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CASE NO.: Appeal (civil)  3414 of 1982

PETITIONER: J.K.SYNTHETICS LTD.

RESPONDENT: COMMERCIAL TAXES OFFICER

DATE OF JUDGMENT: 09/05/1994

BENCH: M.N.VENKATACHALLIAH CJI & A.M.AHMADI & JAGDISH SARAN VERMA & G.N.RAY & S.P.BHARUCHA  

JUDGMENT: JUDGMENT

Delivered by A.M. Ahmadi, J

AHAMADI,  J.               These  appeals by special leave  are  directed against  certain  assessment order made  by  the  Commercial Taxes  Officer  relating to the  Assessment  Years  1975-76, 1976-77 and 1977-78 under the Rajasthan Sales 280 Tax Act, 1954 (hereinafter called ’the Act’) and the Central Sales Tax Act, 1956 (hereinafter called ’the Central  Act’). The  question relates to payment of interest on tax  on  the amount of freight charged in respect of sale of cement under the  relevant Cement Control Order.  The returns were  filed by  the appellant on the premiss that the amount of  freight charged in respect of sale of cement under the said  Control Order did not form part of the sale price for the payment of sales  tax.  The appellant contends that it had  raised  the contention bona fide but the same was rejected by this Court by  its  judgment and order dated 22-8-1978 in the  case  of Hindustan  Sugar  Mills Ltd. v. State of  Rajasthan  &  J.K. Synthetics  Ltd. v. CTO, Kota’.  By the said  decision  this Court held that the freight element formed part of the price of  cement  and  sales tax was leviable on  the  sale  price inclusive  of  the  freight  amount.   The  appellant   was, therefore,  required  to  pay sales tax on  the  sale  price inclusive  of the freight.  There is now no dispute  on  the question  of computation of the sale price  for  calculating the  sales tax.  The dispute now is limited to  whether  the appellant  is  required to pay interest  on  the  additional sales  tax  which  had to be paid on the  inclusion  of  the freight amount in calculating the sale price.  According  to the  appellant interest under Section 11 -B of the  Act  can only   be   charged  for  the  period  subsequent   to   the determination  of sales tax under the final  assessment  and that  too after the expiry of the period allowed  under  the Notice  of Demand issued on finalisation of the  assessment. This contention of the assessee is countered by the Revenue. According  to the latter, interest becomes payable from  the date  on which the original return was filed  under  Section 7(2) or 7(2-A) of the Act, as the case may be.  The assessee supports  its  contention on the decision of this  Court  in State  of Rajasthan v. Ghasilal2 whereas the Revenue  places reliance   on  the  decision  rendered  by  this  Court   in

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Associated Cement Co. Ltd. v. CT03 wherein it was held  that where  a  return  is filed under Section 7(2)  of  the  Act, interest  runs from the date of filing of the  return.   The assessee,  however,  seeks to distinguish it on  the  ground that the case related to deposit of differential tax  tinder Section  7(2-A)  oil’  the  Act.   We  will,  therefore,  be required  to  interpret  Sections  7(2),  7(2-A)  read  with Section 11 -B of the Act and Section 9(2) of the Central Act and  the ratio of the decisions on which reliance  has  been placed. 2.   Under  the Act by virtue of the charging Section 3  the liability to pay tax arises.  Section 5 prescribes the  rate of  tax.  Section 7(1) provides that every dealer liable  to pay  tax  shall  furnish returns of  his  turnover  for  the prescribed  periods  in  the  prescribed  form  and  in  the prescribed  manner  within  the  prescribed  time,  to   the assessing  authority.   Section 7(2) says  that  every  such return shall be accompanied by a treasury receipt or receipt of  any  authorised  bank showing the deposit  of  the  full amount  of  tax  due  on the basis  of  the  return  in  the government treasury or bank concerned. 1    Hindustan  Sugar  Mills  Ltd. v.  State  of  Rajasthan, (1978) 4 SCC 271: 1978 SCC (Tax) 225: (1 979) 43 STC 13 2    (1965) 16 STC 318: AIR 1965 SC 1454: (1965) 2 SCR 805 3  (1981) 4 SCC 578: 1982 SCC (Tax) 3: (1981) 48 STC 466 281 Sub-section (2-A) added to Section 7 by Rajasthan Act 13  of 1963   with  effect  from  29-4-1963,  empowers  the   State Government  notwithstanding sub-section (2) to  require  any dealer or class of specified dealers to pay tax at intervals shorter than those prescribed under sub-section (1) in which case  the  dealer  will  deposit the  tax  at  such  shorter intervals.   Such deposit of tax shall, under Section  7(4), be   deemed   to  be  provisional,  subject   to   necessary adjustments  in  pursuance of the final assessment  of  tax. Section  7-A enjoins the making of a provisional  assessment on  best-judgment  basis  if the dealer fails  to  submit  a return  or fails to deposit tax as required by Section  7(2- A).   Section  7-AA prescribes the penalty  for  failure  to furnish the returns.  According to Section 10 the assessment and  determination  of tax due for any year, shall  be  made after  the  returns for all the periods of  that  year  have become  due.   Section 11 -B makes  provision  for  charging interest on failure to pay tax, fee or penalty.  Clauses (a) and (b) of the said Section 11 -B before its substitution by Act 4 of 1979 w.e.f. 7-4-1979, read as under :               "11  -B.  Interest on failure to pay tax,  fee               or  penalty.-  (a) If the amount  of  any  tax               payable  under sub-sections (2) and  (2-A)  of               Section  7  is  not  paid  within  the  period               allowed, or               (b)   If the amount specified in any notice of               demand, whether for tax, fee, or    penalty,               is  not  paid within the period  specified  in               such notice, or in the    absence   of    such               specification, within 30 days from the date of               service  of  such notice, the dealer shall  be               liable  to pay simple interest on such  amount               at  one  per  cent  per  month  from  the  day               commencing  after the end of the  said  period               for a period of three months and at one and  a               half per cent per month thereafter during  the               time  he  continues  to make  default  in  the               payments."               (The  two   provisos are not material for  our

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             purpose.) 3.   The Rajasthan Sales Tax Rules, 1955, hereinafter called ’the  Rules’,  provide  in Chapter VII  for  the  filing  of returns, etc.  Rule 25 provides that the return referred  to in Section 7(1) shall be in Form ST 5 and shall be signed by the  dealer or his agent.  The said return has to  be  filed for such quarters ending with the last day of the months  of June, September, December and March of every assessment year if  the ’previous year’ of the dealer ends on 31st March  of any year, and in other cases for each of the quarters of the year  of accounts of the dealer.  The rule further  provides that  if the return is not accompanied by a receipt  showing deposit  of tax as required by Section 7(2),  the  Assessing Authority  shall  not  be bound to take  cognizance  of  the return.   If  we turn to Form ST 5 we find  that  column  11 thereof requires the dealer to indicate the turnover for the quarter concerned and permits certain deductions  enumerated therein.   The  return  has to be  verified  in  the  manner indicated  at  the  foot of the form.   It  was,  therefore, contended  on behalf of the Revenue that a conjoint  reading of Section 7 and Rule 25 clearly brings out that the  dealer or  his  agent  is under an obligation to file  a  true  and complete  return and hence the. failure to deposit  the  tax due on the turnover as determined on final assessment  would entail liability to pay interest.  It may 282 be noted that Section 26(5) of the Act makes all rules  made under  the said provision and duly published in the  Gazette to form part of the Act itself on such publication. 4.   The  assessee  contends  that since  the  present  case related to the deposit of differential tax under sub-section (2-A)  of  Section  7  and  not  under  Section  7(2),   the differential  tax required to be paid would be on "the  full amount  of  tax  due shown in the  return".   Since  in  the present  case the full amount of tax ,shown’ in  the  return was  deposited no such demand for interest as has been  made could  be  entertained.   The  Revenue  on  the  other  hand contends that when the law enjoins on the assessee to file a ’return’,  it can only mean a true and correct return,  that is, a return which reflects the tax due on final assessment. Therefore,  contends the Revenue, as the whole amount  found due  on final assessment was not included in the return  and the  full amount of tax due on that basis was not  deposited as  required by law, interest became payable  under  Section 11-B of the Act.  The assessee on the contrary relies on the difference in language between sub-sections (2) and (2-A) of Section  7 and emphasising on the words "amount of  tax  due shown  in the return" found in sub-section (2-A) of  Section 7,  which phraseology is not to be found in sub-section  (2) of  that section, contends that no interest can  be  charged under Section 11 -B. 5.   Sub-sections  (2) and (2-A) of Section 7 as they  stood before  their amendment by Rajasthan Act 4 of 1979, read  as under :               "(2) 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  return               in the Government Treasury or Bank concerned.               (2-A)  Notwithstanding anything  contained  in               sub-section  (2), the State Government may  by               notification  in the Official Gazette  require               any  dealer  or  class  of  dealers  specified               therein, to pay tax at intervals shorter  than

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             those  prescribed under sub-section  (1).   In               such cases, the proportionate tax on the basis               of  the last return shall be deposited at  the               intervals  specified in the said  notification               in advance of the return.  The difference,  if               any,  of  the  tax payable  according  to  the               return  and  the  advance tax  paid  shall  be               deposited with the return and the return shall               be  accompanied  by the  Treasury  receipt  or               receipts  of  any Bank authorised  to  receive               money  on behalf of the State Government,  for               the  full  amount  of tax  due  shown  in  the               return." In  sub-section (2-A), by Amending Act 4 of 1979, the  words "tax  according  to his accounts" were substituted  for  the words  "proportionate tax on the basis of the  last  return" and  the latter part of the sub-section was restructured  by deleting  the  words "[t]he difference, if any, of  the  tax payable  according  to the return and the advance  tax  paid shall be deposited with the return" and making the  sentence a  running  one.   Sub-section  (3)  permits  a  dealer  who discovers  any error or omission in his return to  submit  a revised return in the 283 prescribed  manner  before  the  time  prescribed  for   the submission of the next return but not later. 6.   Now Section 7(2) says that every ’such’ return, meaning thereby  the  return referred to in Section 7(1),  shall  be accompanied  by  a receipt showing the deposit of  the  full amount  of tax due "on the basis of the return".   In  other words  the dealer is required to pay the full amount of  tax that  becomes due on the basis of the particulars in  regard to  the  turnover  and taxable  turnover  disclosed  in  the return.   Sub-section  (2-A)  begins  with  a  non  obstante clause,  namely, notwithstanding anything contained in  sub- section  (2),  and  provides that any  dealer  or  class  of dealers  specified  in the notification may pay the  tax  at intervals  shorter than those prescribed  under  sub-section (1),  in  which  case  the tax shall  be  deposited  at  the intervals  specified in the notification in advance  of  the return  and the return shall be accompanied by  the  receipt for  the  full  amount of tax due  "shown  in  the  return". Although the phraseology used in sub-sections (2) and  (2-A) of Section 7 is not the same, the content and purport of the two sub-sections is more or less identical, namely, both the sub-sections require that the return shall be accompanied by a receipt evidencing the deposit of the "full amount of  tax due"  on  the  basis of the return or on the  basis  of  the information shown in the return.  The full amount of tax due and payable prior to the submission of the return is clearly relatable  to  the  information  furnished  in  the  return. Undoubtedly,  the information to be furnished in the  return must  be "correct and complete", that is, true and  complete to  the  best of knowledge and belief;  without  the  dealer being guilty of wilful omission.  This is the essence of the verification clause found at the foot of Form ST 5. Rule  25 expects  the verification of the return to be in the  manner indicated in Form ST 5. Therefore, on a conjoint reading  of Section 7(1), (2) and (2-A), Rule 25, the information to  be furnished  under Form ST 5 and the form of verification,  it becomes  clear that the dealer must deposit the full  amount of  tax  due on the basis of  information  furnished,  which information Must be correct and complete to the best of  the dealer’s  knowledge  and belief without he being  guilty  of wilful   omission.   If  the  dealer  has   furnished   full

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particulars  in  respect of his business,  without  wilfully omitting or withholding any particular information which has a  bearing  on  the assessment of  tax,  which  he  honestly believes to be "correct and complete", it would be difficult to  hold  that  the  dealer had not  acted  "bona  fide"  in depositing  the  tax  due on  that  information  before  the Submission of the return. of course the tax so deposited  is to  be  deemed to be provisional and  subject  to  necessary adjustments  in pursuance of the final assessment.   Section 7-AA empowers levy of penalty if the assessing authority  is satisfied  that  any dealer has "without  reasonable  cause" failed to furnish the return under Section 7( 1) within  the time  allowed.   The use of the  words  "without  reasonable cause"   clearly  implies  that  if  the  dealer  can   show reasonable cause for his lapse he cannot be visited with the penalty  prescribed by Section 7-AA.  To put it  differently if reasonable cause is shown by the dealer for the lapse, he cannot  be visited with penalty under this provision.   This is also suggestive of the fact that the legislature desired 284 to be harsh with wilful defaulters or those guilty of wilful Omission  of material information and not with  dealers  who failed  to  supply some information under  the  "bona  fide" belief  that  the same was not necessary or  those  who  had failed to pay the full tax due not with a view to evading or avoiding the liability to pay the tax but because they  bona fide believed that they were liable to pay the tax  assessed by  them  on the basis of the return and no more.  If  at  a later date on the basis of a different interpretation put on the  language  of the relevant provisions of  the  law,  the dealer  becomes liable to pay tax in excess of that  already paid, he may be called upon to make good the difference  but he cannot be visited with penalty under Section 7-AA  unless it  is  shown that the dealer had withheld  payment  of  the differential   tax   by   wilfully   withholding    material information  or  had  acted  without  reasonable  cause   in committing  the default.  The assessee, therefore,  contends that  there  was  no wilful omission in  not  including  the freight  charges in the price of the commodity on the  basis whereof  the tax was assessed before filing of the  returns; on  the contrary, contends the assessee, it had acted  "bona fide" having regard to the ratio of this Court’s decision in Hyderabad  Asbestos Cement Products Ltd. v. State of A.  P.4 Counsel   for  the,  Revenue,  however,  points   out   that considerations  for the levy of penalty under  Section  7-AA are  different  from  those  which  guide  the  recovery  of interest under Section 11 -B and while in a given case  levy of  penalty may not be permissible, recovery of interest  on unpaid tax amount may still be justified. 7.   As  the relevant Assessment Years in question are  from 1975-76 to 1977-78 we are concerned with Section 11-B as  it stood  before its substitution by Act 4 of 1979 w.e.f.  7-4- 1979.  Section 11 -B then provided that if the amount of any tax payable under sub-sections (2) and (2-A) of Section 7 is not  paid  within  the time allowed or  if  the  tax  amount specified  in  any notice of demand is not paid  within  the period  specified, the dealer shall be liable to pay  simple interest  on  such amount at one per cent per  month  for  a period of three months and thereafter at one and a half  per cent per month during the time he continues to make  default in  the  payments.   However, according  to  Section  11  -B substituted by Act 4 of 1979 w.e.f. 7-4-1979, the  liability to  pay interest accrues (a) where the dealer has  furnished returns  but  has  failed to pay the tax  as  per  the  said returns  or within the time allowed; (b) where a dealer  has

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furnished a revised return under Section 7(3) whereunder the amount of tax payable is larger than that already paid;  (c) where  a  dealer has filed his return after  expiry  of  the prescribed period but has not paid the tax as per return  or within  the time allowed; (d) where a dealer is required  to pay tax without furnishing a return for any period and  such tax is not paid in full by the due date; (e) where a  dealer required to furnish returns pays tax for any period  without furnishing  returns; and (f) where the liability to pay  tax is  quantified  in  respect of a dealer  who  had  submitted returns for the period for which the tax is 4 (1969) 24 STC 487: (1969) 1 SCWR 560 285 quantified.   It will thus be seen that under Section 11  -B before  the 1979 Amendment the liability to pay interest  on unpaid  tax amount accrued on the dealer in  two  situations only,  viz.,  (i)  failure to pay the  tax  due  under  sub- sections (2) And (2-A) of Section 7 and (ii) failure to  pay the  tax within the time allowed by the notice of demand  or 30  days  from  the receipt of the  notice  by  the  dealer. Section  11  -B before its amendment  nowhere  provided  for payment  of  interest on the unpaid tax amount as  found  on final  assessment from the date of the filing of the  return under  Section 7 of the Act.  If the amount of  tax  payable under sub-section (2) is paid on the basis of return, not on the  basis of final assessment, there can be no question  of payment  of  interest  under clause (a) of  Section  11  -B. Similarly,  if  the tax is paid according to the  return  as required  by sub-section (2-A), in other words, if the  full amount  of tax due ’shown’ in the return is paid, there  can be  no  question of charging interest under  clause  (a)  of Section  11 -B.  So far as clause (b) is concerned it  is  a post  assesment situation.  Where tax is found due on  final assessment  and  the  dealer is required to  make  good  the difference,  a notice of demand will issue.  If  the  dealer fails  to  pay  the tax within the  time  specified  in  the notice, and if no time is specified within 30 days from  the receipt  of  notice, he is required to pay interest  at  the rates  prescribed  by the sub-section.  But if he  pays  the difference  of tax within the prescribed time, there  is  no question of charging interest.  If such an interpretation is not  placed  and if the Revenue’s plea is  accepted  serious anomalies  would surface.  Firstly, if the liability to  pay interest on the balance tax amount accrues from the date  of submission of returns under Section 7, clause (b) of Section 11  -B read with Section 1 1(2) would be rendered  nugatory. Otherwise one would be required to hold that interest  would be  payable from the date of submission of the  return  till the  date of issuance of notice of demand and thereafter  no interest  would  have  to be paid till  the  expiry  of  the specified  period  or  30  days, as the  case  may  be,  and thereafter  interest would have to be paid at a  given  rate for the first three months and thereafter at a higher  rate. Such  could not be the legislative intent.   Secondly,  take the  case of a dealer who has failed to submit a return  and is  subjected  to  assessment of tax on the  basis  of  best judgment.   Pursuant to the said assessment he deposits  the tax.   Such a dealer would not be liable to pay interest  on the  balance  tax if the tax assessed under  Section  10  is higher than what was provisionally assessed.  He can  always claim that he cannot be made liable to pay interest for  the error of the authority in making the provisional  assessment under  Section  7-A.   The defaulter would be  in  a  better position than a dealer who complies with the requirement  of Section 7(1).  And if he can show reasonable cause, he would

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also  escape the penalty clause in Sections 7-AA and  16(1). More or less a similar situation may arise in the matter  of payment  of  interest where provisional assessment  is  made under  Section  7-B.   Of course such a  dealer  may  become liable to penalty but that is a different matter altogether. Take also the case of a dealer who submits a return  without depositing  the tax on the basis thereof.  Under Rule  25(4) the authority may or may not take cognizance of the  return. If 286 cognizance is not taken the dealer would be treated on a par with one who has not submitted a return but if cognizance is taken  he  must  be  treated as one who  is  liable  to  pay interest  under  clause  (a) of Section  11-B  of  the  Act. Therefore,  the  view  canvassed by  the  Revenue  leads  to incongruous  situations which can never be  the  legislative intent.   This  is  how the situation  emerges  on  a  plain reading  of the provisions of the Act as they  stood  before Act  4 of 1979 came into force.  After the  substitution  of Section  11-B  by Act 4 of 1979 the  situation  has  changed altogether.   What  we have said earlier has nothing  to  do with  Section 11-B as introduced by Act 4 of 1979.   We  may now examine the case law on which reliance was placed. 8.   The decision rendered by the Constitution Bench of this Court in the case of Ghasila2 turned on the following facts. The  Act  had come into force on 1-4-1955  while  the  rules framed thereunder were published in the Rajasthan Government Gazette  on  28-3-1955.  Ghasilal challenged the  making  of assessments  on  his turnover for the year  1955-56  on  the ground  that the rules were invalid.  The High Court in  the writ  petition  filed by Ghasilal made an interim  order  on 9-1-1958  that  Ghasilal will maintain proper  accounts  and file the prescribed returns and the Revenue will not  assess him  till further orders.  During the pendency of  the  writ petition the rules were validated by Ordinance No. 5 of 1959 (which  later became an Act).  Thereupon  Ghasilal  withdrew his  writ petition.  Thereafter on 4-12-1959, the Sales  Tax Officer,  Kota  City Circle, sent him  a  show-cause  notice asking him to deposit the tax due up to date within a  week, failing  which  he  threatened  to  take  necessary   action permissible in law.  On receipt of the notice Ghasilal filed a return in respect of the 4th quarter ending on  22-10-1957 and  deposited  the tax of Rs 11,808.37. On  25-4-1960,  the Sales  Tax  Officer  made an assessment in  respect  of  the accounting period from 3-11-1956 to 22-10-1957 and imposed a penalty under Section 16(1)(b) of the Act on the ground that the  assessee  had  not deposited the tax  for  the  earlier quarters  on the due dates and the tax for the  4th  quarter was  deposited after a lapse of two years.  His  appeal  was dismissed  by  the  Deputy Commissioner  of  Sales  Tax  who endorsed  the view that the interim order of the High  Court had  not  precluded  the assessee from paying  the  tax  and filing  the returns.  On the same line of reasoning  penalty was  also  levied  for  the  subsequent  periods.   Ghasilal challenged  the levy of penalty by a writ petition  and  the High  Court allowed the same.  It may be noted that  Section 7-AA  was not on the statute book then and the  penalty  was levied  under Section 16(1)(b) as it then stood which  inter alia  provided for imposition of penalty if the tax due  was not  paid within the time allowed.  The submission  made  on behalf  of Ghasilal was that there was no breach of  Section 16(1)(b) inasmuch as no tax was due till the assessee  filed his returns under Section 7(1) of the Act because the tax to be  deposited  as  required  by  Section  7(2)  was  to   be calculated on the basis of the return.  There cannot be non-

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compliance of Section 7(2) unless a return is filed  without depositing  the tax due on the basis of the return.   Hence, counsel  contended, there was no violation of  Section  7(2) and so long as the tax was not assessed and determined as 287 required  under  Section 10, the liability  for  payment  of penalty  did  not  arise.  On the  other  hand  the  Revenue contended  that  the liability to pay tax had  arisen  under Sections 3 and 5 of the Act and the delay in complying  with the  demand  notice entailed imposition  of  penalty.   This Court held :               "According  to the terms of Section  16(1)(b),               there  must be a tax due and there must  be  a               failure  to  pay the tax due within  the  time               allowed. ... Section 3, the charging  section,               read with Section 5, makes tax payable,  i.e.,               creates  a liability to pay tax.  That is  the               normal  function  of a charging section  in  a               taxing  statute.  But till the tax payable  is               ascertained  by the assessing authority  under               Section  10, or by the assessee under  Section               7(2),  no  tax can be said to  be  due  within               Section  16(1)(b)  of the Act, for  till  then               there  is only a liability to be  assessed  to               tax." The  situation  may be different after the  introduction  of Section 7-A.  The contention based on the show-cause  notice was  brushed aside as one without substance as  the  learned counsel  for  the  Revenue was unable to show  any  rule  or section  under  which  it  was  issued.   On  this  line  of reasoning  this  Court upheld the High  Court  decision  and dismissed the appeal. 9.   Before  we  proceed  further  we  must  emphasise  that penalty  provisions  in  a  statute  have  to  be   strictly construed  and that is why we have pointed out earlier  that the  considerations  which may weigh with the  authority  as well  as the court in construing penal provisions  would  be different  from  those  which would weigh  in  construing  a provision providing for payment of interest on unpaid amount of tax which ought to have been paid.  Section 3, read  with Section 5 of the Act, is the charging provision whereas  the rest  of the provisions provide the machinery for  the  levy and  collection  of  the tax.  In  order  to  ensure  prompt collection of the tax due certain penal provisions are  made to  deal  with  erring  dealers  and  defaulters  and  these provisions being penal in nature would have to be  construed strictly.  But the machinery provisions need not be strictly construed.  The machinery provisions must be so construed as would enable smooth and effective collection of the tax from the dealers liable to pay tax under the statute.  Section  1 1 -B provides for levy of interest on failure of the  dealer to  pay tax due under the Act and within the  time  allowed. Should  this  provision be strictly construed or  should  it receive  a  broad and liberal construction,  is  a  question which  we will have to consider in determining the sweep  of the said provision.  We will do so at the appropriate  stage but for the present we may notice the thrust of this Court’s decision in the case of Associated Cement Co. Ltd.3 10.  That was a case in which the Company had submitted  its returns  under  the Act as well as the Central Act  for  the period   between  1-8-1973  and  31-7-1974  accompanied   by receipts  evidencing the payment of tax on the basis of  the said  returns.   The  freight  charges  were,  however,  not included  in the taxable turnover on the plea that the  said charges  were not liable to be so included.  However,  after

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the  decision of this Court in Hindustan Sugar Mills  Ltd.’, revised  returns  including the freight charges  were  filed along  with receipts evidencing the deposit of  the  balance tax amount under both the 288 statutes.   In the assessment order made under the  Act  the authority  imposed  penalty under Section  7-AA  and  levied interest  under  Section 11 -B of the Act for the  delay  in depositing the tax amount relatable to the freight  charges. A  similar order was made under Section 9(2) of the  Central Act.   The  Company pleaded that it had acted bona  fide  in omitting  to include the freight charges in its turnover  as the  view expressed by this Court in Hyderabad Asbestos  Co. Ltd.4  held  the  field till it came  to  be  explained  and distinguished   in  the  subsequent  cases  of  Birla   Jute Manufacturing  Co.  Ltd. v. CST5 and Hindustan  Sugar  Mills Ltd.  1 The Company also pointed out that within two  months after  the judgment of this Court in the latter case it  had filed  revised returns including the freight charges in  its taxable  turnover and paid the tax due thereon  even  before the  assessment  orders were made.   The  three-Judge  Bench which  decided the case was unanimous in its view  that  the Company  had  acted  bona fide in omitting  to  include  the freight charges in its taxable turnover and, therefore,  the levy  of  penalty  under Section 7-AA of  the  Act  was  not sustainable.  However, the Bench was divided on the question of liability to pay interest under Section 11-B of the  Act; Sen and Venkataramiah, JJ. taking the view that the levy  of interest  was  legal and proper while Bhagwati,  J.  holding that  the  demand  was  not  legally  sustainable.   It  is, therefore,  necessary  to  place into sharp  focus  the  two points  of  view  to appreciate  the  rationale  in  support thereof. 11.  The majority view was expressed by Venkataramiah, J. on behalf of himself   and  Sen,  J. with  which  Bhagwati,  J. dissented.  Venkataramiah, J. speaking  for   the   majority points out that interest claimed on unpaid tax dues has been described  as  compensatory  in  character  and  not  penal. Dealing  with  the  assessee’s contention  that  as  it  had deposited  the  full amount of tax due on the basis  of  the returns  filed under Section 7(1), and had thereby  complied with  Section  7(2),  and  had  subsequently  deposited  the additional  tax  on  the basis  that  freight  charges  were includible  in  the taxable turnover  while  submitting  the revised return under Section 7(3), the question of  charging interest could not arise, Venkataramiah, J. observed :  (SCC p. 604, para 33)               "In the present case if we construe the  words               ’on  the  basis of return’ occurring  in  sub-               section (2) of Section 7 of the Act as on               the  basis of a true and proper  return  which               ought to have been filed under sub-section (1)               of  Section  7 then all the three  classes  of               persons viz. (i) those who have not filed  any               return at all and who are later on found to be               liable  to  be assessed, (ii) those  who  have               filed a true return but have not deposited the               full  amount of tax which they are  liable  to               pay  and (iii) those who have filed  a  return               making a wrong claim that either the whole  or               any  part of the turnover is not  taxable  and               who  are  subsequently found to  have  made  a               wrong  claim,  would  be placed  in  the  same               position  and they would all be liable to  pay               interest  on the amount of tax which they  are

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             liable to pay but have not paid as required by               sub-section (2) of Section               5 (1972) 29 STC 639 (MP)                       289               7  of  the Act.  We are of opinion  that  this               view  is  in conformity with  the  legislative               intention  in  enacting Section  11-B  of  the               Act." 12.  Referring  to  the Constitution Bench judgment  in  the case of Ghasilal2, the learned Judge observes that the  said decision  was  distinguishable  because it  related  to  the sustainability of the penalties imposed under Section  16(1) of the Act and not interest levied under Section 11-B of the Act and secondly because Section 16(1)(b) was attracted when there was a failure to pay the ’tax due’, an expression  not employed  by  Section 11 -B of the Act.  The  learned  Judge also  points  out  that  if Sections 7 and  11  -B  are  not interpreted  in  the manner indicated  in  the  above-quoted passage, (i) a registered dealer who does not file a  return and  pays no tax (ii) a registered dealer who files  a  true return  but does not pay the full amount of tax and (iii)  a registered  dealer  who files a return  but  wrongly  claims either the whole or any part of the turnover as not  taxable and pays under Section 7(2) only that much amount of tax  as he considers payable on the basis of the return, will escape the  net  of Section 11-B and render  the  provision  either unworkable  or meaningless and, therefore, it is  essential, on  a  fair reading of Section 11-B, to hold  that  the  law expects that all those liable to pay tax should file a ’true return’   within  the  time  allowed.   The  learned   Judge concludes by saying "We do not think ... we have in any  way disregarded the decision in Ghasilal case21’ and  emphasizes "we have to state that we depend upon Ghasilal2 case  itself to  hold  that for the purpose of Section 11 -B(a)  the  tax becomes  payable  before  assessment is made  by  virtue  of Section 3 read with Section 5 and sub-sections (2) and (2-A) of  Section  7 of the Act and the Rules  framed  thereunder, even  though,  it  becomes due when return  is  filed  under Section 7(2) or ascertained under Section 10".  On this line of  reasoning  the  majority upheld the  demand  made  under Section 1 1-B of the Act. 13.  Bhagwati,  J. after referring to Sections 3, 7, 10,  11 and 11-B of the Act, points out that Section 7(2) speaks  of "full  amount  of tax due on the basis of  the  return"  and adds: (SCC pp. 586-87, para 6)               "We must look at the return actually filed  by               the assessee in order to see what is the  full               amount of tax due on the basis of such return.               It  is not the assessed tax nor is it the  tax               due  on tile basis of a return which ought  to               have been filed by the assessee but it is  the               tax due according to the return actually filed               that   is  payable  under  sub-section(2)   of               Section  7.  This provision is really  in  the               nature of self-assessment and what it requires               is  that whatever be the amount of tax due  on               the  basis of self assessment must be paid  up               along  with  the filing of  the  return  which               constitutes  self-assessment.  I fail  to  see               how  the  plain  words of  subsection  (2)  of               Section 7 can be tortured to mean full  amount               of tax due on the basis of return which  ought               to  have  been filed but which  has  not  been               filed." Pointing  out that the construction pressed by  the  Revenue

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leads  to a serious anomaly, the learned Judge  proceeds  to observe: (SCC p. 587, para 7) 290               "If  this construction were accepted, the  tax               payable  under  sub-section (2) of  Section  7               would  be  the full amount of tax due  on  the               basis of a correct and proper return and  that               would  necessarily  be  the same  as  the  tax               assessed  by the assessing authority,  because               what  is a correct and proper return would  be               determinable   only  with  reference  to   the               assessment  ultimately made.   The  assessment               when made would show whether the return  filed               was  correct and proper; it would  be  correct               and  proper if it accords with the  assessment               made;   if  it  does  not  accord   with   the               assessment,  then  to the extent to  which  it               differs it would obviously have to be regarded               as incorrect and improper.  The consequence of               the  construction suggested on behalf  of  the               Revenue  would  thus be that the  tax  payable               under  sub-section (2) of Section 7  would  be               the  full  amount  of  the  tax  as  assessed,               because  that would represent the tax  due  on               the  basis of a correct and proper return  and               the assessee would have to deposit at the time               of filing the return, an amount equivalent  to               the  amount  of the tax as assessed.   If  the               assessee  fails to do so, then apart from  the               liability to pay interest under Section  11-B,               clause (a), the assessee would expose  himself               to penalty under Section 16, sub-section  (1),               clause  (n)....  The Legislature  could  never               have  intended  that the  assessee  should  be               liable,  on pain of imposition of penalty,  to               deposit   an  amount  which  is  yet   to   be               ascertained through assessment." 14.  The  learned Judge then proceeds to state that  if  the construction  canvassed by the Revenue is accepted it  would lead  to  a  conflict between two  sections,  in  that,  the assessee  would be liable to pay interest on the  completion of the assessment from the date of filing of the return till payment of the tax amount, while under Section 11 -B(b)  the assessee  would be liable to pay interest on the  amount  of the tax assessed after the expiry of the period specified in the notice of demand or 30 days from the date of service  of the  notice  if  no  period  is  specified  in  the  notice. Invoking  the  well settled rule of  interpretation  that  a statute  must  be  so construed as to avoid  a  conflict  or repugnance  between  its different provisions,  the  learned Judge observes: (SCC p. 588, para 7)               "The only way in which clauses (a) and (b)  of               Section  11  -B can be read  harmoniously  and               full  meaning and effect can be given to  them               is by construing them as dealing with distinct               matters or situations.  The tax payable  under               sub-section  (2)  of Section 7 dealt  with  in               clause (a) of Section 11-B cannot,  therefore,               be equated with the amount of the tax assessed               forming  the subject-matter of clause  (b)  of               Section  11-B and hence it must be held to  be                             tax  due on the basis of the  return  actually               filed by the assessee and not on the basis  of               a  correct  and proper return which  ought  to               have been filed by him."

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15.   Next,  the  learned  Judge  finds  it   difficult   to understand  how  the  tax which is  yet  to  be  ascertained through the process of assessment can be made payable by the assessee  from the date of submission of the return.  If  it Is so 291 payable it is equally difficult to understand why it  should bear  interest from the date of filing of the return  up  to the date of assessment only and thereafter be free from  the liability to bear interest up to the period specified in the notice of demand and if no such period is specified till the expiry  of 30 days from the date of service of  the  notice. The  learned Judge, therefore, concludes that the scheme  of taxation  under  the Act clearly envisages that it  is  only when the assessment is made and the period specified in  the notice  of  demand or 30 days, as the case may  be,  expires that  the amount of tax as assessed becomes payable  and  if the same is not paid within the time allowed, the  liability to pay interest thereon accrues.  What becomes payable under Section 7(2) is only the tax due on the basis of the  return actually  filed, i.e., on the basis of  self-assessment  and thereafter  the difference in tax on assessment, if the  tax assessed is more than the tax deposited on  self-assessment. Lastly,  the learned Judge holds that the decision  rendered in  the  case of Ghasilal2 applies on all fours and  in  the face of the ratio laid down in that case it is impossible to accept  the  viewpoint of the Revenue.  With regard  to  the three  instances mentioned by Venkataramiah, J. the  learned Judge  points out that in such cases penalty can be  imposed under Section 16 of the Act.  On this line of reasoning  the learned Judge disagreed with the majority view. 16.It is well-known that when a statute levies a tax it does so  by inserting a charging section by which a liability  is created or fixed and then proceeds to provide the  machinery to  make the liability effective.  It,  therefore,  provides the  machinery for the assessment of the  liability  already fixed  by the charging section, and then provides  the  mode for  the  recovery and collection of  tax,  including  penal provisions meant to deal with defaulters.  Provision is also made  for  charging  interest  on  delayed  payments,   etc. Ordinarily the charging section which fixes the liability is strictly  construed but that rule of strict construction  is not extended to the machinery provisions which are construed like  any other statute.  The machinery provisions must,  no doubt,  be so construed as would effectuate the  object  and purpose of the statute and not defeat the same. (See Whitney v. IRC6, CIT v. Mahaliram Ramjidas7, India United Mills Ltd. v.  Commissioner of Excess Profits Tax, Bombay and  Gursahai Saigal v. CIT, Punjab9).  But it must also be realised  that provision  by which the authority is empowered to  levy  and collect  interest, even if construed as forming part of  the machinery  provisions,  is substantive law  for  the  simple reason that in the absence of contract or usage interest can be  levied  under law and it cannot be recovered by  way  of damages  for wrongful detention of the amount.  (See  Bengal Nagpur  Railway  Co. Ltd. v. Ruttanji Ramji10 and  Union  of India v. A.L. 6  1926 AC 37: 42 TLR 58 7 (1940) 8 ITR 442: AIR 1940,PC 124: 67 IA 239 8    (1 955) 1 SCR 8 1 0: AIR 1955 SC 79: (1955) 27 ITR 20 9    (1963) 3 SCR 893: AIR 1963 SC 1062: (1963) 48 ITR 1 10   AIR 1938 PC 67: 65 IA 66: 67 CLJ 153 292 Rallia Ram11).  Our attention was, however, drawn by Mr  Sen to  two  cases.   Even in those cases,  CIT  v.  M.  Chandra

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Sekharl2  and Central Provinces Manganese Ore Co.  Ltd.   V. CIT13, all that the Court pointed out was that provision for charging  interest  was, it seems, introduced  in  order  to compensate  for  the loss occasioned to the Revenue  due  to delay.   But then interest was charged on the strength of  a statutory provision, may be its objective was to  compensate the Revenue for delay in payment of tax.  But regardless  of the  reason  which impelled the Legislature to  provide  for charging interest, the Court must give that meaning to it as is  conveyed  by  the language used and the  purpose  to  be achieved.   Therefore, any provision made in a  statute  for charging or levying interest on delayed payment of tax  must be  construed as a substantive law and not  adjectival  law. So construed and applying the normal rule of  interpretation of  statutes, we find, as pointed out by us earlier  and  by Bhagwati, J. in the Associated Cement Co. case3, that if the Revenue’s  contention is accepted it leads to conflicts  and creates  certain  anomalies  which  could  never  have  been intended by the Legislature, 17.  Let  us look at the question from a slightly  different angle.   Section 7(1) enjoins on every dealer that he  shall furnish prescribed returns for the prescribed period  within the  prescribed  time to the assessing  authority.   By  the proviso  the time can be extended by not more than 15  days. The  requirement of Section 7(1) is undoubtedly a  statutory requirement.  The prescribed return must be accompanied by a receipt  evidencing the deposit of full amount of ’tax  due’ in the State Government on the basis of the return.  That is the requirement of Section 7(2).  Section 7(2-A), no  doubt, permits payment of tax at shorter intervals but the ultimate requirement is deposit of the full amount of ’tax due’ shown in  the  return.  When Section 11-B(a) uses  the  expression "tax payable under sub-sections (2) and (2-A) of Section 7", that  must  be understood in the context  of  the  aforesaid expressions  employed in the two  sub-sections.   Therefore, the expression ’tax payable’ under the said two sub-sections is  the full amount of tax due and ’tax due’ is that  amount which  becomes due ex hypothesi on the turnover and  taxable turnover  "shown  in  or based on  the  return".   The  word ’payable’  is  a descriptive word,  which  ordinarily  means "that  which must be paid or is due or may be paid" but  its correct  meaning  can only be determined if the  context  in which  it  is  used  is kept in view.   The  word  has  been frequently understood to mean that which may, can or  should be  paid  and is held equivalent to ’due’.   Therefore,  the conjoint reading of Sections 7(1), (2) and (2-A) and 11-B of the  Act leaves no room for doubt that the  expression  ’tax payable’  in Section 11-B can only mean the full  amount  of tax  which becomes due under sub-sections (2) and  (2-A)  of the  Act  when  assessed on the  basis  of  the  information regarding  turnover and taxable turnover furnished or  shown in the return.  Therefore, so long as the assessee pays the 11  (19641) 3 SCR 164, 185-90: AIR 1963 SC 1685 12 (1985) 1 SCC 283: 1985 SCC (Tax) 85: (1985) 151 ITR 433 13 (1986) 3 SCC 461: 1986 SCC (Tax) 601: (1986) 160 ITR 961 293 tax  which  according  to  him  is  due  on  the  basis   of information supplied in the return filed by him, there would be  no default on his part to meet his statutory  obligation under  Section  7  of the Act and, therefore,  it  would  be difficult  to  hold that the ’tax payable’ by  him  ’is  not paid’ to visit him with the liability to pay interest  under clause (a) of Section 11 -B.  It would be a different matter if  the return is not approved by the authority but that  is not the case here.  It is difficult on the plain language of

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the  section to hold that the law envisages the assessee  to predicate the final assessment and expect him to pay the tax on that basis to avoid the liability to pay interest.   That would be asking him to do the near impossible. 18.  The  learned  counsel  for the  Revenue  placed  strong reliance on the decision of this Court in Kesoram Industries &  Cotton  Mills  Ltd.   V. CWT14.   Reference  was  to  the discussion  on  the  third  question,  namely,  whether  the assessee  owed  a  ’debt’ on the valuation  day  within  the meaning  of Section 2(m) to be deductible in  computing  the net  wealth of the assessee.  In that case the assessee  had in  the  accounts  for the year ending  31-3-1957,  shown  a certain  amount as provision for payment of income  tax  and supertax.   The  majority  answered  the  question  in   the affirmative  whereas the third learned Judge disagreed.   In the view we are taking on the relevant provisions of the Act it is unnecessary for us to examine the merit or demerit  of the rival views. 19.  In  the  result we are of the view  that  the  majority opinion  expressed  by Venkataramiah, J. in  the  Associated Cement  Company case3 does not, with respect, state the  law correctly  and in our view the legal position was  correctly stated  by  Bhagwati,  J. in  his  minority  judgment.   We, therefore,  overrule the majority view in that decision  and affirm the minority view as laying down the correct law.  We must  make  it clear to avoid any possibility  of  doubt  in future that our view is based on the law as it stood  before the amendments effected by Act 4 of 1979.  Reference to  the provisions of law after the amendments by Act 4 of 1979  are if  at  all  for the limited purpose of  comparison  and  we should  not  be  understood to have expressed  any  view  in regard to them. 20.  The  appeals/writ petitions are allowed and the  amount of    interest    levied    and    collected    from     the appellants/petitioners by virtue of Section 11-B of the  Act as well as Central Act shall be refunded to the  appellants/ petitioners within 3 months from today with interest at  12% per  annum  from  the  date  of  actual  recovery  from  the appellants  till payment.  There will, however, be no  order as to costs in the facts and circumstances of the case. 21.  CMP No. 10857 of 1977 is disposed of. 14 (1966) 2 SCR 688: AIR 1966 SC 1370: 59 ITR 767 295