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CASE NO.: Appeal (civil)  6448-6455 of 2002

PETITIONER: E.I.D. Parry (India) Ltd.

RESPONDENT: Asst. Commissioner of Commercial Taxes, Chennai

DATE OF JUDGMENT: 03/05/2005

BENCH: S. N. Variava,Dr. AR. Lakshmanan & S. H. Kapadia

JUDGMENT: J U D G M E N T

[with Civil Appeal No. 4230 of 2003]

S. N. VARIAVA, J.

       These Appeals are against the Judgment of the Madras High  Court dated 8th October, 2001.         Briefly stated the facts are as follows: The Appellants are the manufacturer of sugar.  They purchase  sugarcane from farmers.   By virtue of the Sugarcane (Control) Order,  1966 made under the Essential Commodities Act, 1955 the price for  such purchase is statutorily fixed.  Clause 3 of the Sugarcane (Control)  Order lays down the minimum price of sugarcane payable by a  producer of sugar.  This is the price which is payable immediately at  the time that the sugar is purchased.  Over and above this, by virtue  of Clause 5-A, an additional price is also payable.  This additional price  is to be fixed on the basis of a formula laid down in the first Schedule  of the Sugarcane (Control) Order.  The Formula given therein is as  follows:                         R \026 L + 2A + B         X =           -------------------                                         2C

R is the amount in rupees of sugar produced during the sugar year  excluding the excise duty paid or payable to the factory by the  purchaser.   It is evident from the formula itself that the additional  price is the amount which is incapable of determination at the time the  sugarcane is supplied to the factory by the grower.   The additional  price can only be determined at the end of the sugar year and not  earlier.  Even though the additional price could not be determined till  the end of the sugar year, in practice it took a long time to determine  this price.  Therefore the State Government advised the sugar  producers to pay a price which was higher than the minimum price  fixed under Clause 3.  The manufacturers of sugar, like the Appellants,  also paid the additional price as fixed by the Government at the time  of purchase.  The additional price so paid was then adjusted against  the price fixed under Clause 5-A of the Sugarcane (Control) Order,  1966.           Under the Tamil Nadu General Sales Tax Act, 1959 dealers were  given an option, under Section 13(2), of paying tax in advance on the  basis of monthly returns.  Section 13 is relevant and it reads as  follows: "13. Advance payment of tax

       (1) The tax for each year payable under any of the  provisions of this Act may be collected in advance during  the year in monthly or other prescribed instalments and for

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this purpose a dealer may be required to furnish within the  prescribed period such returns as may be prescribed.  The  assessing authority may provisionally determine the  amount of tax payable in advance during any year or in  respect of any period and on such determination and  intimation to the dealer he shall pay such tax in such  instalments and within such period as may be prescribed.

       (2)     In lieu of the tax provisionally determined  under sub-section (1), a dealer may, at his option, pay tax  in advance during the year on the basis of his actual  turnover for each month or for such other periods as may  be prescribed.   For this purpose, he may be required to  furnish returns showing his actual turnover for each month  or other periods as may be prescribed and to pay tax on  the basis of such returns.   The tax under this sub-section  shall become due without any notice of demand to the  dealer on the date of receipt of the return or on the last  due date as prescribed, whichever is later.

       2A.     Notwithstanding anything contained in sub- sections (1) or (2), every dealer other than those paying  tax under sub-section (2) of section 3D, section 3E or 7E,  whose total turnover in the preceding year was not less  than ten lakhs of rupees or his taxable turnover was not  less than three lakhs of rupees and all dealer newly  registered in the year shall pay tax during the year on the  basis of his actual turnover for each month or for such  other period, as may be prescribed.

       (3)     If no return is submitted by the dealer under  sub-section (1) or sub-section (2) within the prescribed  period, or if the return submitted by him appears to the  assessing authority to be incomplete or incorrect, the  assessing authority may, after making such enquiry as it  considers necessary, determine the tax payable by the  dealer to the best of its judgment:

       PROVIDED that, before taking action under this sub- section on the ground that the return submitted by the  dealer is incomplete or incorrect, the dealer shall be given  a reasonable opportunity of proving the correctness or  completeness of the return submitted by him.

       (4)     If the assessing authority has reason to believe  that the tax determined by it for any period was based on  too low a turnover or was made at too low a rate or was  based on too high a turnover or was made at too high a  rate, it may enhance or reduce, as the case may be, such  determination tax:

       PROVIDED that before making an enhancement of  the tax payable as aforesaid, the assessing authority shall,  except where such enhancement is based on the turnover  finally determined for the preceding year, give a  reasonable opportunity to the dealer to show cause against  such enhancement and make such enquiry as it may  consider necessary.

       (5)     The determination and collection of tax under  this section shall be subject to such adjustment as may be  prescribed on the completion of final assessment in the  manner prescribed."

The Appellants were thus filing returns.  In these monthly returns they

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showed their turnover on the basis of minimum price paid by them and  paid tax thereon.  They indicated the additional price which they had  paid as per the advice of the Government but did not include it as part  of the turnover and did not pay tax on such additional price.  As and  when the price, under Clause 5-A, was fixed the Appellants filed a  revised return and paid tax on that.         After the revised returns were filed an Assessment Order was  passed.  In the Assessment Order interest was sought to be charged,  under Section 24(3), on the price fixed under Clause 5-A from the date  that the sugar was purchased till payment of tax was made by the  Appellants.  The Appellants challenged the demand for interest before  the Tamil Nadu Taxation Special Tribunal.  The Tribunal dismissed the  Petition on 19th April, 2000.  The Appellants then filed Writ Petition  before the High Court which has been dismissed by the impugned  Judgment.         Two questions arise for our consideration: (a) whether the  advance paid, pursuant to the advice of the Government, can be  considered to be price and thus includible in the monthly turnover of  the Appellants and (b) whether interest under Section 24(3) can be  charged on the price fixed under Clause 5-A and/or on the advance  paid and if so, from what date.         On these questions, Mr. Vellapally has submitted that the price  fixed under Clause 5-A would only be known after it was determined  and that till the Clause 5-A price was announced it would not be  includible in the returns for the reason that the price would not be  known.  He submitted that the advances given as per the advice of the  Government are mere ad-hoc payments and that these advances do  not constitute price.   In support of his submission, he relied upon the  Judgment of this Court in the case of State of Tamil Nadu vs.  Kothari  Sugars & Chemicals Ltd. reported in 1996 (7) SCC 751.    He further  submitted that, in any case, on a plain reading of Sections 13 and 24  of the Tamil Nadu General Sales Tax Act no interest can be levied  unless and until an assessment has taken place and a notice of  demand has been issued and tax had not been paid within the time  specified in the notice of demand.   In support of this submission, he  relied upon the cases of J.K. Synthetics Ltd. vs. Commercial Taxes  Officer reported in 1994 (4) SCC 276 and Frick India Ltd. vs. State of  Haryana reported in 1994 (5) SCC 559.            On the other hand, Mr. Iyer submitted that the Appellants had  chosen to follow the procedure under Section 13(2).  He submitted  that tax had to be paid on the actual turnover.  He submitted that the  decision of this Court in Kothari Sugars and Chemicals Ltd.’s case  (supra) was only concerned with the question as to whether the  amounts paid in advance, over and above the price fixed under Clause  5-A, can be considered to be price.   He submitted that the  observations made in that case are in the context of this question.  He  points out that this Court has in the case of U.P. Cooperative Cane  Unions Federations vs. West U.P. Sugar Mills Association reported in  2004 (5) SCC 430 so noted.  He submitted that therefore the  observations in Kothari Sugars and Chemicals Ltd.’s case cannot be  construed to mean that the advance price, paid towards the price fixed  under Clause 5-A, does not constitute price.   He further submitted  that J.K. Synthetics Ltd.’s case would have no application as, in the  present case, the tax is to be paid on actual turnover which would  mean the actual amounts paid by way of price.            We have heard the parties and considered the submissions.           Let us first consider whether the advance paid, towards the  Clause 5-A price, constitutes price and is includible in the monthly  returns as turnover.  As stated above, reliance has been placed, by Mr.  Vellapally, on the Judgment of this Court in Kothari Sugars and  Chemicals Ltd.’s case (supra).  This Judgment does indicate that the  advance paid pursuant to the advice of the Government cannot be  considered to be the price.  But we find that the observations made in  this Judgment are in the context of the question whether additional  amounts paid over and above the price fixed under Clause 5-A can be

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considered to be the price.   This has been so noticed by a Constitution  Bench of this Court in U.P. Cooperative Cane Unions Federations’s case  (supra).  In Kothari Sugars & Chemicals Ltd.’s case, tax had  admittedly been paid in time on the advance paid towards Clause 5-A  price.  Tax was also sought to be levied on monies advanced over and  above the Clause 5-A price.  The observations made are merely setting  out that advances made, over and above the Clause 5-A price, cannot  be considered to be price.  However it is clear that if amounts are paid  towards the Clause 5-A price, they would be payment towards price  and therefore part of turnover even though they may be paid in  advance.  In our view, Kothari Sugar & Chemicals Ltd.’s case does not  lay down to the contrary.  It does not even deal with this aspect.  Of  course Clause 5-A price will not be known till much later. However the  Government advice makes it clear that the advance payment is to be  towards the Clause 5-A price.  Thus so long as the advance made is  less than or equal to the Clause 5-A price it is advance payment of  price.  However if anything more has been paid then that would not be  price in the absence of a contract or any statutory provision.  It will  thus have to be held that in the monthly returns the advance should  have been included as part of turnover.  If tax has been paid on  advance and it is found that excess payment has been made, refund of  tax on the excess payment can be claimed.         The question then arises whether interest, under Section 24(3)  can be charged on the Clause 5-A price or on the advance and if so  from what date.   As has been noted hereinabove, the price fixed  under Clause 5-A can only be decided on the basis of a formula set out  hereinabove.   It therefore cannot be decided at least till the end of  the sugar year.   In practice it is however decided much later.   As the  price would be an unknown, neither the assessee could predict what  the price would be nor could the Assessing Officer, even on the basis  of his best judgment, predict what that price would be.   Therefore till  the price under Clause 5-A is fixed there would be no question of an  assessee including it in the monthly returns filed by him.  A monthly  return filed not showing the price fixed under Clause 5-A would neither  be incorrect nor incomplete.  It is only after the price under  Clause 5- A is fixed that the assessee would be required to file a revised return  showing the price fixed under Clause 5-A as part of his turnover.   Mr.  Iyer fairly admitted that interest on the price fixed under Clause 5-A  could not be levied from the date the sugarcane was purchased as it  would be impossible to know in advance what the price under Clause  5-A would be.  His submission however was that the advance paid was  towards the price fixed under Clause 5-A and therefore the amount  paid as advance should have been included in the monthly returns as  turnover and tax paid on that.  He submitted that such returns had to  show the actual turnover and if the returns did not show the actual  turnover then the returns were incorrect and/or incomplete and  therefore interest would be leviable from the date that these amounts  were actually paid to the sugarcane growers till the tax on these  amounts was paid.          Thus the Assessment Order levying interest on the entire price  fixed under Clause 5-A and the Judgments of the Tribunal and the  High Court upholding that are clearly erroneous.   As stated above, the  price fixed under Clause 5-A would not be known till much later.  Thus,  it would be impossible to show it in the monthly returns filed earlier.   Of course as indicated earlier, Mr. Iyer is right the monthly returns  should have included the amounts paid as advance in the turnover.    The question still remains whether by not including them interest  becomes payable on them under Section 24(3).

       To consider this aspect, one needs to look at Section 13, which  has been set out hereinabove.  It is to be seen that under Section  13(2) tax could be paid in advance on the basis of monthly returns.  A  plain reading of Section 13(2) shows that the tax which has to be paid  on the basis of such returns.   If, as now contended by Mr. Iyer, the  returns are incomplete or incorrect then, under Section 13(3), the

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Assessing Authority must, after giving a reasonable opportunity to the  assessee, determine what was the tax payable and issue a notice to  pay the tax within a particular period.  The determination and  collection under Section 13 would then be subject to such adjustments  as may be prescribed on completion of the final assessment.         Section 24 reads as follows: "24. Payment and recovery of tax

       (1)     Save as otherwise provided for in sub-section  (2) of section 13, the tax assessed or has become payable  under this Act from a dealer or person and any other  amount due from him under this Act shall be paid in such  manner and in such instalments, if any and within such  time as may be specified in the notice of assessment, not  being less than twenty-one days from the date of service  of the notice.  The tax under sub-section (2) of section 13  shall be paid without any notice of demand.  In default of  such payments 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 interest under this Act.

       (2)     Any tax assessed on or has become payable  by, or any other amount due under this Act from a dealer  or person and any fee due from him under this Act, shall,  subject to the claim of the Government in respect of land  revenue and the claim of the Land Development Bank in  regard to the property mortgaged to it under section 28(2)  of the Tamil Nadu Co-operative Land Development Banks  Act, 1934 (Tamil Nadu Act X of 1934), have priority over  all other claims against the property of the said dealer or  person and the same may without prejudice to any other  mode of collection be recovered-

(a)     as land revenue; or (b)     on application to any Magistrate by such  Magistrate as if it were a fine imposed by  him;

PROVIDED that no proceedings for such recovery  shall be taken or continued as long as he has, in regard to  the payment of such tax, other amount or fee, as the case  may be, complied with an order by any of the authorities  to whom the dealer or person has appealed or applied for  revision, under sections 31, 31A, 33, 35, 36, 37 or 38.

(3) On any amount remaining unpaid after the date  specified for its payment as referred to in sub-section (1)  or in the order permitting payment in instalments, the  dealer or person shall pay, in addition to the amount due,  interest at one and half per cent per month of such  amount for the first three months of default and at two per  cent per month of such amount for the subsequent period  of default.

PROVIDED that if the amount remaining unpaid is  less than one hundred rupees and the period of default is  not more than a month, no interest shall be paid:

PROVIDED FURTHER that where a dealer or person  has preferred an appeal or revision against any order of  assessment or revision of assessment under this Act, the  interest payable under this sub-section, in respect of the  amount in dispute in the appeal or revision, shall be  postponed till the disposal of the appeal or revision, as the

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case may be, and shall be calculated on the amount that  becomes due in accordance with the final order passed on  the appeal or revision as if such amount had been specified  in the order of assessment or revision of assessment, as  the case may be.

(3A) Where a dealer submits the prescribed return  within ten days after the expiry of the prescribed period,  he shall also pay, in addition to the amount of tax due as  per his return, interest at two per cent of the tax payable  for every month or part thereof.

(4) Where the tax paid under this Act is found to be  in excess on final assessment or revision of assessment, or  as a result of an order passed in appeal, revision or  review, the excess amount shall be refunded to the dealer  after adjustment of arrears of tax, if any, due from him.    Where the excess amount is not refunded to the dealer  within a period of ninety days from the date of the order of  assessment or revision of assessment and in the case of  order passed in appeal, revision or review, within a period  of ninety days from the date of receipt of the order, the  government shall pay by way of interest, where the  amount refundable is not less than one hundred rupees, a  sum equal to the sum calculated at the rate of one percent  or part thereof of such amount for each month or part  thereof after the expiry of the said period of ninety days.

Explanation: For the purpose of this section, the  expression "order passed in appeal, revision or review"  shall not include an order passed in such appeal, revision  or review with direction to make fresh assessment order."

Under Section 24(1) if the tax has been assessed or has become  payable under the Act, then the payment has to be made within the  said time as may be specified in the notice of assessment and tax  under Section 13(2) has to be paid without any notice of demand.    However, as seen above, the tax under Section 13(2), in the absence  of any determination by the Assessing Authority, is tax as per the  returns.  If default is made in payment of such tax then interest  becomes payable under the Act.   In the present case, it is an  admitted position that tax as per the monthly return had been paid  within time.   It is also an admitted position that there was no  assessment, even provisional, by the Assessing Authority prior to the  final assessment made after the revised returns had been filed.   Interest becomes payable under Section 24(3) on an amount  remaining unpaid after the date specified for its payment under sub- section (1) of Section 24.   As seen above sub-section (1) of Section  24 deals with an assessed tax or tax which has become payable under  the Act.  In cases covered by Section 13(2) tax must be paid without  any notice of demand. But as stated above, under Section 13(2) tax is  to be paid "on the basis of such returns". Tax as per the returns has  admittedly been paid.  If the returns were incomplete or incorrect as  now claimed the assessing authority had to determine the tax payable  and issue a notice of demand.  In the absence of any assessment,  even provisional, and a notice of demand no interest would be payable  under Section 24(3).  In this case, it is an admitted position that as  soon as the revised return was filed the Appellants paid the tax as per  the revised return.  Therefore they paid the tax even before the final  assessment took place.  Thus the claim for interest, under Section  24(3) from the date that the advances were paid to the sugarcane  growers is not sustainable.  There is no provision under the Act which  permits charging of interest unless and until there has been a  provisional assessment and a notice of demand prescribing the period

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within which the tax was to be paid.   

       Our view finds support from the Constitution Bench decision of  this Court in J.K. Synthetics Ltd.’s case (supra).  It must be mentioned  that earlier to J.K. Synthetics Ltd.’s case the question whether interest  would be payable from the date of return on the footing that the  return is an incorrect return had come up for consideration before a  three Judge Bench of this Court in the case of Associated Cement  Company Ltd. vs.  Commercial Tax Officer, Kota reported in 1981 (4)  SCC 578.  There was a difference of opinion.  The majority Judgment  held that the return must be a true return and if in a final assessment  it is held that the return was incorrect or incomplete, then interest  would be leviable from the date the incomplete or incorrect return was  filed.  The minority opinion held that tax was to be paid as per the  return and so long as tax was paid as per the return, merely because  in the final assessment it was held that the return was incorrect or  incomplete interest could not be levied prior to the date of final  assessment and the demand thereunder.   The majority view was  doubted and the question was referred to a Constitution Bench.  The  Constitution Bench in J.K. Synthetics Ltd.’s case accepted the minority  view and overruled the majority view.  The Constitution Bench held  that tax was payable only as per the returns.  It is held that if  incomplete or incorrect return are filed it was open to the Assessing  Officer to provisionally assess and make a demand. It is held that if  that was not done then interest could not be levied on the footing that  in a final assessment it is found that the returns had been incorrect.

       The decision in J.K. Synthetics Ltd.’s case was thereafter  followed by another Constitution Bench in the case of Frick India Ltd.’s  case (supra).  These Judgments fully cover the question under  consideration. They are not only binding on us but we are in full  agreement with the principle laid down therein.

        Mr. Iyer made an attempt to distinguish the Judgments on the  ground that the provisions under consideration, in J. K. Synthetics  Ltd.’s case, are not in pari materia with the provisions of the Tamil  Nadu General Sales Tax Act.  He submitted that the words "actual  turnover" had not been used in the Rajasthan Act.  He submitted that  under the Tamil Nadu General Sales Tax Act the return has to be as  per the actual turnover.  In our view, the words "actual turnover" can  have no different meaning from the word "turnover".  The word  "turnover" has been defined under Section 2(r) to mean the aggregate  amount for which the goods are bought and sold.  Under Section 13(2)  the monthly return has to indicate the actual turnover and tax is then  payable as per the return.  If the return shows the actual turnover and  tax is not paid as per the return, then interest would be payable under  Section 24(3) as that would be a case where amount has remained  unpaid after the date specified for its payment.   However, if the  monthly return does not indicate the actual turnover then it was for  the Assessing Authority to make a demand on the footing that the  return was incomplete or incorrect.  In the absence of any such  demand interest would not become payable under Section 24(3) as  there is no provision for charging of interest prior to the date of  demand.   In this respect the principles laid down in J.K. Synthetics  Ltd.’s case fully apply even though the provisions of the Tamil Nadu  General Sales Tax Act and the Rajasthan Act may not be identical.   The principle to be kept in mind is, that, when the levy of interest  emanates as a statutory consequence and such liability is a direct  consequence of non-payment of tax, be it under Section 215 of the  Income Tax Act or under Section 7(2) / 7(2A) read with Section  11B(a) of the Rajasthan Sales Tax Act, 1954 (as discussed in the  decision of this Court in the case of J. K. Synthetics Ltd.’s case (supra)  or under Sections 13(2) / 24(3) read with Rule 18(3) under the Tamil  Nadu General Sales Tax Act, 1959, then such a levy is different from  the levy of interest which is dependent on the discretion of the

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Assessing Officer.  The default arising on non-payment of tax on an  admitted liability in the case of self-assessment falls under Section  24(3) read with Rule 18(3) which attracts automatic levy of interest  whereas the default in filing incomplete and incorrect return falls under  Rule 18(4) which attracts best judgment assessment in which the levy  of interest is based on the adjudication by the Assessing Officer.   Therefore, Rule 18(3) and Rule 18(4) operate in different spheres.   

       In this view of the matter, the impugned Judgment of the High  Court and the Order of the Tribunal as well as the Assessing Authority  cannot be sustained and are hereby set aside to the extent they levy  interest under Section 24(3).   

       In this view of the matter, the Appeals stand allowed.  There will  be no order as to costs.