http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

PETITIONER: INDIA CARBON LTD., ETC.

       Vs.

RESPONDENT: THE STATE OF ASSAM

DATE OF JUDGMENT:       16/07/1997

BENCH: S. P. BHARUCHA, M. JAGANNADHA RAO

ACT:

HEADNOTE:

JUDGMENT:            [WITH CA 2168-71/93, 7735/95, 9267/95)                       J U D G M E N T S.P. BHAURCHA, J.      These appeals  impugn a  judgment and order of the High Court at  Guwahati. It may be immediately stated that, there having been  some difference  of  opinion  between  the  two learned Judges  who first  heard the writ petitions filed by the appellants,  four questions  were referred  to  a  third learned Judge  and it  is the  first of those four questions which will determine these appeals.      Briefly stated  for the  purposes of this judgment, the facts  are   these:  The  appellants  manufacture  and  sell petroleum coke,  which are  goods declared  by Section 14 of the Central  Sales Tax Act. The appellants are registered as dealers under  the Central  Act and  liable to  pay  Central sales tax  on the  petroleum coke  that is  the  subject  of inter-State sales  of petroleum  coke were  delayed. For the assessment years  1974 to  1980 the appellants were required by the  respondents to  pay interest  at the rate of 24% per annum thereon,  in purported  exercise of  the provisions of Section 35A  of the  Assam Sales  Tax Act,  1947.  The  writ petitions were  filed  by  the  appellants  challenging  the imposition of such interest.      The four  questions which  were referred  to the  third learned Judge read thus:      "1)  Section 9(2)  of  the  central      Act did  not visualise  any payment      of interest.      2)   If interest were to be charged      by the  force of Section 35A of the      Assam Sales  Tax  Act,  1974  which      visualises imposition  of a minimum      interest at  the  rate  of  6%  per      annum,  The   same  would   violate      Section 15(a)  of the  Central  Act      which has  put a  limit of 4% in so      far as the tax payable on the goods      dealt  with   the  appellants  were      concerned.      3)   Charging of  interest  on  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

    amount of  tax assessed  because of      what have been provided in Rule 42A      of the  Assam Sales Tax Rules, 1974      was  not  permissible  inasmuch  as      Rule 42A  was ultra  vires  Section      35A.      4)   Section 35A  of the  said  Act      was violative  of Article 14 of the      Constitution.      Section 9(2)  of the  Central Act,  as it  stood at the relevant time, read thus:      "9(2)   Subject    to   the   other      provisions  of  this  Act  and  the      rules    made    thereunder,    the      authorities  for   the  time  being      empowered  to   assess,  re-assess,      collect and  enforce payment of any      tax under the general sales tax law      of the  appropriate State shall, on      behalf of  the Government of India,      assess,  re-assess,   collect   and      enforce payment  of tax,  including      any penalty,  payable by  a  dealer      under this  Act as  if the  tax  or      penalty payable  by such  a  dealer      under this  Act is a tax or penalty      payable under the general sales tax      law of  the  State;  and  for  this      purpose they  may exercise  all  or      any of  the powers  they have under      the general  sales tax  law of  the      State; and  the provisions  of such      law, including  provisions relating      to returns, provisional assessment,      advance     payment     of     tax,      registration of  the transferee  of      any business, imposition of the tax      liability of  a person  carrying on      business on  the transferee  of, or      successor   to,    such   business,      transfer of  liability of  any firm      or Hindu  undivided family  to  pay      tax in the event of the dissolution      of such  firm or  partition of such      family, recovery  of tax from third      parties,     appeals,      reviews,      revisions,   reference,    refunds,      rebates,  penalties   charging   or      payment of interest, compounding of      offences and treatment of documents      furnished   by    a    dealer    as      confidential,      shall      apply      accordingly."      It was  contended before  the learned third Judge that, there being  no mention  of interest  in the  first part  of Section 9(2)  of the  Central Act,  the appellants were, not Liable to  pay interest  as aforestated. Reliance was placed upon the judgment of this Court in Khemka & Company vs. Stat of Maharashtra,  1975(3) SCR  753. The  learned third  Judge noted the  view taken by his two brother Judges on the first question and  found that  there was unanimity on the result, though for  different reasons.  He, therefore, took the same view and held that interest was payable by the appellants on account of delay in payment of Central sales tax even though no specific  provision had  been made  in the Central Act in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

this regard.      Our attention  was invited  to the  Constitution  Bench judgment  in  J.K.  Synthetics  Ltd.  vs.  Commercial  Taxes Officer, 1994(4)  SCC 276,  where  it  has  been  held  that provision relating  to the  charging and levying of interest in a statute are provisions of substantive law. The relevant paragraph of the judgment may be extracted.      "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 or  tax, including penal      provisions  meant   to  deal   with      defaulters. Provisions 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.  IRC, CIT  v.  Mahaliram      Ramjidas, India  United Mills  Ltd.      v. Commissioner  of Excess  Profits      Ta, Bombay  and Gursahai  Saigal v.      CIT, Punjab).  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  Ramji  and  Union  of      India  v.  A.L.  Rallia  Ram).  Our      attention was,  however drawn by Mr      Sen to  two cases.  Even  in  those      cases, CIT v. M. Chandra Sekhar and      Central Provinces Manganese Ore Co.      Ltd. v.  CIT, 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

    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. case,      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."      This proposition  may  be  derived  from  the  above  : interest can be levied and charged on delayed payment of tax only if  the statute that levies and charges the tax makes a substantive provision in this behalf.      Our attention  was also  invited  to  the  Constitution Bench judgment  in Khemka  & Co.,  where the  provisions  of Section 9(2)  of the  Central Sales  Tax Act  were analysed. Ray, C.J., taking the majority view, observed:      "Section 9(2)  of the  Central  Act      first provides that the authorities      empowered  to   assess,  re-assess,      collect and  enforce payment of any      tax under the general sales tax law      of the  appropriate State shall, on      behalf of  the Government of India,      assess,   re-assess   and   enforce      payment  of   tax   including   any      penalty payable  by a  dealer under      the Central  Act. The  State  Sales      Tax authorities  are  thus  created      agents of  the Government of India.      The  second   important   part   in      section 9(2)  of the Central Act is      that the  State  authorities  shall      assess,  re-assess,   collect   and      enforce payment  of  tax  including      any penalty  payable by  the dealer      under the Central Act as if the tax      or penalty payable by such a dealer      under the  Central Act  is a tax or      penalty payable  under the  general      sales tax  law of  the State.  This      part of  the section  sets out  the      scope  of   work  of   the   State.      agencies. The  words  "assess,  re-      assess, collect and enforce payment      of  tax   including   any   enforce      payment  of   tax   including   any      penalty  payable  by  dealer  under      this Act" mean that the tax as well      as penalty  is payable  only  under      the Central Act."      The learned Judge said,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

    "It is  only tax as well as penalty      payable  by   a  dealer  under  the      Central Act  which can be assessed,      re-assessed, collected and enforced      in regard to payment. The words "as      if the  tax or  penalty payable  by      such a dealer under the Central Act      is a  tax or  penalty payable under      the general  sales tax  law of  the      State" have  origin and root in the      words "payment of tax including any      penalty payable by dealer under the      Central Act." Just as tax under the      State Act  cannot  be  payable  and      collected and  enforced,  similarly      penalty under  the State Act cannot      be    assessed,    collected    and      enforced."           The  words   "and   for   this      purpose they  may exercise  all  or      any of  the powers  they have under      the general  sales tax  law of  the      State"  in   section  9(2)  of  the      Central  Act   are  important.  The      words "and for this purpose" relate      to "assess,  re-assess, collect and      enforce payment  of  tax  including      any penalty payable by dealer under      this Act."  In  that  context,  the      last limb  of section  9(2) of  the      Central   Act    viz.   "and    the      provisions         of          such      law..........shall            apply      accordingly"    mean    that    the      provisions of  the  State  Act  are      applicable  for   the  purpose   of      assessment,          re-assessment,      collection   and   enforcement   of      payment of  tax  including  penalty      payable under  the Central Act. The      words of  the last  part of section      9(2) viz. "shall apply accordingly"      relate clearly  to the  words  "and      for this  purpose" with  the result      that the  provisions of  the  State      Act  shall   apply  only   for  the      purpose    of    assessment,    re-      assessment,     collection      and      enforcement.   The    doctrine   of      ejusdem  generis   shows  that  the      genus  in   section  9(2)   of  the      Central Act  is "for this purpose".      In  other   words,  the   genus  is      assessment,          re-assessment,      collection   and   enforcement   of      payment. The  genus is from whom to      collect   and   against   whom   to      enforce. It  is apparent  that  the      extent of liability for tax as well      as penalty  is not attracted by the      doctrine of  ejusdem generis in the      application of  the  provisions  of      the  State   Act   in   regard   to      assessment,          re-assessment,      collection   and   enforcement   of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

    payment  of   tax   including   any      penalty payable  under the  Central      Act."      Ray, C.J.  concluded by  holding that  the provision in the State  sales tax Act imposing penalty for non-payment of sales  tax   within  the  prescribed  time  period  was  not attracted to  impose penalty  on dealers  under the  Central sales tax  Act in  respect of  tax and penalty payable under the Central  Act. A  penalty was  a statutory liability. The Central Act  contained specific  provisions  in  respect  of penalty. Those  were the  only provisions  available against dealers under  the Central  Act. Each  State sales  tax  Act contained provisions for penalties. These provisions in some cases were also for failure to submit a return or failure to register. These  provisions could not apply to dealers under the Central  Act because  the Central  Act made  no  similar provisions. The  learned Judge  added, "The Central Act is a self  contained  code  which  by  charging  section  creates liability for  penalty and  impose penalty.  Section 9(2) of the Central Act creates the State authorities as agencies to carry out  the  assessment,  re-assessment,  collection  and enforcement of tax and penalty payable by a dealer under the Act."      Beg, J.,  concurring with the majority view, found that provisions relating  to penalties  were special and specific provisions in  the Central  and State  Acts. "They  are", he said, "not  part of  the general sales tax law of either the State or  of Union. If the provisions relating to penalties, such as  those found  in the Central Act and the State Acts, are really  special provisions  which can  be invoked in the special  circumstances   given  in  each  statute,  we  must interpret the  reference  to  penalties  in  the  concluding portion of  Section 9(2)  to  relate  only  to  the  special provisions relating  to penalties  provided for specifically in the  Central Act".  The  learned  Judge  added  that  the legislative intent was to confine penalties mentioned in the concluding part  of Section  9(2) to only those penalties as were mentioned specifically in the Central Act.      The words  "charging or  payment of  interest" in  sub- section (2)  and sub-section  (2A) of  the Section  9,  were introduced with  retrospective effect in 1976. Section 9(2A) reads thus:      "All  the  provisions  relating  to      offences and  penalties  (including      provisions relating to penalties in      lieu of  prosecution for an offence      or in  addition to the penalties or      punishment  for   an  offence   but      excluding the  provisions  relating      to matters  provided for in Section      10 and  10A) of  the general  sales      tax law  of each  State shall, with      necessary modifications,  apply  in      relation  to  the  assessment,  re-      assessment,  collection   and   the      enforcement of  payment of  any tax      required to be collected under this      Act in such State or in relation to      any  process  connected  with  such      assessment,          re-assessment,      collection   or    enforcement   of      payment as  if the  tax under  this      Act were a tax under such sales tax      law."      Section 9(2A)  makes applicable  to the assessment, re-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

assessment, collection  and enforcement of Central sales tax the provisions  relating to offences and penalties contained in the  State Acts  as if  the Central sales tax was a State sales tax. But Section 9(2A) makes no reference to interest.      There is  no substantive  provision in  the Central Act requiring the  payment of  interest on  Central  sales  tax. There is, therefore, no substantive provision in the Central Act which  obliges the  assessee to  pay interest on delayed payments of Central sales tax.      Now, the  words "charging  or payment  or interest"  in Section 9(2)  occur in  what may  be called  the letter part thereof. Section  9(2) authorises  the sales tax authorities of a  State to assess, reassess, collect and enforce payment of the  Central sales  tax payable  by a dealer as if it was payable under  the State  Act; this  is the  first  part  of Section 9(2).  By the second part thereof, these authorities are empowered  to exercise  the powers  they have  under the State Act  and the  provisions of  the State  Act, including provisions relating  to charging  and payment  of  interest, apply accordingly.  Having regard  to what  has been said in the case  of  Khemka  &  Co.,  it  must  be  held  that  the substantive law  that the States’ sales tax authorities must apply  is   the  Central   Act.  In  such  application,  for procedural purposes  alone, the  provisions of the State Act are available.  The provision  relating to  interest in  the latter part  of Section  9(2) can be employed by the States’ sales tax  authorities only  if  the  Central  Act  makes  a substantive provision for the levy and charge of interest on Central sales  tax and  only to  that extent. There being no substantive provision  in  the  Central  Act  requiring  the payment of  interest on  Central sales tax the States’ sales tax authorities  cannot, for  the purpose  of collecting and enforcing payment  of Central  sales  tax,  charge  interest thereon.      The requirement  of  the  1st  respondent’s  sales  tax authorities that  the appellants  should pay interest at the rate of  24% p.a.  on delayed  payments of Central sales tax under the provisions of Section 35(A) of the State Act must, therefore, be held to be bad in law.      The appeals  are allowed.  The judgment and order under appeal is  set aside. The demands for payment of interest as aforestated are quashed.      No order as to costs. Civil Appeal Nos. 2168-71/93:      Following the above judgment, these appeals are allowed and the  judgment and  order under  appeal is set aside. The demands made  upon the appellants for payment of interest on delayed payments of Central sales tax are quashed.      No order as to costs.