Karnataka High CourtSatischandra And Co. vs Deputy Commissioner Of Commercial ... on 2 September, 1994Equivalent citations: ILR1994KAR2716Author:S.B. MajmudarBench:S.B. Majmudar,Chief Justice,Tirath S. ThakurJUDGMENT

 

 S.B. Majmudar, C.J.1. In this writ appeal the assessee/writ petitioner has brought in challenge the order passed by the learned single Judge.2. A few facts leading to this petition are required to be noted at the outset :The appellant is an excise contractor. He is also a registered dealer under the Karnataka Sales Tax Act, 1957 (hereinafter referred to for the sake of brevity as "the Act"). The appellant being aggrieved by the vires of the provisions of section 6B of the Act, along with others, had filed a writ petition before the honourable Supreme Court in W.P. Nos. 4227 to 4255 of 1982. The Supreme Court, while issuing notice to the respondents granted an ex parte interim order. The interim order dated June 15, 1982, of the Supreme Court permitted the authorities under the Act to complete the assessments and issue demand notice but restrained the authorities from resorting to recovery proceedings under the Act. The said interim order reads as under :"Pending notices, it shall be open to the respondent to take assessment proceedings for determination of the tax and to issue the notice of demand but recovery pursuant to the demand shall not be effected."Pursuant to that order, the respondent-authorities completed the assessment for the relevant assessment year 1985-86, in the case of the appellant on June 21, 1990. Thereafter, they raised a demand as permitted by the Supreme Court on June 29, 1990. That demand was raised pursuant to the assessment order passed under section 6B in form No. 6 of the Act read with section 13(1) of the Act. As we are to interpret section 13 for resolving the controversy raised before us, it will be useful to extract section 13 in extenso, as under :"13. Payment and recovery of tax. - (1) The tax or any other amount due under this Act shall be paid in such manner in such instalments, subject to such conditions, on payment of such interest and within such time, as may be prescribed.(2) If default is made in making payment in accordance with sub-section (1),(i) the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or any other amount due under this Act; and(ii) the person or persons liable to pay the tax or any other amount due under this Act shall pay a penalty equal to -(a) one and one half per cent of the amount of tax or any other amount due remaining unpaid for each month for the first three months, after the expiry of the time prescribed under sub-section (1); and(b) two and one half per cent of such amount for each month subsequent to the first three months as aforesaid.Explanation. - For purposes of clause (ii), the penalty payable for a part of a month shall be proportionately determined.(2-A) Notwithstanding anything contained in sub-section (2), the State Government may, subject to such conditions as may be prescribed, remit the whole or any part of the payable in respect of any period by any person or class of persons.(3) Any tax assessed, or any other amount due under this Act from a dealer or any other person may without prejudice to any other mode of collection be recovered -(a) as if it were an arrear of land revenue, or  
 

 (aa) by attachment and sale or by sale without attachment of any property of such dealer or any other person by the assessing authority or the prescribed officer in accordance with such rules as may be prescribed;(b) notwithstanding anything contained in theCode of Criminal Procedure, 1973 (Central Act 2 of 1974), on application to any Magistrate, by such Magistrate as if it were a fine imposed by him :Provided that where a dealer or other person who has appealed or applied for revision of any order made under this Act and has complied with an order made by the appellate or the revising authority in regard to the payment of the tax or other amount, no proceedings for recovery under this sub-section shall be taken or continued until the disposal of such appeal or application for revision.(4) The High Court may either suo motu or on an application by the Commissioner or any person aggrieved by the order revise any order made by a Magistrate under clause (b) of sub-section (3)."The notice issued to the appellant on June 29, 1990, was served on July 6, 1990. Notice demanded tax from the appellant and called upon the appellant to pay the same within 21 days. Being armed with the interim stay order of the Supreme Court against recovery of such tax, the appellant did not respond to the notice. It is the case of the Revenue that once 21 days expired from the service of the demand notice, that is on July 27, 1990, the appellant became a defaulter within the contemplation ofsection 13(1)read withsection 13(2)of the act. However, recovery could not be effected of the tax or penalty or any amount thereof, concerning the same, till the stay against the recovery as granted by the Supreme Court was operating. The writ petition came to be dismissed by the Supreme Court on March 4, 1991. Thereafter, the appellant paid some of the tax dues and for remaining tax dues further notice was issued to him. The appellant has no grievance regarding the payment of the balance of tax dues. However, his contention is that from July 27, 1990 to March 4, 1991, as he was armed with the stay order against recovery as granted by the Supreme Court, he cannot by any stretch of imagination be called to be a defaulter in payment of tax as contemplated under section 13(2) of the Act. Of course, he has no objection to payment of appropriate penalty amount undersection 13, sub-section (2) of the Act, for the period from March 4, 1991, onwards till the actual payment of the tax due. Therefore, the short controversy in the present case centres round the liability of appellant to pay penalty, if any, undersection 13, sub-section (2) of the Act, for the period from July 27, 1990 till March 4, 1991 during which the stay order granted by the Supreme Court against recovery pursuant to the demand notice operated.3. As the respondent-authorities insisted on payment of penalty even for that period, the appellant filed writ petition in this Court for appropriate relief restraining respondents from effecting such recovery of penalty.4. Learned single Judge of this Court took the view that as the appellant depended upon the interim order passed by the Supreme Court in the writ petition and subsequently the writ petition came to be dismissed by the Supreme Court, there was no impediment for the respondents to initiate recovery proceedings for the amount due under section 13(2) of the Act, which is an automatic fall-out more so when the validity of the charging provision is upheld by the Supreme Court. That is how the writ petition was dismissed.5. In this appeal against the said order it is vehemently contended by the learned counsel for the appellant that the impugned demand of penalty from the appellant for the said period is ex facie without jurisdiction and null and void for the simple reason that penalty can be levied under section 13(2) of the Act, against a defaulter. But as the appellant cannot be said to be a defaulter, for the relevant period when he was armed with the stay order against recovery, there was no occasion for him to make any payment of tax despite stay, as granted by the Supreme Court, and consequently till the stay was vacated he could not be treated to be a defaulter within the meaning of section 13(2) of the Act. Learned Standing Counsel Shri Ramesh, on the other hand submitted that this aspect of controversy is no longer res integra as it is covered by the Division Bench judgments of this Court, one of which being [1986] 62 STC 418 (App) inSha Ghelabhai Devji & Co. v. Assistant Commissioner of Commercial Taxes. He submitted that followingthe said decisionthis appeal is required to be dismissed. He of course in support of his contention relied upon other Supreme Court decisions to which we will make a reference hereinafter. In the light of these rival contentions the following points arise for determination :1. Whether the appellant can be called a defaulter in payment of tax dues within the meaning of section 13(2) of the Act for the period from July 27, 1990 to March 4, 1991, when there was already a stay order of the Supreme Court current and operative against the Revenue restraining it from recovering the said amount from the appellant ?2. Whether the demand notice issued undersection 13(2)could have been treated to have resulted in the appellant being dubbed as a defaulter only because he did not pay within 21 days from raising of such demand when he was not bound to pay the amount demanded because of the Supreme Court stay order ?3. Whether the decision of the Division Bench of this Court in [1986] 62 STC 418 [App.] (Sha Ghelabhai Devji & Co. v. Assistant Commissioner of Commercial Taxes), is distinguishable on facts or whether it was required to be reconsidered ?4. Whether in the light of the decision of the Supreme Court in  (State of Rajasthan v. Ghasilal) the respondents cannot recover the penalty amount undersection 13(2)for the relevant period ?We shall deal with these points seriatim.6. Point No. 1 : So far as the first point is concerned, a few relevant provisions of the Act, will have to be noted, to appreciate the controversy. The charging section under the Act with which we are concerned is section 6-B, which deals with levy of turnover tax, which at the relevant time required every dealer (other than the Government of Karnataka, the Central Government or the State Government of any other State) whose total turnover in a year exceeded rupees one and a half lakhs whether or not the whole or any portion of such turnover is liable to tax under any other provision of this Act, to pay turnover tax at the rate prescribed by that section. Because of challenge to the vires of the provisions of section 6-B of the Act, the Supreme Court had passed the interim order in the terms as noted earlier. As persection 13(1)the tax or any other amount due under this Act shall be paid in such manner (in such instalments, subject to such conditions, on payment of such interest) and within such time, as may be prescribed. The word "prescribed", according tosection 2(r), means prescribed by the Rules made under the Act. When we turn to the Karnataka Sales Tax Rules, 1957, framed under the Act (hereinafter referred to as "the Rules"), we find rule 20, dealing with the question of adjustment after final assessment. It states that after making the final assessment under sub-rate (2) or (3) of rule 18, the assessing authority shall examine whether any and if so, what amount is due from the dealer towards it after deducting any tax already paid in advance under section 12-B or sub-section (3) of section 25-B and the amount of tax, if any, paid under clause (b) of sub-rule (1) of rule 18, and if any amount is found to be due from the dealer towards the final assessment, the assessing authority, shall serve upon the dealer a notice in form No. 6 and the dealer shall pay the sum demanded within the time and in the manner specified in the notice. The form No. 6 prescribed by the Rules indicates that the concerned assessee has to be intimated that he has been finally assessed to tax under the Act for a particular amount and he may remit the same by money order to the assessing authority or by crossed cheque/crossed demand draft/crossed postal order in favour of the assessing authority; or by remittance into the Government treasury or to the Commercial Tax Inspector/Bill Collector of the office, failing which the amount will be recovered as if it were an arrear of land revenue and that he will be liable to penalty as provided in section 13 of the Act.7. In view of the aforesaid Supreme Court interim order, the Revenue was permitted to complete the assessment and even to raise the demand. Now once demand was permitted to be raised as persection 13(1)read with the aforesaid rules, and by way of notice in form No. 6, it became obvious that there was a demand against the appellant to pay the assessed tax within 21 days of the service of notice of demand. Once, that happened sub-section (2) ofsection 13automatically got attracted and its consequence is automatic, namely, he also becomes a defaulter in the payment of tax in accordance with the said section on account of not making the payment within the specified time and therefore became liable to pay penalty amount under sub-section (2) ofsection 13which is operating.8. Mr. Dattu, learned counsel for the appellant, submitted that the appellant cannot be called a defaulter within the meaning of section 13(2) of the Act, for the simple reason that there was already a stay of recovery against the Revenue.9. Mr. Dattu, in this connection submitted that once the respondents could not have recovered the tax, any attempt by them for such recovery would have violated the Supreme Court stay order and hence there was no occasion for the appellant to pay the demanded tax. He heavily relied upon the decision of the Supreme Court in the case ofState of Rajasthan v. Ghasilal. In that case the Supreme Court was concerned withsection 16(1)(b)of the Rajasthan Sales Tax Act, 1954. The said section provided that if any person has without reasonable cause failed to furnish the return of his turnover, or failed to pay the tax within the time allowed, the assessing authority may direct that such person shall pay penalty in addition to the amount payable by him as mentioned in the section. On the facts of the case before the Supreme Court, it was found thatsection 3, the charging section, read withsection 5made the tax payable and created the liability to pay the tax. But till the tax was ascertained undersection 10or by the assessee undersection 7(2), no tax can be levied undersection 16(1)(b)of the Act. But till then, there would be only liability to be assessed to tax. In the aforesaid case neither the assessee had filed returns nor assessment was made and on the scheme of the Rajasthan act, therefore it was held that there was no tax due. Consequently, there was no occasion for the assessee to pay the said tax, which was due. As a result, penalty provisions were not attracted. Of course it is true as submitted by Mr. Dattu, the penultimate paragraph notes that the stay order passed required the respondent to submit returns and this implied that he had to submit returns in accordance with law, includingsection 7(2), which required every such return shall be accompanied by a treasury receipt or receipt of any bank authorised to receive money on behalf of the State Government showing the deposit of the full amount of tax due on the basis of the return in the Government treasury or bank concerned. However, the Supreme Court was unable to read the stay order as implying that the respondent was obliged to deposit tax. So far as the facts of the present case are concerned, they are entirely different. In this case the Supreme Court permitted the Revenue to complete not only the assessment but also to raise the demand in the light of the assessment. Once the demand is raised, because of the automatic operation ofsection 13(1)read withsection 13(2)of the Act, the appellant could be said to have become a defaulter on the expiry of 21 days of notice. It is true that there was a stay against coercive recovery of that amount. Still there was no prohibition for the appellant without prejudice to his rights and contentions to pay the amount of tax demanded guarding against the possibility of liability to pay penalty if ultimately the stay order got vacated and he lost before the Supreme Court which eventuality actually happened in the facts of the present case. By way of abundant caution, in order to avoid liability to pay the penalty, demanded tax could have been paid. That would not be in violation of the stay order. It has to be appreciated that there was no provision in the Act for imposing any liability of interest on the assessee for late payment of tax except in cases where the assessing authority while granting instalments to the assessee to pay the tax can impose interest but otherwise there is no provision for levying of interest on the tax due if the delayed payment was occasioned by the assessee. Consequently, sub-section (2) ofsection 13which deals with the payment of penalty, in substance amounts to payment of interest by way of compensation to the Revenue for having been deprived of the use of the money which ultimately was found to be payable to it by the assessee when he lost the litigation. Therefore, the net effect of the order of the Supreme Court was that assessing authority could not have enforced coercive recovery of the amount during the currency of the stay order and the assessee was allowed the use of tax amount till final decision of the case. But ultimately when he lost the litigation and it was found that the amount was due and payable to the Revenue, he had to make good the tax amount with the penalty which stated running automatically after 21 days of service of notice of demand as persection 13(2). Consequently, the first point has to be answered against the assessee-appellant.10. Point No. 2 : So far as the second point is concerned, once the Supreme Court granted liberty to the respondent to raise the demand pursuant to the assessment order which was allowed to be passed, the raising of the demand itself would attract sub-section (2) ofsection 13almost automatically on the expiry of 21 days if the demand was not satisfied. The very fact that the Supreme Court permitted that consequence to happen shows that the liability to pay penalty undersection 13(2), once it was attracted, could not be withheld nor was it expected to be countermanded by the stay order. It is true that the assessee was not bound to pay the tax as the Revenue was not entitled to recover it by coercive machinery, pending the stay order. As seen earlier, by way of abundant caution if he had paid up the tax amount he would have avoided the liability of paying penalty undersection 13(2). It is easy to visualise that the stay order of the Supreme Court operated against the Revenue restraining it from enforcing the demand of tax by coercive machinery but did not restrain the appellant-assessee from paying the tax if he so desired by way of abundant caution. If such voluntary payment by the assessee was also to be restrained by the stay order, raising of demand of tax would have been restrained by the Supreme Court to avoid operation ofsection 13(1). But that was not done by the Supreme Court. We cannot treat the permission given by the Supreme Court to raise the demand for tax pending proceedings before it as a mere surplusage or a superfluity. We cannot presume that the Supreme Court was oblivious of the automatic effect ofsection 13(2)once demanded tax was not paid within the requisite time mentioned in the notice of demand. Consequently if the assessee took the voluntary risk of not making the payment awaiting decision of the Supreme Court and if ultimately lost the case, obviously he cannot avoid the automatic operation ofsection 13(2). The second point therefore also has to be rejected.11. Point No. 3 : So far as third point is concerned it is necessary to have a close look at the decision of the Division Bench in [1986] 62 STC 418 (Kar) [App] (Sha Ghelabhai Devji & Co. v. Assistant Commissioner of Commercial Taxes). In that case, the tax dues were sought to be recovered by issuance of notice. The defaulter/assessee had not complied with that notice. On the contrary a writ petition was filed wherein a stay was obtained against the recovery. Ultimately when the stay was vacated and when the Revenue sought to recover the amount of penalty undersection 13(2)for that period it was contended by the assessee that he was not liable to be treated as a defaulter. This contention was rejected by the Division Bench of this Court. Relying on various decisions of this Court and the Supreme Court, in paragraph 28 at page 426 the following pertinent observations are made :"For the period from 10th November, 1975 to 9th June, 1978, the petitioner had the benefit of an order of stay in Writ Appeal No. 555 of 1975 subject to his furnishing security. In the present case also, the petitioner has the benefit of a similar order made on 5th April, 1979, which has continued ever since then without any further modification. We are of the view that those stay orders only postponing the liabilities or preventing the recoveries, cannot be read as destroying the liability created bysection 13(2)of the Act, which operates notwithstanding the interim orders made by this Court. In any event, those orders obtained by the petitioner at his own risk, do not touch on the validity ofsection 13(2)of the Act. We are of the view that these factors neither touch on the construction ofsection 13(2)nor its validity at all."12. An effort was made by Mr. Dattu to distinguish the judgment by submitting thatin that casedefault had already occurred because the assessee had not paid the tax demanded within 21 days and thereafter he had come to High Court and obtained stay. In our view, that would not make any difference so far as the ratio of the decision of the Division Bench is concerned. The ratio is not based on the fact that a default once committed cannot get obliterated by the stay order. The decision is to be effect that stay orders only postpone the liability or prevent the recoveries. But the liability undersection 13(2)operates notwithstanding the stay order given by the court. Thus the stay operates at the risk of the assessee. It does not touch on the validity ofsection 13(2). We are in respectful agreement with the said view of the Division Bench.It does not require reconsideration as it is based on various Division Bench judgments of this Court and even of the Supreme Court inHaji Lal Mohd. Biri Works v. State of U.P., which is relied on by the learned counsel for the Revenue. It has been in terms held therein that liability to pay interest under section 8(1A) of the U.P. Sales Tax Act is automatic and raises by operation of law. It is not necessary to even specify it in the recovery certificate. Mr. Dattu submitted placing reliance on a later Constitutional Bench judgment of the Supreme Court that liability for penalty is different from that for interest. We will refer to that judgment a little later.Suffice it to stay that in [1973] 32 STC 496 (Haji Lal Mohd. Biri Words v. State of U.P.) the Supreme Court at page 500 of the Report has considered a similar argument which was advanced by Mr. Sen for the assessee that interest on arrears of sales tax could not be realised for the period the order was stayed. The Supreme Court disallowed this contention as there was nothing in the language ofsection 8(1A)of that Act which prevented the running of interest because of the operation of any stay order. Indeed the liability to pay interest was created by the statute and the Sales Tax Officer had no discretion to grant any exemption from payment of interest. Mr. Dattu tried to distinguish this judgment by submitting that Supreme Court was concerned with the interest and we are concerned with penalty.So far as penalty is concerned, the Constitutional Bench of the Supreme Court in the case ofJ. K. Synthetics Ltd. v. Commercial Taxes Officer, has taken the view that when there is already a provision in a statute for charging or levying interest on delayed payment of tax it must be construed as a substantive law and not adjectival law. In the absence of such statutory provision, interest cannot be charged on the delayed payment.It is difficult to appreciate how this judgment can help Mr. Dattu. In the present case, there is a provision for charging penalty undersection 13(2)and as there is no provision for levy of interest against delayed payment of the tax as noted earlier,section 13(2)for penalty has to be treated in substance as a provision for interest on delayed payment of tax due.13. So far as last point is concerned, we have already discussed it while dealing with point No. 1, the decision of  (State of Rajasthan v. Ghasilal). As observed thereinthe said decisionwas rendered in the peculiar facts situationin that caseand in the light of the provisions of theRajasthan Sales Tax Act. The said decision, as we have discussed earlier, is of no assistance to the assessee. However, Mr. Dattu placed strong reliance on the last but one paragraph ofthe said decisionwherein it is observed that the Supreme Court was unable to read the stay order as implying that the respondent was obliged to deposit tax, for the stay order then would be of no utility to the assessee. These observations have to be read in the light of the earlier observations to the effect that tax had not become due as he was not assessed and under these circumstances even voluntary deposit of tax with the return was not an obligation of the assessee. These observation cannot be read out of context for submitting that once there is a stay order against recovery of tax under no circumstances the tax can be voluntarily deposited by the assessee to avoid payment of penalty or interest which would accrue automatically on demand which is permitted to be raised by the Revenue as per the very same stay order. There is, therefore, no substance even in the last point. These are the only points canvassed before us and as there is no substance in any of these points the appeal fails and is dismissed.14. Writ appeal dismissed.