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CASE NO.: Appeal (civil)  2679 of 2000

PETITIONER: Commissioner of Trade Tax,Lucknow

RESPONDENT: M/s Kanhai Ram Thekedar

DATE OF JUDGMENT: 29/04/2005

BENCH: S.N. Variava & Dr. AR. Lakshmanan

JUDGMENT: J U D G M E N T

Dr. AR. Lakshmanan, J.

This appeal is filed by the Commissioner of Trade Tax, U.P. challenging the final  order dated 16.9.1999 passed by the High Court of Judicature at Allahabad in the Trade  Tax Revision No.3 of 1999 whereby the High Court allowed the revision of the  respondent-assessee.

The brief facts pertaining to the present appeal are as under:

By the impugned order, the High Court allowed the revision filed by the  respondent and quashed the order of demand of interest on the ground that no notice in  writing was issued.  It was observed in the judgment that even if the dealer was liable to  pay interest on the late payment of amount of tax a notice is necessary for demand of  interest.  In the instant case, the assessing authority passed the order on 30.7.1990  imposing interest against the respondent.  The respondent filed appeal before the  Commissioner (Judicial) Sales Tax, now Trade Tax, Allahabad Region, Allahabad.    In  the appeal, the respondent mentioned that ex parte proceedings imposing interest  against the respondent has been passed which is barred by time.  The Assistant  Commissioner dismissed the appeal of the respondent on 27.7.1991.  The respondent  filed second appeal before the Sales Tax Tribunal which passed the order dated  21.7.1998 remanding the case to the  assessing authority for decision after giving  notice to the respondent.  The respondent filed a Trade Tax Revision before the High  Court against the order of the Tribunal and the High Court by the impugned order dated  16.9.1999 allowed the revision of the respondent.  Aggrieved by the impugned order,  the State has preferred the above appeal by way of special leave.

We heard Mr.  R.G. Padia, learned senior counsel appearing for the appellant  and Mr. Ranbir Singh Yadav, learned counsel appearing for the respondent. Learned senior counsel appearing for the appellant submitted that the order of  the High Court to the extent that a notice of demand was necessary before passing the  order of interest is legally not sustainable.  He further submitted that the levy of interes t  is by operation of law and does not require a separate order.   

Learned counsel appearing for the respondent submitted that the impugned  assessment order passed by the assessing authority dated 30.7.1990 does not refer to  any notice served upon the dealer before passing the impugned order and, therefore,  the said order has been quashed by the Tribunal in respect of  remanding the matter.  It  was also submitted that the rectification order could be passed within three years from  the date of the order of the assessment or the  order passed in appeal or revision.  The  impugned order was passed beyond the period of three years and, therefore, the said  order is not sustainable.  In this background of facts, the following questions of law arise   for consideration by this Court: 1.      Whether no subsequent proceeding can be initiated against the      revisionist as the subsequent proceeding to the assessment   is

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barred by limitation?    

2.      Whether the order of the High Court to the extent that a notice  of demand was necessary before passing the order of interest  is legally sustainable?

We have carefully perused the entire pleadings, orders passed by the authorities  and  the High Court  and the annexure filed along with this appeal. In this case, the assessment order for the assessment year 1977-78 was  passed on 6.6.1986 imposing tax liability of Rs.18053.98 paise.  The respondent  deposited the tax in two instalments namely, 2,817/- on 26.6.1982 and Rs. 15,236.98  paise on 30.8.1986.  The assessing authority passed  another order on 30.7.1990  holding that on admitted amount of tax it was liable to pay interest at the rate of 24%  p.a. from 1.5.1978 on amount of tax the assessee has not deposited.  The assessing  authority held that the dealer was  liable to pay interest to the tune of Rs.33,291/-.      The respondent-dealer filed first appeal against the said order which was dismissed.   Against that order, the second appeal  was filed before the Tribunal, which remanded  the matter to the assessing authority for fresh decision after giving an opportunity of  hearing to the dealer.  Feeling aggrieved, the dealer filed a revision before the High  Court.  The dealer submitted that the amount of tax was deposited by 30.8.1986.

The liability for payment of interest arises in view of the provisions contained in  Section 8 (1), 8(1-B) and sub-section (2) of Section 8 of the U.P. Sales Tax Act,1948  (now the U.P. Trade Tax Act, 1948) (for short "the Act").  The relevant portion of   Section 8  read as under:     "8.  Payment and recovery of tax

(1)     The tax admittedly  payable shall be deposited  within the time prescribed or by the thirty first day of  August, 1975, whichever is later, failing which  simple interest at the rate of 2 per cent per mensem  shall become due and be payable on the unpaid  amount with effect from the day immediately  following the last date prescribed till the date of  payment of such amount, whichever is later, and  nothing contained in section 7 shall prevent or have  the effect of postponing the liability to pay such  interest.

Explanation -  For the purpose of this sub-section, the tax  admittedly payable means the tax which is payable under this  Act on the turnover of sales or, as the case may be, the  turnover of purchases, or of both, as disclosed in the accounts  maintained by the dealer, or admitted by him in any return or  proceeding under this Act, whichever is greater, or if no  accounts are maintained then according to the estimate of the  dealer, and includes the amount payable under Section 3-B or  sub-section (6) of Section 4-B.

(1-A) The tax assessed under this Act shall be deposited in the  manner specified in, and within thirty days of the service of, the  notice of assessment and demand.

(1-B)  If the tax, other than the tax referred to in sub-section (1),  assessed by any Assessing Authority is not paid within the  period specified in the notice of assessment and demand  referred to in sub-section (1-A),  simple interest at the rate of one and half per cent per mensem  on the unpaid amount calculated from the date of expiration of  the period specified in such notice shall become due and be  payable.

(1BB)  If the tax, assessed under this Act is enhanced in  reassessment or otherwise by any authority, tribunal or court

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the dealer shall also be liable to pay simple interest at the rate  specified in sub-section (1-B) on the unpaid amount of the  enhanced tax from the date of expiration of the period specified  in such notice of assessment and demand already served on  the dealer under sub-section (1-A) and it shall not be necessary  to give a fresh notice of assessment and demand with respect  to the enhanced tax and it shall be deemed that the tax so  enhanced was assessed in the order of assessment made for  the first time.

(1-C)  The amount of interest payable under sub-section (1), (1- B) (1-BB) and (2) shall be without prejudice to any other liability  or penalty that the dealer may incur under this Act or under any  other law for the time being in force, and shall be added to the  amount of tax and be also deemed for all purposes to be part of  the tax.

(2) Where realization of any tax remained stayed by any order  of any Court or authority and such order of stay is subsequently  vacated, the interest referred to in sub-section (1-B) shall be  payable also for any period during which such order remained  in operation.

(2-A)  Notwithstanding anything contained in sub-section (1),  (1-A), (1-B), (1-BB), (1-C) or (2) the Commissioner may  on the  application of a manufacturer within such time and in such  manner as may be prescribed grant in lieu of exemption under  section 4-A moratorium for payment of the admitted tax subject  to such conditions as may be prescribed.  The Commissioner  may withdraw any such moratorium in the circumstances in  which it could have withdrawn the exemption under section 4-A,  but no such withdrawal shall be made with retrospective effect.  

Provided that on and after commencement of the Uttar Pradesh  Trade Tax (Amendment) Ordinance, 1997, the Commissioner  may on the application of a manufacturer having a small scale  industry, the date of starting production of which falls on or after  April 1, 1990, grant, in lieu of exemption under section 4-A,  moratorium for payment of the admitted tax and the provision of   rule 43 of the Uttar Pradesh Trade Tax Rules, 1948, as  amended by the Uttar Pradesh Trade Tax (Second  amendment) Rules, 1993, shall apply for granting such  moratorium.

(2-B) Notwithstanding anything contained in any other provision  of this Act and rules made thereunder, the State Government  may grant moratorium from payment of the admitted tax to a  Power Project Industrial Unit, subject to such conditions as may  be prescribed.

(3)      Notwithstanding anything contained in any law or contract  to the contrary, the assessing authority may, at any time or  from time to time, by notice in writing, a copy of which shall  be forwarded to the dealer at his last address known to the  assessing authority , require \026

(a)     any person from whom any amount is due or may  become due to the dealer, or  

(b)      any person who holds or may subsequently hold  money for or on account of the dealer,

to pay to the assessing authority \026

(i)     forthwith upon the money becoming due or being

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held, or (ii)    at or within the time specified in the notice, not  being before the money becomes due or is held,  so much of the money as is sufficient to pay the  amount due by the dealer in respect of arrears of  tax or other due under this Act, or the whole of  the money when it is equal to or less than that  amount.

Explanation  -  For the purpose of this sub-section, the amount  due to a dealer or money held for or on account of a dealer by  any person shall be computed after taking into account such  claims, if any, as may have fallen due for payment by such  dealer to such person and as may be legally subsisting."

The High Court was of the view that even if the dealer was liable to pay interest  on delayed payment of amount of tax, a notice in writing before passing the impugned  order was necessary which is not shown to have been done in the present case.  The  impugned order dated 30.7.1990 nowhere states that any notice was sent to the dealer,  therefore, such an order could not be sustained.  Consequently, the Tribunal has  committed  an error in passing the impugned order dated 21.7.1998 remanding the  matter to the assessing authority.  Holding so, the High Court allowed the revision and  quashed the order of the Tribunal.   In our opinion, the order passed by the High Court is absolutely illegal.   In the case of  Commissioner of Sales Tax vs. Qureshi Crucible center ,  1993 suppl (3) SCC 495, the Commissioner of Sales Tax was the appellant.  The  appeal was preferred against the judgment of the learned single Judge of the Allahabad  High Court allowing the sales tax revision filed by the assessee.  After referring to  Section 8(1), this Court held as under: "According to this section, a dealer shall have to deposit the tax  admittedly payable  either within the time prescribed or by August 31,  1975 whichever is later.  If he fails to do so, simple interest at the rate  of 2% per mensem becomes payable.  This levy of interest is by  operation of law.  It does not require a separate order as such by any  authority.  The explanation defines the expression "tax admittedly  payable".  It means the tax which is payable, inter alia, according to  the return filed by the dealer.

In this case, the dealer filed a return for the assessment years  1975-76.  The goods in which he was dealing fell within the category of  unspecified goods.  For unspecified goods, the rate of tax prior to  December 1, 1973 was 3.5%.  With effect from the said date, however,  the rate was revised to 7%.  In the return filed by the respondent- assessee, he arrived at the tax admittedly payable on the turnover  disclosed by him, by applying rate of 3.5%.  The authorities held that  inasmuch as he has not paid the tax admittedly payable within the  meaning of Section 8(1) inasmuch as he has not calculated and paid  the tax at the rate prescribed by law \026 he must be held to have failed  to comply with the requirement of Section 8(1).  Accordingly, interest  as prescribed by the said section was levied.  The appellate authority  as well as the Tribunal affirmed the said levy.  The matter was carried  to the High Court by way of a revision.  The learned Judge allowed the  revision holding that "there has been no finding by the Tribunal that the  assessee acted mala fide in not depositing the tax at the rate of 7%.   The demand of interest was not justified."  

In the case of  The Sales Tax Officer, Sector I, Kanpur & Anr. Vs. M/s  Dwarika prasad Sheo Karan Dass, (1977) 1 SCC 22, this Court has held that the  assessee is liable to pay interest under Section 8(1-A) of the U.P. Sales Tax Act, 1948  on unpaid amount of tax and that such liability arises automatically by operation of law.   This Court also held that fresh notice of demand not necessary where amount of tax or  other dues reduced as a result of the appeal, revision or other proceedings.   This Court had an occasion  to consider sub-Section (1-A) of Section 8 of the Act  in the case of  Haji Lal Mohd. Biri Works vs. State of U.P.  , (1974) 3 SCC 137 and  held that the liability to pay interest under Section 8(1-A) of the Act is automatic and

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arises by operation of law.  It was further observed in that case that it is not necessary  for the Sales Tax Officer to specify the amount of interest in the recovery certificate.   This Court had also considered the question whether it was necessary for the  Sales Tax Officer to issue a fresh notice of demand to the respondent  after the tax  assessed by the Sales Tax Officer was reduced on appeal and further reduced on  revision.  This Court after considering sub-Section (9) which has been added in Section  8 of the Act by the U.P. Sales  Tax (Amendment) Act (3 of 1971) held that it shall not be  necessary to the assessing authority to serve upon the dealer a fresh notice.    Similar  view was taken by the Allahabad High Court in the case of   Firm Parshuram  Rameshwar Lal vs. State of U.P., (1974) 33  STC 540 (All) which has also been  referred to in this judgment.   In view of the above, this Court accepted the appeal filed by the Sales Tax  Officer and set aside the judgment of the High Court and dismissed the writ petition filed  by the assessee.  In the case of Prahlad Rai & Ors. vs. Sales Tax Officer, Meerut & Ors., 1991  Supp(2) SCC 612, this Court had an occasion to consider the payment of interest on  arrears of sales tax.  In this case, the assessee contended that he had admittedly paid  the entire arrears of sales tax voluntarily and, therefore, they did not become defaulters  and not liable to pay interest.  Rejecting the said argument, this Court held that the  accrual of interest is automatic and no separate notice of demand was required to be  served in that respect.   Thus,  we are of the opinion that the High Court was not justified for deleting the  interest levied by the authorities on the ground that no notice was served.   In this view,  the impugned judgment would normally be unsustainable.  However, as already  noticed, the respondent-assessee has  specifically urged that the subsequent  proceedings to the assessment is barred by limitation and that even though the order  was passed on 6.6.1986 imposing tax liability etc., the assessing authority   had passed  another order only on 30.7.1990 holding that on admitted amount of tax, the assessee  was liable to pay interest at 24% p.a. from 1.5.1978 and, therefore, on the question of  delay in demanding interest, the demand has to be set aside.  This argument of the  learned counsel appearing for the respondent merits acceptance.  In this case, the  assessment relates to the assessment years 1977-78.  The respondent  furnished his  return to the assessing authority and the assessing authority passed an assessment  order against the respondent and in accordance with the assessment order, the  assessee has deposited the entire amount of tax amounting  to Rs. 15,236.98 paise on  30.8.1986  and Rs.2,817/- on 26.6.1982.  However, on 30.7.1990, the assessing  authority passed an order imposing interest against the respondent.  Thus the demand  was after nearly four years.  There was no demand of interest in the assessment order  which, in our opinion, form part of the assessment order.  As the assessment order did  not include a claim for interest, the demand for interest had to be made within a  reasonable period thereafter.  To be noted that for rectification of the assessment order,  a limitation period of three years is laid down.  Since the demand of interest was made  after almost four years,  we hold that the demand is not within a reasonable period and  the assessee is not liable to pay the interest as demanded.  The Department is not  entitled to recover the interest from the assessee-respondent but is at liberty to recover  the amount of interest demanded from the Assessing Officer concerned who have not  taken steps for four years.  We are in entire agreement with the law laid down by this Court on the  interpretation of Section 8 of the Act in the judgments referred to above.  But we,  however, hold that the demand of interest was not justified because of the inordinate  delay on the part of the officers concerned for raising the demand of interest from the  assessee and in the peculiar facts and circumstances of this case. The civil appeal ,accordingly,  stands dismissed.  However, there shall be no  order as to costs.