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PETITIONER: FOOD CORPORATION OF INDIA

       Vs.

RESPONDENT: STATE OF HARYANA & ANR.

DATE OF JUDGMENT:       16/02/2000

BENCH: N.S.Hegde, Ruma Pal

JUDGMENT:

     SANTOSH HEGDE, J.

     When the State of Haryana tried to impose sales-tax on levy  transactions  undertaken by the appellant in the  year 1973,  the  same was challenged by the appellant before  the Punjab  &  Haryana  High Court on the ground that  the  said transactions did not amount to either purchase or sale.  The High  Court  of Punjab as per its judgment dated  17th  May, 1975  following  a  judgment of this Court in  the  case  of M/s.Chitter  Mal Narain Dass v.  C.S.T.  (1971 (1) SCR 671), allowed  the said writ petition and declared that the  State of  Haryana  did  not have the constitutional  authority  to impose  sales-tax  on  levy transactions,  consequently,  it quashed  the assessment orders and demand notices issued  by the State.  This judgment was not challenged by the State of Haryana,  hence,  remained to be the declared law so far  as the  State  of Haryana is concerned.  Subsequently,  in  the year  1982  even though the above referred judgment  of  the Punjab  & Haryana High Court remained to be a good law,  the State  of  Haryana  again  issued a  demand  notice  to  the appellant  levying sales-tax on the turn over involving levy transactions.   A challenge to the said demand notice by the appellant  came to be rejected by the Punjab & Haryana  High Court  on  the ground the appellant should first  avail  the statutory  remedy  available  to  it  without  deciding  the validity  of the notice.  The appellant challenged the  said demand  order before this Court which challenge was admitted by  this  Court by grant of special leave.  This Court  also issued  interim orders restraining the respondent-State from enforcing  the demands.  Once again, during the pendency  of the  appeal  of  the  appellant   before  this  Court,   the respondent-State  issued further demand notices in the  year 1986  which  again  came to be challenged by  the  appellant before  the  Punjab  &  Haryana  High  Court  and  the  said challenge  came to be upheld following the earlier  judgment dated  17th  May, 1975 and the demand notices were  quashed. Against this judgment of the High Court, the State preferred an  appeal before this Court in which the leave was  granted but  no  interim  order  was granted.   The  appeal  of  the appellant  and the State of Haryana filed before this  Court came  to be heard by this Court in the year 1997 along  with many  other  appeals  involving similar questions  and  this Court  as  per  its  judgment dated  6th  of  January,  1997 declared  the  law as follows :  We, therefore, answer  the

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principal  common point holding that the levy procurement is a  sale/purchase and, therefore, falls within the purview of Entry   54   List  II  of   the  Seventh  Schedule  to   the Constitution.    The   States  were    competent   to   levy sales/purchase tax on such transactions.

     It  also  ultimately  dismissed   the  appeal  of  the appellant  and  allowed  the appeal filed by  the  State  of Haryana along with other States.  By the above judgment, the authority  of  the  State  to   impose  sales-tax  on   levy transactions  came  to be restored.  After the  judgment  of this  Court,  referred  to above, the State  issued  another demand  notice  for the assessment years  1975-76,  1982-83, 1983-84  and  1984-85 dated 20th of February, 1997,  out  of these  the  demands  for the year 1975-76 was for a  sum  of Rs.89,39,947/-.    It  is  submitted   before  us  that  the appellant  has  paid the amount so demanded in the month  of March,  1997  itself.  However, on 25th of April,  1997  the appellant  was issued a further notice purported to be under Section  59 of the Haryana General Sales Tax Act, 1973 ( the Haryana  Act) demanding a sum of Rs.2,26,01,400/-  towards the   interest   payable   on   the   belated   payment   of Rs.89,39,947/-  which  was  the principal tax due  from  the appellant  for  the assessment year 1975-76.  The  appellant challenged  this  levy  of interest before  the  Punjab  and Haryana  High  Court but the same came to be rejected by  an order  of  the said High Court dated 18th of  January,  1998 against  which the above appeal is preferred.  The  question that  arises for our consideration in this appeal is whether the State of Haryana is justified in demanding interest from the  appellant on the tax due by it for the assessment  year 1975-76.   We  have  heard  learned  counsel  for  both  the parties.   The  answer  to  the   question  that  falls  for consideration  by us depends upon the fact whether there was a  valid demand notice in the year 1982 (the year from which the  interest is demanded) which obligated the appellant  to pay  the  tax  demanded under the said notice.  As  we  have noticed  herein  above,  so far as the State of  Haryana  is concerned during the period between 17th of May, 1975 to 6th of  January,  1997, the law declared by the High  Court  was that  the  State of Haryana did not have the  constitutional authority  to  impose sales-tax on levy transactions.   This declaration  of  law  was not challenged by  the  State  per contra  the State of Haryana accepted the declaration of law made by the High Court, therefore, until the position of law stood changed from 6th of January, 1997, the State of Hayana could not have made a demand for the payment of sales-tax on levy  transactions.   The demand notice by which  the  State claimed  the tax for the assessment year 1975-76 was of  the year  1982 which fell within the period when the law did not permit  the  State  of Haryana to impose sales-tax  on  levy transactions.   Therefore  on  that day when the  notice  of demand  was  issued  for  payment   of  sales-tax  for   the assessment year 1975-76, the demand was without authority of law.   Subsequently,  the State of Haryana could  have  made such  demand only after the judgment of this Court which was delivered  on 6th of January, 1997.  There is no doubt  that by  the  judgment of this Court, the right of the  State  of Haryana  to  collect sales-tax would date back to  1975  but that  is not the same as saying that during the said  period when  the  law was adverse to the State of Haryana it  could still  have  made  a legitimate demand, because,  as  stated above,  during  the  period   between  1975-77,  the  States authority  to make a demand was eclipsed because of the  law declared  by the High Court.  The declaration of law made by

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this Court now empowers the State to raise a demand even for the  assessment  year 1975-76 and the appellant is bound  to satisfy  the  said demand, but the duty of the  assessee  to satisfy  that demand would arise only when a fresh and valid demand  after  the  judgment of this Court is  made  by  the State.   If the assessee fails to pay after the fresh demand is made then as contemplated under Section 59 of the Haryana Act,  the assessee becomes liable to pay the interest  also. Facts  in  this  case show that after the judgment  of  this Court,  the  respondent-State issued a demand  notice  dated 20th  of  February, 1997 specifically stating as  follows  : The  Honble  Supreme  Court of India has disposed  of  the Civil  Appeal  No.1130 of 1987 and 1995 of 1987 vide  orders dated  28.1.1997 and a copy of the order has also been  sent to  you.  After the disposal of the Civil Appeal tax on levy rice  and on wheat is payable.  (Emphasis supplied).  As per the  statement  submitted by you and record of this  office, following amount for the years shown against each is payable by you;..

     From  the above extract of the demand notice issued to the  appellant,  it  is clear that a fresh demand  was  made pursuant to the judgment of this Court which according to us is  the right step to be taken consequent to the declaration of law made by this Court.  The further question, therefore, is whether on the demands now made by the respondents on the appellant,  can  the  State also claim interest ?   We  have noticed  that  the  power of the State to  collect  interest arises  under  Section  59  of the Act.   The  said  section authorises  the State to collect interest on belated payment of  tax demanded but this payment of interest can be  levied on  such belated payment of tax which is legally payable for which  a  valid demand is condition precedent.  As has  been noticed  by us, the demand notice of the year 1982 which was issued  during the period when the State had no authority to levy  sales-tax cannot be said to be a valid demand based on which  interest  could be claimed.  A valid demand  for  the assessment year 1975-76 could have been made by the State of Haryana only after the judgment of this Court i.e.  from 6th of January, 1997 and on such a demand being made on 20.2.97, the  appellant  has  satisfied the said  demand  within  the period  available to it.  If that be so, in our opinion, the State  could  not have demanded interest on the tax due  for the  assessment  year  1975-76 based on its  earlier  demand notice.  We are of the opinion that the interest demanded by the  State  of Haryana on the amount due from the  appellant for  the  assessment  year   1975-76  cannot  be  sustained. Therefore,  the  said  demand of interest, impugned  in  the appeal  is  quashed.   For the reasons  stated  above,  this appeal  is allowed, the judgment and order of the High Court of  Punjab  &  Haryana impugned in the above appeal  is  set aside.  No costs.

     .J.  (S.P.Bharucha)