TaxTMI 
TaxTMI 
1973 (9) TMI 75
X X X X Extracts X X X X
X X X X Extracts X X X X
.....50 being sales tax due and payable under the Central Sales Tax Act and the balance of the claim admitted by the liquidator plus the claim rejected by the liquidator as ordinary debt ranking pari passu with other unsecured Creditors. It was conceded that the claim of Rs. 195.42 has been rightly disallowed by the liquidator and no claim is made in that behalf. Petitioner also prays that the liquidator be directed to admit the claim of the penalty amount as being the debt entitled to payment pari passu with other unsecured creditors including the penalty amount which has been levied for the period subsequent to the date of the order of winding up. Company was ordered to be wound up by an order made on 26th June, 1967. The liquidator after obtaining directions of the court invited the creditors of the company to prove their debts or claims and simultaneously to establish any title they may have to priority under section 530. Pursuant to this invitation to prove the debts, the Sales Tax Officer, Petlad, submitted as many as five affidavits, the last being the most comprehensive filed on 21st August, 1971, claiming an aggregate amount of Rs. 70,945.60 as the amount of sales tax plus ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2,829.75 31-12-57 1-1-58 to 27-4-62 16-12-66 17-12-66 6,065.03 3,781.21 2,117.43 31-12-58 1-1-60 to 20-1-64 31-1-67 31-1-67 23,178.44 22,197.63 1029.89 31-12-60 1-1-61 to 20-1-64 31-1-67 1-2-67 25,204.43 24,266 08 1,137.36 31-12-61 rectification order 29-8-67 2-9-67 100.00 100.00 1-1-62 to 31-12-62 20-1-64 31-1-67 1-2-67 21.178.53 20,992.52 367.92 1-1-63 to 31-12-63 20-1-64 31-1-67 1-2-67 30,079.50 29,370.79 741.83 1-1-64 to 31-12-64 13-6-66 31-1-67 1-2-67 34,405.95 33.226.19 1,258 83 1-1-65 to 31-12-65 13-6-66 31-1-67 12-2-67 20,944.67 20,464.22 481.45 CLAIM UNDER THE CENTRAL SALES TAX ACT 1-1-57 to} 31-12-57 27-4-62 16-12-66 17-12-66 8,196.03 5,957.82 2,238 45 1-1-58 to 31-12-58 27-4-62 16-12-66 17-12-66 3,858.99 1.685.82 2.17317 1-1-59 to 31-12-59 27-4-62 16-12-66 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lause is divided into two parts: (i) the amount in respect of which priority is claimed must be due from the company at the relevant date; and (ii) it must have become due and payable within 12 months next before that date. This word "due" implies or conveys different meanings in the juxtaposition in which it is used in two parts of the same clause. Ordinarily, when the same word is used in two parts of the same clause or for that matter of the same section, legislature may intend to use it to convey the same meaning unless of course the context in which it is used contra-indicates the same. Subject, however, to this well-known canon of construction, the safest rule is to put a literal construction on the language used in the statute, unless of course such construction leads to absurdity. As observed by Lord Warrington in Barrell v. Fordree [1932] A.C. 676 (H.L.), at page 682, the safer and more correct course of dealing with a question of construction is to take the words themselves and arrive, if possible, at their meaning without, in the first instance, reference to cases, because this rule of construction is based on the well-known principle that the legislature has meant what ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....umbent upon him to invite the creditors to prove their debts. Rule 147 of the Companies (Court) Rules, 1959, provides that the liquidator has to fix the date on or before which all the creditors of the company are to prove their debts or claims and to establish any title they may have to priority under section 530. Obviously, proof will be offered and can be accepted in respect of the debt outstanding on the date of winding-up. If it was not outstanding on the date of winding-up, the liquidator cannot entertain proof of such debt because nothing was outstanding on the date on which he steps in and acquires jurisdiction to distribute the assets of the company according to the provisions contained in the winding-up chapter of the Companies Act. Not only this, rule 156 enables the creditors to claim interest up to the date on which winding-up order is made and rule 179 provides in certain circumstances payment of interest subsequent to the date of winding-up. Obviously, therefore, looking to the juxtaposition in which section 530 is placed in the scheme of Chapter V of Part VII of the Companies Act, and looking to the purpose for which sub-clause (a) is enacted, the word "due" in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....time prior to the relevant date, or, for a period preceding 12 months next before the relevant date. Such amount would undoubtedly be due from the company at the relevant date. In respect of such an amount the first part of the clause would necessarily be satisfied but before priority could be claimed and granted, it will have to be found out whether that debt which was outstanding at the relevant date became due, meaning thereby that the event which brought debt into existence occurred within 12 months and also it became payable, meaning thereby its payment could have been enforced against the company within 12 months. Three specific conditions are prescribed in sub-clause (a) and all the three must co-exist and be satisfied in respect of any particular debt for which priority is claimed before priority in payment can be accorded to it. These three conditions are: (i)debt of the kind mentioned in clause (a) must be outstanding on the relevant date; (ii)the debt must have become due, in the sense, it must have been incurred at any time within 12 months next before the relevant date; and (iii)the debt must have become payable at any time within 12 months next before the rel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as confirmed in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax [1966] 59 I.T.R. 767, 780; [1966] 2 S.C.R. 688 (S.C.), wherein the Supreme Court observed as under: "The said decisions also accept the legal position that a liability depending upon a contingency is not a debt in praesenti or in futuro till the contingency happened. But if there is a debt the fact that the amount is to be ascertained does not make it any the less a debt if the liability is certain and what remains is only the quantification of the amount". Learned Advocate-General urged that while construing the expression "having become due and payable" it would be improper to rely on the ratio of the case because the court in that case was concerned with the expression "debts owed" as it finds its place in the definition of "net wealth" in section 2(m) of the Wealth-tax Act, 1957. In fact, in a very elaborate judgment, the Division Bench examined what constitutes "debt" and whether the meaning undergoes change because of the context in which that word is used in the definition of the expression "net wealth". The context, however, did not affect the intrinsic meaning of the word "debt" as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f but it is a tax on the sale of goods It has to be ascertained as to when sales tax which is a tax on sale of goods becomes due and when it becomes payable. In respect of the sales tax it is agreed that three independent situations can be envisaged. They are : (i)when a return is submitted by the assessee, computing therein tax payable as per the return and the amount is paid and challan is submitted along with the return; (ii)when a return is submitted and tax is computed as per the return but the amount of tax so computed is not paid; and (iii)when the assessee submits the return and simultaneously computes the tax as per the return and pays the same along with the return but at the time of assessment by the authority concerned, more tax than what is computed and paid by the assessee is found due and payable by the assessee and, pursuant to the assessment, a demand notice is issued Learned Advocate-General claimed priority in respect of the tax which becomes payable under the third category and did not argue that as and when tax is made payable, priority ought to be granted. Therefore in this case I am concerned with the third situation in which the case of the petit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....long with the quarterly return of his turnover he has to submit a challan showing payment of tax computed on the return submitted by him. And if there is delay in submission of the return and payment of tax as per the return he must add to the tax payable by him the amount of penalty computed as per the provisions contained in sub-section (4) of section 16. This provision is very important to find out as to when tax becomes due. A tax becomes due when the taxing event occurs. Taxing event in the case of sales tax is sale of goods. The person liable to pay tax is the registered dealer and method of payment is quarterly submission of return showing turnover and payment of tax as per the return. Penalty is payable when tax which has become due is not paid. One cannot levy penalty for non-payment of tax or non-payment of tax within prescribed period unless the tax has become and due payable. The charging sections in the Bombay Sales Tax Act, 1953, clearly show that the tax is levied on sale of specified goods at the specified rates and it is payable every three months when a duty is cast on the registered dealer to submit his return. This duty is ascertainable because the moment the re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t tax became due when assessment is made, or it has already become due daring the relevant period for which assessment is being made and became payable when assessment order is made? The scheme of the Sales Tax Act does not leave an assessee option not to pay tax till assessment proceeding is completed and assessment order is made. In fact, the scheme entails a liability on the assessee himself first to compute the tax while submitting his return and pay the same. His failure to pay tax as per his computation, or his failure to submit return within the stipulated time, and to pay tax at the time of submitting return would entail liability to payment of penalty which again has to be computed by him and paid along with the tax. It is this provision which shows the incidence of tax. Therefore, in the scheme of the Sales Tax Act, taxing event appears to be sale of goods. Mode of payment is that it is deferred till quarterly return is submitted. Tax became due when taxing event occurred, namely, sale of goods took place. It became payable when the return was to be submitted, because the assumption underlying the scheme is that the assessee will submit correct return and pay tax computed....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... liability to pay tax such as every sale by the registered dealer may entail liability to pay sales tax. In the case of income-tax when a certain quantum of income is reached within the accounting year, then at the end of the accounting year, having regard to certain income which is taxable, liability to pay tax arises. Payment of advance income-tax stands on a different footing. In the case of payment of advance income-tax, as the statute authorises the competent authority to ask for payment of advance income-tax, notice to the assessee to pay the same makes advance tax due and payable from the date on which tax is demanded. But in the case of ordinary income-tax as understood in contradistinction to advance income-tax, there is consensus of judicial opinion that it becomes due at the close of the accounting year and becomes payable when assessment is made. I would refer to some of the authorities bearing on the subject when I examine the authorities relied on by either side in this case, but at this stage it is sufficient to say that the analogy about income-tax becoming payable on the assessment order being made and demand notice being served will not assist in determining as to....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... whether by the assessment order it is quantified or not. In this connection it is advantageous to refer to Recols (India ) Ltd., In re. [1953] 23 Comp. Cas. 380, 381 ; 4 S.T.C. 271 ; [1954] I.L.R. 2 Cal. 378 [S.B.] It is necessary to examine in some detail this judgment because both the sides have relied upon it; the learned Advocate-General relied on the judgment of Chakravarti C. J. and Mr. Shah, for the official liquidator, relied upon the judgment of Sinha J. though reference to the Special Bench has been answered back by unanimous decision. The matter came up before a Special Bench consisting of three judges of the Calcutta High Court upon a reference made by a single judge of that High Court which was in the following words : "Whether sales tax is to be treated as a preferential debt within the meaning of section 230 of the Indian Companies Act (which is in pari materia with section 530(1)(a) of the Companies Act 1956)? From which date-from the date of demand or the date when the sale price is received, or any other date?" The answer of the Bench was that the amount of sales tax which became due and payable on the date of service of notice of demand was entitled to pre....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., manner and method of payment of tax, it was observed [1953] 23 Comp. Cas. 381, 396; 4 S.T.C. 271 ; [1954] I.L.R, 2 Cal. 378 [S.B.]: "The cumulative effect of sections 4, 5 and 6 of the Act is that the tax becomes due as soon as the gross turnover within the taxable period exceeds the taxable quantum. It is true that the dealer is entitled to certain deductions under section 5 and exemptions under section 6, but all that is taken into account in arriving at the 'taxable turnover'. Such an adjustment must have to be calculated and in all probability is calculated by the dealer just before drawing up the return. But that process cannot hold up the tax being due". This view of Sinha J. lends assurance to the view I have already taken that tax becomes due when the taxing event occurs. It may further become payable when the return is submitted as initially tax is to be paid according to the return; where the whole or part of the return is not accepted then tax becomes payable when assessment takes place. But even if tax becomes payable at some future date, it is none-the-less tax which was due for the period for which return is submitted or in respect of sales which took place or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ench of the Madras High Court in that case was in respect of advance income-tax and as to when it becomes due and payable. The liability to pay advance income-tax stands on a different footing and the assessee becomes liable to pay advance income-tax on a notice served upon him and, therefore, advance income-tax becomes due and payable on the date of the receipt of the notice. But the liability to pay sales tax stands on a different footing and this case would not lend any assistance in deciding the question raised in this matter. In Income-tax Officer v. Official Liquidator [1957] 37 Comp. Cas. 114 ; 63 I.T.R. 810 (Mys.) claim for priority in payment of income-tax was negatived. In fact the case has been disposed of on its own facts. But, Mr. Shah drew my attention to this case in support of his submission that the observation of the Patna High Court in In the matter of Bihar Bolts and Engineering Works [1959] 29 Comp. Cas. 482 ; 10 S.T.C. 578 ; A.I.R. 1959 Pat. 537 on the question whether the amount should become due as well as payable within 12 months was not approved and was in fact questioned. But, as the case has been disposed of on its own facts, I need not examine it furthe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ffected though it might have become payable when the assessment is made. If the conclusion herein recorded is correct, then the claim for priority has been rightly negatiyed by the liquidator because even though amount for which priority is claimed was the amount of tax arrears that became payable at the time of making assessment order after giving credit for what was paid along with the return, yet it was due for a period much prior to 12 months next before the relevant date and even if it has become payable on the assessment order being made and demand notice being issued, as both the conditions did not co-exist and are not satisfied, claim for priority has been rightly negatived by the official liquidator and there is no reason to interfere with the order. Next contention of the learned Advocate-General was that the official liquidator was in error in rejecting the claim for penalty in its entirety. It is true that the liquidator has rejected the entire claim of penalty. Now, penalty is also levied for the period preceding the relevant date. The amount of penalty levied till the relevant date under the Bombay Sales Tax Act, excluding the amount not pressed by the learned A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his Act or the law of insolvency), all debts payable on a contingency, and all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible to proof against the company, a just estimate being made, so far as possible, of the value of such debts or claims as may be subject to any contingency, or may sound only in damages, or for some other reason may not bear a certain value". Section 528 provides as to what debts should be admitted to proof in winding-up in respect of a company other than an insolvent company, Section 529 specifically provides for application of insolvency rules in winding up of insolvent companies. Section 529 reads us under : "529. Application of insolvency rules in winding up of insolvent companies.-(1) In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to - (a)debts provable; (b)the valuation of annuities and future and contingent liabilities; and (c)the respective rights of secured and unsecured creditors; as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wn by law itself, there is no reason to grant any other preference in favour of tax liability. It was, however, contended that penalty is nothing but tax itself under a different nomenclature and liability to pay tax cannot come to an end if it otherwise accrues merely because winding-up order is made. Reference was made to K. V. Adinarayana Setty v. Commercial Tax Officer, Kolar Circle, Kolar [1963] 14 S.T.C. 587 (Mys.). The matter came up before a Division Bench of the Mysore High Court by way of criminal revision petition against the order made by the Magistrate who had ordered issue of warrant for attachment of movables of the respondent for recovering sales tax in arrears. Section 13(3)(b) of Mysore Sales Tax Act, 1956, enabled the Commercial Tax Officer to collect tax as distinct from penalty due under the Central Sales Tax Act by approaching a Magistrate. It was, however, contended that respondent would not be legally liable to pay any amount claimed as penalty under section 13(2) of the Mysore Act, because even if any person makes default in payment of the tax under the Central Sales Tax Act, he is not under any liability to pay penalty under section 13(2) of the Mysore ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is nothing but by way of interest on arrears of sales tax. Penalty in every case may not partake the character of interest on tax which is not paid. Full Bench of the Andhra Pradesh High Court in State of Andhra Pradesh v. Godavarthi Kasiviswanadham [1970] 25 S.T.C. 1 (A.P.) [F.B.], observed that penalty under the Sales Tax Act is clearly separate and distinct from the tax and the usual proceedings taken for the assessment of the tax are not sufficient for the levy of penalty also, because penalty is not merely incidental to assessment proceedings. It was, however, observed that the word "tax" as used in the Act does not include penalty. The two are treated therein as distinct and separate. What exactly is the nature of penalty in a given case may depend upon the provisions of the statute under which it is levied. It may partake the character of interest in the case of delayed payment of tax. It may be punitive in character, in order to punish the dishonesty or contumacy of the dealer. A very broad proposition that penalty under a taxing statute always partakes the character of interest cannot be accepted. If the penalty in a given case partakes the character of interest, then ....