Supreme Court of India
INDIA CARBON LTD. ETC.versusTHE STATE OF ASSAM
- Citation
- 1997 INSC 565
- Decided
- 16 July 1997
- Disposal
- Appeal(s) allowed
- Bench
- S P BHARUCHA
Holding
Interest on delayed Central Sales Tax cannot be levied under State law because the Central Sales Tax Act, 1957 contains no substantive provision for such interest.
Summary
India Carbon Ltd. and other appellants, manufacturers of petroleum coke, were liable to pay Central Sales Tax under the Central Sales Tax Act, 1957 on inter‑state sales. They delayed payment and the Assam Sales Tax authorities demanded interest under Section 35A of the Assam Sales Tax Act, 1947. The appellants challenged the demand, arguing that the Central Act did not provide for interest. The Supreme Court held that Section 9(2) of the Central Sales Tax Act authorises State authorities to use State procedural provisions only, and that interest is a substantive provision which must be expressly provided in the Central Act. Since the Central Act contains no substantive provision for interest on delayed Central Sales Tax, the State could not levy it. Consequently, the demand for interest was declared illegal and set aside.
Issues considered
- Whether Section 9(2) of the Central Sales Tax Act, 1957 envisages the levy of interest on delayed Central Sales Tax.
- If interest can be imposed under Section 35A of the Assam Sales Tax Act, 1947 when the Central Act lacks a substantive provision for interest.
- Whether the imposition of interest at a rate higher than that permitted by Section 15(a) of the Central Act violates the Central legislation.
- Whether Rule 42A of the Assam Sales Tax Rules, 1947 is ultra vires Section 35A.
- Whether Section 35A of the Assam Sales Tax Act, 1947 infringes Article 14 of the Constitution.
Subjects
Central Sales TaxInterest on delayed taxSection 9(2)Assam Sales Tax ActProcedural vs substantive lawTax penaltyConstitutional lawArticle 14
Judgment
INDIA CARBON LTD. ETC. A
v.
THE STATE OF ASSAM
JULY 16, 1997
[S.P. BHARUCHA AND M. JAGANNADHA RAO, JJ.) B
Sales Tax:
Central sales Tax Act, 1957-Section 9(2)/14-Assam Sales tax Act,
f
1947-Section 35-A-lmposition of interest on delayed payments of Central C
Sales Tax---lnter-state sales of Petroleum Coke-Subjected to Central sales
tfil~Delay in payment of sales tfil~High Cowt held that appellant is liable
to pay interest 011 delayed payment of sales tax-Held, no substantive
provision in the Central Act requiling payment of interest-Assessee not liable
to pay interest.
D
The appellants were manufacturers and sellers of petroleum coke
which were goods declared by section 14 of the Central Sales Tax Act, 1957.
The appellants were liable to pay central sales tax on the petroleum coke
that was subjected to inter-state sales. Due to delay in payment of sales tax,
the appellants were required to pay interest under section 35-A of the
Assam Sales Tax Act, 1947. The appellants challenged the imposition of E
interest by filing a writ petition in the High Court, on the ground that there
being no mention of interest in the first part of section 9(2) of the Central
Sales Act, they were not liable to pay interest. The High Court 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 p
Central Act in this regard. Hence the present appeal.
Allowing the appeals, this Court
HELD : 1.1. The requirement of the sales tax authorities that the
appellants should pay interest on delayed payment of Central Sales Tax G
under the provisions of Section 35(A) of the Assam Sales Tax Act 1947 is
'f
bad in law. (9-E-F]
1.2. Section 9(2) of Central Sales Tax Act 1957 authorise the sale
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 H
1
2 SUPREME COURT REPORTS [1997] SUPP. 3 S.C.R.
A State Act. The substantive law that the States; sales tax authorities must
apply is the Central law. For procedural purposes alone the provisions of
the State Act are available. [9·B·D]
1.3. The provisions relating to interest in the latter part of section
9(2) can be employed by the States' sales tax authority only if the Central
B Act make susbstantive provision for the levy and charge of interest on
Central Sales Tax and only to that extent. There is no substantive
provision in the Central Act requiring the payment. of interest on Central
Sales Tax. The State sales tax authorities therefore cannot charge interest
on delayed payment of Central Sales Tax. The demands made for payment
C of interest are quashed. [9-D-E; F]
Khemka & Compa11y v. State of Maharashtra, [1975] 3 SCR 753, relied
on.
J.K. Sy11thetics Ltd. v. Commercial Tax Officer, [1994] 4 SCC 276
D referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2156-67
of 1993.
From the Judgment and Order dated 15.9.89 of the Assam High
E Court in C.R. Nos. 305-307/77, 505-509/80 and 391-394 of 1984.
WITH
Civil Appeal Nos. 2168-71/93, 7728/95, 7735/95, 7865/95, 9267/95.
F R.F. Nariman, M.L. Lahoty, Ashok Saraf and Mrs. AK. Verma for
Mis. JBD & Co. for the Appellants.
S.A. Syed for the Respondents.
The Judgment of the Court was delivered by
G
S.P. BHARUCHA, 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
H questions which will determine these appeals.
INDIACARBONLTD. v. STATE[S.P.BHARUCHA,J.] 3
Briefly stated for the purposes of this judgment, the facts are these: A
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. The
payments of Central sales tax on inter-State sales of petroleum coke were
B
delayed. For the assessment years 1974 to 1980 the appellants were re-
quired 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.
c
The four question 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.
D
(2) If interest were to be charged by the force of Section 35A of
the Assam Sales Tax Act, 1947 which visualises imposition of a
minimum interest at the rate o 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. E
(3) Charging of interest on the amount of tax assessed because of
what have been provided in Rule 42A of the Assam Sales Tax
•:' Rules, 1947 was not permissible inasmuch as Rule 42A was ultra
vires Section 35A. F
(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: G
·{
"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 pay- H
4 SUPREME COURT REPORTS [1997] SUPP. 3 S.C.R.
A ment 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,
B 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 par.titian
c of such family, recovery of tax from third parties, appeals, reviews,
revisions, references, refunds, rebates, penalties charging or pay-
ment of interest, compounding of offences and treatment of docu-
ments furnished by a dealer as confidential, shall apnly
accordingly."
D 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 v. State 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
E 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 this regard.
F Our attention was invited to he Constitution Bench judgment in J.K.
Synthetics Ltd. v. Commercial Taxes Officer, [1994] 4 SCC 276, where it has
been held that provisions relating to the charging and levying of interest in
a statute are provision of substantive law. The relevant paragraph of the
judgment may be extracted.
G "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
H provides the mode for the recovery and collection of tax, including
INDIACARBONLTD. v. STATE[S.P.BHARUCHA,J.) 5
penal provisions meant to deal with defaulters. Provision is also A
made for charging interest on delayed payments, etc. Ordinarily
the charging section which fixes the liability is strictly construed
but tha.t rule of strict construction is not extended to the machinery
provmons which are construed like any other statute. The
machinery provisions must, no doubt, be so construed as would B
effectuate the object of purpose of the statute and not defeat the
same. (See "Whitney v. /RC, CIT v. Mahaliram Ramjidas, India
United Mills Ltd. v. Commissioner of Excess Profits Tax, 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 C
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 Bangal Nagpur Railway Co. Ltd. v. Ruttanji
Ramji and Union of India v. A.L. Rallia Ram). Our attention was, D
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 E
be its objective was to 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 F
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 G
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. H
6 SUPREME COURT REPORTS [1997] SUPP. 3 S.C.R.
A 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
B 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
c 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 liS 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.
D 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 penalty payable by dealer under this Act" mean
that the tax as well as penalty is payable only under the Central
act."
E The learned Judge Said:
"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
F 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 Stace Act cannot be assessed, collected and enforced."
G
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
H payment of tax including any penalty payable by dealer under this
INDIACARBONLID. v. STATE[S.P.BHARUCHA,J.] 7
Act." In that context, the last limb of section 9(2) of the Central A
Act ·viz. "and the provisions of such law .......... shall apply accord-
ingly" mean that the provisions of the State Act are applicable for
the purpose of assessment, re-assessment, collection and enforce-
ment of payment of tax including penalty payable under the Central
Act. The words of the last part of section 9(2) viz., "shall apply B
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 enforce-
ment. 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 C
enforcement of payment. The genus is applicable in regard to
the procedure for 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 D
ejusdem generis in the application of the provisions of the State
Act in regard to assessment, re-assessment, collection and enfor-
cement of payment of tax including any penalty payable under the
Central Act."
E
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 F
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 G
Act is a self contained code which by charging section creates liability
for tax and which by other sections 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, col-
lection and enforcement of tax and penalty payable by a dealer under H
\
\ the Act."
8 SUPREME COURT REPORTS [1997] SUPP. 3 S.C.R. .
A Beg, J., concurring with the majority view, found that provisions
relating to penalties were special and specific provisions in tlie 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 States Acts, are really special
B 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
C specifically in the Central Act.
The words, "charging or payment of interest" in sub-section (2) and
sub-section (2A) of Section 9, were introduced with retrospective effect in
1976. Section 9(2A) reads thus :
D
"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 lOA) of the general sales tax law of each State shall, with
E necessary modifications, apply in relation to the assessment, re-as-
sessment, 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
F were a tax under such sales tax law."
Section 9(2A) makes applicable to the assessment, re-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
G 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
H delayed payments of Central sales tax.
/
INDIACARBONLTD. v. STATE[S.P.BHARUCHA,J.) 9
Now, the words "charging or payment of interest" in Section 9(2) A
occur in what may be called the latter 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 B
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 . C
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 D
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. o'n 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. E
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. F
Civil Appeal Nos. 2168-71/93:
Follo\ving 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 G
tax are quashed.
No order as to costs.
S.V.K.I. Appeals allowed.
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