based challenge was rejected, and the validating provision was held capable of sustaining the impugned levy.

Issue (iii): Whether interest could be levied on amounts already representing interest or on amounts already deposited and lying with the department.

Analysis: The Court accepted that interest cannot be charged on interest and that no interest can be levied on amounts already deposited and retained by the department. The authorities were directed to reconsider the factual position in individual cases and determine whether the demand in substance amounted to charging interest on interest.

Conclusion: The contention was accepted in principle, subject to factual reconsideration by the authorities.

Final Conclusion: The common challenge to the validity and operation of the amendment and validation scheme failed, and the writ petitions were dismissed, while the question of impermissible interest on interest was left to be examined on the facts of each case.

Ratio Decidendi: A statutory validation clause with a clear deeming fiction can retrospectively cure the absence of a substantive charging provision and sustain past and future levy proceedings, but it does not authorise charging interest on interest or on amounts already lying with the department.

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