Interest demand nearly four years after assessment held unreasonable beyond three-year rectification; assessee relieved, recovery from assessing officer

SC held that the High Court was not justified in deleting interest solely for lack of notice, but nonetheless found the department's demand for interest made nearly four years after assessment to be unreasonable and beyond the three-year rectification period. Consequently the assessee is not liable to pay the demanded interest; the department may pursue recovery from the Assessing Officer responsible for the inordinate delay, not from the assessee. Civil appeal dismissed.

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Issues Involved:
1. Limitation on subsequent proceedings.
2. Necessity of notice before demanding interest.
3. Automatic accrual of interest by operation of law.
4. Reasonable period for demanding interest.

Issue-Wise Detailed Analysis:

1. Limitation on Subsequent Proceedings:
The respondent argued that the subsequent proceedings to the assessment were barred by limitation. The assessment order for the year 1977-78 was passed on 6th June 1986, and the respondent deposited the tax in two installments by 30th August 1986. However, the assessing authority passed another order on 30th July 1990, imposing interest on the unpaid tax amount. The respondent contended that the rectification order could only be passed within three years from the date of the assessment order, making the impugned order invalid due to being issued beyond this period.

2. Necessity of Notice Before Demanding Interest:
The High Court quashed the order of demand of interest on the ground that no notice in writing was issued to the dealer before passing the impugned order. It was observed that even if the dealer was liable to pay interest on the late payment of tax, a notice was necessary. The impugned order dated 30th July 1990 did not indicate that any notice was sent to the dealer, thus making the order unsustainable. The Tribunal's decision to remand the matter to the assessing authority was also deemed erroneous.

3. Automatic Accrual of Interest by Operation of Law:
The appellant argued that the levy of interest is by operation of law and does not require a separate order. The Supreme Court referred to several precedents, including Commissioner of Sales Tax v. Qureshi Crucible Center, which held that the levy of interest is automatic and does not necessitate a separate order. Similarly, in The Sales Tax Officer, Sector I, Kanpur & Anr. v. M/s. Dwarika Prasad Sheo Karan Dass, it was held that the liability to pay interest arises automatically by operation of law, and no fresh notice of demand is required.

4. Reasonable Period for Demanding Interest:
Despite the automatic accrual of interest, the Supreme Court considered whether the demand for interest was made within a reasonable period. The assessment order did not include a claim for interest, and the demand was made nearly four years later. The Court noted that for rectification of the assessment order, a limitation period of three years is laid down. Since the demand for interest was made after almost four years, it was held that the demand was not within a reasonable period. Consequently, the assessee was not liable to pay the interest demanded. The Court suggested that the Department could recover the interest amount from the assessing officer responsible for the delay.

Conclusion:
The Supreme Court dismissed the civil appeal, agreeing with the High Court's decision that the demand for interest was not justified due to the inordinate delay. The Court upheld the principle that while the accrual of interest is automatic, demands must be made within a reasonable period. The judgment emphasized the necessity of adhering to procedural requirements and reasonable timeframes in tax assessments and demands.

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