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PETITIONER: HAJI LAL MOHD.  BIRI WORKS ALLAHABAD THROUGHABDUL HAMID

       Vs.

RESPONDENT: THE STATE OF U.P. AND OTHERS

DATE OF JUDGMENT23/04/1973

BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ HEGDE, K.S.

CITATION:  1973 AIR 2226            1974 SCR  (1)  25  1974 SCC  (3) 137  CITATOR INFO :  F          1977 SC 533  (4)  R          1983 SC 586  (15)  RF         1991 SC 971  (5)  RF         1991 SC1737  (5)

ACT: U.P.  Sales  Tax  Act, 1948 as amended by  Act  3  of  1964- Interest on Sales Tax arrears to be treated as tax under new s.  8(1-A)  introduced by  1964  amendment-Whether  separate assessment  order and notice of demand necessary in case  of interest-Amount  of  interest whether must be  specified  in recovery  certificate-Amendment  Act when came  into  force- Interest  whether  may be charged for  period  during  which recovery of tax is stayed.

HEADNOTE: The  appellant  firm  was  assessed  to  sales-tax  for  the assessment  years 1957-58 and 1958-1959.  On an  application made  by  the  appellant  for the  composition  of  tax  the recovery of the tax for 1957-58 was stayed.  The stay  order was vacated oh September 25. 1967.  Thereafter the sales-tax officer  issued  a  certificate to  the  Collector  for  the recovery  of  arrears of sales-tax for the  said  assessment years.  In the certificate it was mentioned that 8% interest per annum on the arrears of tax was also to be recovered  as arrears  of  land  revenue in terms  of  the  provisions  of section  8(1-A) of the U.P. Sales Tax Act,’ 1948 as  amended by  Act 3 of 1964. in a writ petition under article  226  of the  Constitution the appellant challenged the  recovery  of interest  mainly on the ground that there was no  assessment order in regard to the interest and no notice of demand  had been issued.  The High Court dismissed the petition.  Appeal in  this Court was filed with certificate.   Dismissing  the appeal, HELD  : (i) The provision in sub-section (1-A) of section  8 according to which interest shall be added’ to the amount of tax  and shall be deemed for all purpose to be part  of  tax has been added only for the purpose of recovery.  The object apparently  was  that  the  amount  of  interest  should  be recovered  in  the same manner as the amount  of  sales-tax. The amount of sales-tax and other dues under sub-section (8) of  section 8 can be recovered as arrears of  land  revenue.

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It  was  with a view to nut the matter beyond  any  pale  of controversy  and to obviate any objection that the  interest on  sales-tax cannot be recovered as land revenue that  sub- section  (1-A) provided that the interest shall be added  to the  amount  of tax and be deemed for all purposes to  be  a part  of  the  tax.  It is a  matter  of  mere  arithmetical calculation  to arrive at the figure of interest.  There  is nothing  in any of the provisions of the Act as may  warrant making of another assessment order by the sales-tax  officer regarding the amount of interest or making it obligatory for him  to  issue a demand notice in respect  of  the  interest before  sending the recovery certificates to the  Collector. [28G-29C] (ii)The argument that the sales-tax officer should  specify the amount of interest in the recovery certificate could not be@  accepted.   As  the  amount of  interest  would  go  on increasing  every day till the recovery of the sales-tax  it is  plainly  not  possible to specify the  exact  amount  of interest in the recovery certificate. [29D] (iii)According  to  clause  (b) of  subsection  (1)  of section  5 of the U.P. General Clauses Act, 1904  where  any U.P. Act is not expressed to come into force on a particular day than in the case of a U.P. Act made’ after the commence- ment of the Constitution it shall come into operation on the date  on  which the assent thereto of the  Governor  or  the President as the case may require is-first published in  the official  gazette.   In  the present  case  the  President’s assent  to U.P. Act 3 of 1964 was published in the  official Gazette  on  February 1, 1964 and hence it must be  held  to have  come  into force on that day and not on  the  date  on which the President’s assent was given, [29F] (iv)There  is nothing in the language of section 8(1-A)  of the  Act which prevents the running of interest because  of, the  operation of any stay order.  Indeed the  liability  to pay  interest  is created by the statute and  the  Sales-tax Officer  has no discretion to grant any exemption  from  the payment of interest. [30A] 26

JUDGMENT: CIVIL APPELLATE JURISDICTION: C.A. 1 No. 543 (NT) of 1970. Appeal  by  certificate from the Judgment  and  order  dated December 2, 1969 of the Allahabad High Court in Civil  Misc. No. 955 of 1969. A.K.  Sen, Yogeshwar Prasad, S. K. Bagga,  Shakeel  Ahmed and Mrs.  S. Bagga for the appellant. S. C. Manchanda and O. P. Rana for the respondents. The Judgment of the Court was delivered by KHANNA,  J.-This appeal on certificate is  directed  against the Full Bench decision of Allahabad High Court whereby that court  answered  by a majority of two to one  the  following question referred to it by a Division Bench in the  negative against the assessee-appellant :               "Whether,  in order to recover interest  under               section  S. (1-A) of the U.P., Sales Tax  Act,               it is necessary- for the Sales Tax Officer  to               make  an  assessment order in respect  of  the               interest  and to issue a notice of  demand  in               respect of such interest.", The   appellant,  a  partnership  firm,  is  a   large-scale manufacturer  of biris.  The Appellant was assessed  to  tax under  the  (U.P. Sales Tax Act, 1948 (U.P. Act  No.  15  of 1948)  (  hereinafter  referred  to  as  the  Act)  for  the

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assessment  years  1957-58  and 1958-59  as  per  assessment orders   dated   June  10,  1959  and  February   12,   1963 respectively.   On an application sent by the  appellant  to the  Minister  of Finance, U.P.  Government  requesting  for compounding  of  tax,  an order was issued on  May  6,  1959 staying  the  recovery of tax due from the  appellant.   The stay  order was vacated by order dated September  25.  1967. On  October  9, 1967 the Sales Tax Officer sent  a  recovery certificate  to  the Collector Allahabad for a  sum  of  Rs. 1965,684.43 for the recovery of arrears of sales tax for the year 1957-58.  The recovery certificate also mentioned  that interest  at the rate 1 of 18 per cent per annum  calculated on the amount of tax with effect from February 1, 1964  till the  date  of  final payment should  also  be  recovered  as arrears  of  land  revenue in terms  of  the  provisions  of section  8(1-A)  of the Act.  On October  25,  1967  another recovery  certificate for recovering a sum of Rs.  26,238.08 in  respect  of the year 1958-59 on account  of  arrears  of sales tax was sent by the Sales Tax Officer to the Collector Allahabad.   It  was mentioned in the certificate  that  the aforesaid amount would carry interest at the rate of 18  per cent per annum calculated with effect from February 1,  1965 till  the date of final payment and the same too  should  be recovered  as  arrears  of  land revenue  in  terms  of  the provisions of section 8(1-A) of the Act. The  case  of the appellant firm is that the amount  of  the sales’  tax mentioned in the two recovery  certificates  was paid by it.  The appellant, however, contested its liability to  pay interest amounting to Rs. 1,36,000 on the amount  of sales tax under section 8(1-A) of the Act.  A petition under article  226 of the Constitution was consequently filed  fly the appellant in the High Court challenging the recovery  of the  interest  amounting to Rs. 1,38,000.  The  main  ground which was taken by the appellant in this,connection was that without  making  an assessment order and without  issuing  a notice of demand 27 the  Sales  Tax  Officer had  no  jurisdiction  to  initiate proceedings for the recovery of interest.  Reliance in  this connection  was  placed on behalf of the appellant  upon  an earlier Division Bench decision in the case of Beni Ram Mool Chand v. The Sales Tax Officer(1) wherein the Division Bench had  held  that  issuance  of a  notice  of  demand  was  it condition  precedent to the recovery of penal interest.   As the  correctness  of  that  decision  was  challenged,   the Division  Bench hearing, the writ petition of the  appellant referred the question reproduced earlier to the Full  Bench. The  Full  Bench by a majority of two to  on,-,  as  already mentioned, answered the question in the negative and against the appellant. Before dealing with the contentions advanced in this  Court, we may refer to the relevant provision of the Act.   Section 3  of  the Act creates liability to sales tax.   Under  this section  every dealer is liable to pay tax on  the  turnover which  shall  be  determined  in  such  manner  as  may   be prescribed.    Section  7  provides  for  determination   of turnover  and  assessment  of tax.   Section  8  deals  with payment and recovery of tax.  ’Sub-sections (3), (1-A) and 6 of section 8 read as under               "8.  Payment and recovery of tax.-(1) The  tax               assessed under this Act shall be paid in  such               manner  and in such instalments, if  any.  and               within such time, not being less. than fifteen               days from the date of service of the notice of               assessment and demand, as may be specified  in

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             the  notice.In  default of such  payment,  the               whole of the amount then, remaining due  shall               become  recoverable  in accordance  with  sub-               section (8).                (1-A)  If the tax payable  under  sub-section               (1)  remains unpaid for six months  after  the               expiry  of the time, specified. in the  notice               of assessment and demand, or the  commencement               of   the  Uttar  Pradesh   BikriKar   (Dwitiya               Sanshodhan)  Adhiniyam,  1963,  whichever,  is               later,  then  without prejudice to  any  other               liability or penalty which the defaulter  may,               in  consequence  of  such  non-payment,  incur               under this Act, simple interest at the rate of               eighteen  per cent per annum shall run on  the               amount  then remaining. due from the  date  of               expiry  of  the  time specified  in  the  said               notice,  or from the commencement of the  said               Adhiniyam,  as the case may be, and  shall  be               added  to the amount of tax and be deemed  for               all purposes to be part of the tax Provided that where as a result of appeal, revision  or               reference,   or  of  any  other  order  of   a               competent  court or authority, the  amount  of               tax   is  varied,  the  interest   shall.   be               recalculated accordingly               Provided  further  that the  interest  on  the               excess amount of tax payable under an order of               enhancement  shall run from the date  of  such               order  if such excess remains unpaid  for  six               months after the order.                x          x x         x (1)  (1969) 23 S.T.C. 423. 28               (8) Any tax or other dues payable to the State               Government  under this Act, or any  amount  of               money which a person is required to pay to the               assessing  authority under sub-section (3)  or               for  which  he  is personally  liable  to  the               assessing  authority  under  sub-section   (6)               shall  be  recoverable  as  arrears  of   land               revenue."               It may be mentioned that sub-section (1-A)  of               section  8 reproduced above was added by  U.P.               Sales  Tax (Second Amendment) Act, 1963  (U.P.               Act  3  of  1964).  The  above  provision  was               apparently added with a view to tighten up the               machinery for collection of sales tax and as a               deterrent measure so that. the dealers may not               evade or delay the payment of tax, U.P. Act  3               of 1964 also added section 33 to the Act.  The               material part of section 33 reads as under               "In respect of any sum recoverable under  this               Act  as arrears of land revenue the  assessing               authority  may  forward  to  the  Collector  a               certificate under his signature specifying the               sum due.  Such certificate shall be conclusive               evidence of the existence of the liability, of               its  amount, and of the person who is  liable,               and   the   Collector  on   receipt   of   the               certificate shall proceed to recover from such               person  the amount specified therein as if  it               were an arrear of land revenue; Mr.  Sen on behalf of the appellant has argued that  it  was essential -for the Sales Tax Officer to make an  assessment

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order  in  respect  of the interest before  he  could  issue recovery  certificate against the appellant.  In  any  case, according to Mr. Sen, recovery certificate in respect of the interest  could  not be issued till such time  a  notice  of demand  in  respect of the interest had been issued  by  the Sales Tax Officer to the appellant-firm.  These contentions, in our opinion, are not well founded.  There is no provision in  the  Act which makes it obligatory on the  part  of  the Sales  Tax Officer to make an assessment in respect  of  the interest  which  the amount of sales tax would  carry  under section  8(1-A) of the Act.  There is also no  provision  in the  Act which requires the issue of a notice of  demand  in respect  of  the interest by the Sales Tax  Officer  to  the assessee  before  the Sales Tax Officer forwards  recovery certificate  to the Collector.  Reference has been  made  by Mr.  Sen  to sub-section (1 A) of section B,  according  to which interest shall be added to the amount of tax and shall be deemed for all purposes to be part of the tax.  The above deeming  provision, in our opinion, has been added only  for the purpose of recovery.  The object apparently was that the amount of interest should be recovered in the.same manner as the amount of sales tax.  The amount of sales tax and  other dues  under  sub-section (8) of section 8 can  be  recovered ’beyond any pale of controversy and to obviate any objection that the interest on sales tax cannot be recovered as  land revenue  that  subsection (1-A) provided that  the  interest shall  be added to the amount of tax and be deemed  for  all purposes to be a part of the tax, 29 According to section 8(1-A), simple interest at the rate  of 18 per cent per annum shall run on the amount of arrears  of sales tax. from the date specified in that sub-section.   It would  thus  appear that the liability to  pay  interest  is automatic  and  arises by operation of law.  The  amount  of interest  on the date of payment of tax is not constant  but increases  from  day to day.  The amount of  interest  can,. therefore,  be not predicated till such time as the  arrears of sales tax are paid and it is consequently not possible to specify a definite figure in respect of the interest in  the recovery certificate.  At the time the arrears of sales  tax are  paid, there can be no difficulty in finding the  amount of  interest which has. become due.  The, amount of  tax  on which interest is to accrue, the rate of interest, the  date from which interest is to commence and the date up to  which interest is to be counted are all known.  It is,  therefore, a  matter of more arithmetical calculation to arrive at  the figure  of  interest.   We  find  nothing  in  any  of   the provisions  of  the  Act as may warrant  making  of  another assessment  order  by the Sales  Tax.Officer  regarding  the amount of interest or making it obligatory for him to  issue a  demand notice in respect of the interest  before  sending the recovery certificate to the Collector. We  are  also not impressed by Mr. Sen’s argument  that  the Sales  Tax Officer should specify the amount of interest  in the  recovery certificate.  As the amount of interest  would go  on increasing every day fill the recovery of  the  sales tax, it is plainly not possible to specify the exact  amount of  interest in the recovery certificate.  The exact  amount of  interest  can only be known on the day  the  arrears  of sales tax are paid.  No elaborate procedure is required  for determining  the  amount of interest because,  as  mentioned earlier, it is a matter of simple arithmetical calculation. There  was some argument before us on the point as  to  when U.P.  Act 3 of 1964 came into force.  This Act received  the assent  of  the  President  on  January  25,  1964  but  was

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published  in the official Gazette on February 1, 1964.   It was  submitted on behalf of the appellant that the Act  came into  force  on  the  date it received  the  assent  of  the President.  As against that, Mr. Manchanda on behalf of  the respondents stated that the Act came into force on  February 1, 1964. the   day it was published in the official Gazette. The stand taken by Mr.   Manchanda   in  this   respect   is correct because according to clause (b) of  sub-section  (1) of section 5 of the U.P. General Clauses Act, 1904 (U.P. Act No. 1 of 1904) where any Uttar Pradesh Act is not  expressed to come into force on a particular day, then in the case  of an  Uttar  Pradesh Act made after the  Commencement  of  the Constitution,  it  shall come into operation on the  day  on which the assent there to of the Governor or the  President, as the case may require, is first published in the  official Gazette.   It may also be mentioned that in para 33  of  the writ petition filed in the High Court the appellant’ too had taken  the stand that the U.P. Act 3 of 1964 had come  into, force ’on February. 1, 1964. Argument has also been advanced by Mr. Sen that the interest on arrears of sales tax could not be realised for the period during which- 30 the recovery of sales tax was stayed.  We find it  difficult to accede to this contention because there is nothing in the language  of  section 8(1-A) of the Act which  prevents  the running  of  interest because of the operation of  any  stay order.  Indeed, the liability to pay interest is created  by the  statute and the Sales Tax Officer has no discretion  to grant any exemption from the payment of interest. Mr. Sen has pointed out that the amount of sales tax payable by the appellant was reduced on appeal and the appellant  is entitled to a consequential relief on that account.  This is a  matter which is outside the ambit of the  question  which has  been dealt with in the judgment under appeal.  In  case the  appellant  is  entitled to any  relief  on  account  of reduction of the amount of sales tax in appeal, it would  be for him to agitate the matter in appropriate proceedings. The appeal consequently fails and is dismissed with costs. Appeal dismissed 31