Holding

Section 10 of the U.P. Taxation and Land Revenue Laws Act, 1975 does not permit a penalty for non‑filing of a return, and the ambiguous notices were therefore invalid.

Summary

The proprietor of Hotel Darpan in Mussoorie was served notices under Section 10 of the Uttar Pradesh Taxation and Land Revenue Laws Act, 1975, demanding payment of a Rs 5,000 amount and threatening a daily fine for non‑deposit. The appellant argued that the demand was for a penalty imposed for failure to file the required return, which Section 10 does not authorize; only penalties for non‑payment of tax or failure to supply information are permissible. The High Court held that a penalty could be levied under Section 10 even for non‑filing of returns. The Supreme Court examined the notices, found them ambiguous as to whether the Rs 5,000 was tax or penalty and noted that no provision was cited for the fine. It held that Section 10 does not empower a penalty for failure to file a return, quashed the two notices, and directed the assessing authority to re‑issue appropriate orders after hearing the appellant, also considering the appellant’s claim of an advance deposit of Rs 10,000. The appeal was allowed, modifying the High Court’s order.

Issues considered

Whether Section 10 of the U.P. Taxation and Land Revenue Laws Act, 1975 authorises the levy of a penalty for failure to file a return.
Whether the notices demanding Rs 5,000 and a daily fine were valid given the lack of a clear statutory basis and ambiguity between tax and penalty.
Whether the assessing authority may impose a fine without specifying the statutory provision.

Legislation cited

U.P. Taxation and Land Revenue Laws Act, 1975s. 10, s. 13, s. 4, s. 5, s. 6, s. 7

Subjects

luxury taxpenaltynon‑filing of returnSection 10Uttar Pradeshhotel taxationquash orderassessment

Judgment

- M/S. HOTEL DARPAN, MUSSORIE
v.
A

SUB-DIVISIONAL MAGISTRATE, MUSSORIE AND ANR.

NOVEMBER 27, 1995
B
[B.P. JEEVAN REDDY & S.B. MAJMUDAR, JJ.]

Taxation Law--U.P. Taxation and Land Revenue Laws Act 1975-Sec-
tion ](}-Provision only to levy penalty for failure to pay amount payable under
Sections 5 & ?within the prescribed time, for failure to supply any information
asked for by the relevant authorities or for supplying false information-Non-
c
filing of return-No penalty can be levied under s.10.

The Appellant who is the proprietor ofa hotel in Mussorie, U.P., was
served notice under Section 10 of the U.P. Taxation and Land Revenue
Law. The assessing authority had asked the Appellant to deposit the luxury D
tax on the monthly lodging and boarding of his hotel by the fifth of the
followin~ month. When the appellant failed to so deposit, he was called to
produce all the documents and inter alia deposit a sum of Rs. 5000. A
second notice was thereafter served asking the Appellant to deposit Rs.
5000 within a week and in case he defaulted, the Appellant was liable to
pay a further fine of Rs. 100 per day in addition to 10% collection charge. E
The Appellant challenged these two notices before the High Court.

The contention before the High Court was that under Section 10 of
the U.P. Taxation and Land Revenue Act, no fine can be imposed. The High
Court rejected the same holding that, if the return is not furnished, then F
the concerned authority can impose penalty under Section 10 of the Act
and so there was no illegality in the levy of fine.

In appeal to this Court, it was submitted on behalf of the Appellant
that, the penalty in this case was levied for non- filing of the return within G
the time given and not for non-payment of any amount due or for non-
supply of any information asked for by the authorities. For non-filing of
return the authorities could only make a best judgment assessment under
rule 6(5) or the rules. Therefore, the authorities could not levy any fine.

Allowing the Appeal, this Court H
685
686 SUPREME COURT REPORTS [1995JSUPP. 5 S.C.R.

A HELD : 1. The two notices/orders impugned in the writ petition are
ambiguous and do not make it clear whether the amount of Rs. 5000
mentioned therein is a tax or a penalty. The impugned notices also speak of
fine but do not say, under which provision are they levied. In these cir-
cumstances, the proper course, is to quash the two orders/notices impugned·
in the writ petition with a direction to the assessing authority to pass
B appropriate orders afresh in accordance with law, after hearing the asses-
see, keeping in view the position of law explained in this judgment. The
authority can also ascertain whether the appellant's case that he has
deposited Rs. 10,000 in advance is correct and, if so, what is its effect in law
- and its relevance in the matter oflevy of penalty, fine or interest. [690-C-D]
c
2. Section 10 of the U.P. Taxation and Land Revenue Act is the only
provision in the Act providing for levy of taxes. Sub-section (1) provides
for levy of penalty on conviction for failure to pay sum payable under
Section S or Section 7 within the prescribed period. Sub-section (2)
provides for· levy of penalty on two grounds, viz, failure to supply any
D information which the person concerned is called upon to supply under
the rules or where the person knowingly supplies false information. For
not filing the return, it is true, no penalty can be levied under Section 10.
The assessee shall not be entitled to raise any objection on the ground of
limitation. He shall, of course, be free to raise all such other grounds as
E are open to him in law. [690-A-B; E]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 11260 of
1995.

From the Judgment and Order dated 24.2.95 of the Allahabad High
F Court in C. Misc. W.P. No. 1694 of 1993.

Manoj Swarup for the Appellant.

Irshad Ahmad for the Respondents.

G The following Order of the Court was delivered :

Leave granted. Heard counsel for both the parties.

This appeal arises from the order of the Division Bench of the
Allahabad High Court dismissing the writ petition, filed by the appellant
H herein, with certain directions. The matter arises under the Uttar Pradesh
HOTEL DARPAN v. SUB-DVNL. MAGISTRATES 687

Taxation and Land Revenue Laws Act, 1975. A
The appellant is the proprietor of a hotel, Hotel - Darpan, at
Mussoorie. Section 4 of the U.P. Act imposes a luxury tax at the prescribed
rate on every person who occupies rented room or suite or rooms provided
with luxuries in hotel. The appellant-hotel is, without a doubt, subject to
the levy of the said tax. Section 5 of the Act sets out the manner in which B
the tax has to be paid by the proprietor of the hotel. In case of failure to
pay within the prescribed period, interest at the prescribed rate is charged.
Section 6 provides for assessment of tax. The authority competent to make
the assessment and the procedure to be followed in that behalf is to be
prescribed by the rules. The next provision to be noticed is Section 10 C
which provides for levy of penalties. It would be appropriate to set out the
Section in full :

"JO. Penalty. - (1) Without prejudice to the provisions of sub-section
(2) of Section 5 if any person fails to pay any sum payable under
Section 5 or Section 7 within the prescribed period he shall, on D
conviction be liable to pay a fine not exceeding rupees five
thousand and when the offence is a continuing one, with a further
fine not exceeding rupees one hundred per day during which the
offence continues.
E
(2) Whoever fails to supply any information which he is required
to supply under any rules made under this Chapter or knowingly
supplies false informat~on shall be punishable with fine which may
extend to five thousand rupees."

Section 13 empowers the State Government to make rules to carry F
out the purpose of the Act.

The rules framed under Section 13 are called "The Uttar Pradesh
Luxuries (In Hotels) Tax Rules, 1975." Rule 3 provides that the amount of
tax payable by a proprietor under Section 5(1) of the Act shall be paid G
within five days after the end of the month to which the tax collected by
the proprietor relates. Rule 4 provides for filing of returns in the prescribed
form. Rule 6 prescribes the procedure for assessment of tax. According to
this rule, the Collector is the Assessing Authority and the assessment is
made half-yearly. Sub-rule (3) provides that for the purpose of assessing
the tax, the Collector shall serve notice on the proprietor to attend in H
688 SUPREME COURT REPORTS (1995) SUPP. 5 S.C.R.

A -person or through an agent on the prescribed date and to produce such
documents and evidence as may be specified in the notice or as he may
wish to rely upon, as the case may be. Sub-rule (4) provides for making an
order of assessment after examining the evidence placed before the Assess-
ing Authority. Sub-rule (5) of Rule 6 is relevant for our purposes. It
B provides for making a best judgment assessment in case a return is not filed
within the prescribed period. The sub- rule reads :

"(5) If the proprietor fails to submit the returns within the period
mentioned in sub-rule (1) of Rule 4, the Collector shall assess to
the best of his judgment the amount of the tax payable under
c Section 5 of the Act in accordance with the provisions of Section
4 of the Act."

Rule 7 provides for Appeal while Rule 8 prescribes the Appellate
Authority. It is not necessary to refer to other Rules.

D The writ petition from which this appeal arises was filed by ~e
appellant questioning the validity of notices/orders dated June 28, 1993 and
July 14, 1993. In the notice dated June 28, 1993 the Assessing Authority
stated that the appellant was "called upon to deposit the amount of luxury
tax on the monthly lodging and boarding by the fifth date of the next
E month" as provided by the said Act but that the appellant has failed to
deposit the same inspite of repeated reminders. The appellant was, there-
fore, called upon to produce an· documents and to deposit the tax under
intimation to the Assessing Authority. The notice further stated :

"(1) In default of filling of returns regarding Luxury Tax for the
F period 01-10-91 to 30-09-92 you are called upon to deposit of Rs. 5,000
(Five Thousand) under Section 10 of Luxury Tax within 3 days from the
date of receipt of this letter in the Government Treasury after verifying the
head of Account.

G (2) You are called upon to produce all documents to the above
period which were demanded from you through previous letters of Luxury
Tax Assessing Authority, within 10 days before the court of undersigned.

An ex-parte proceedings for Assessment of Hotel under Section 7 of
Luxury tax will be taken against you in the case of failure to produce the
H documents or if records are not found satisfactory."
HOTEL DARPAN v. SUB-DVNL. MAGISTRATES 689

On the ground that the said amount of Rs. 5,000 was not deposited A
in time, the order dated July 14, 1993 was passed calling upon the
appellant to deposit the said amount of Rs. 5,000 within one week. It was
stated that in default of such deposit, the appellant would be liable to pay
a further fine of Rs. 100 per day in addition to 10 per cent collection
charges.
B
The appellant contended before the High Court that no fine c:Jr
penalty could have been imposed under Section 10 for not filing the
returns. This contention was rejected by the High Court in the following
words:
c
"If the return has not been furnished by the petitioner, indeed, the
authority concerned may proceed under Section 10 of the Act to
impose penalty and after proceeding in accordance with the
provisions of Section 10 of the Act only the Sub-Divisional
Magistrate has imposed the fine. ......
D
As far as imposition of penalty is concerned this court does not
see any illegality in it and upholds the imposition of penalty."

The High Court also took note of the statement of the appellant's
counsel that the appellant had deposited a sum of Rs. 10,000 in advance E
and, therefore, there was no occasion for depositing a further sum of Rs.
5,000, and observed : "If that is so, indeed, the petitioner may, if so advised,
approach to the authority concerned by filing an appropriate application
to settle the account accordingly." The Court finally observed : "If ap-
propriate application is made by the petitioner before the sub- divisional
Magistrate, Mussoorie within a month from today, the same shall be taken F
into consideration and be disposed of within three months thereafter."

In this appeal, the main contention put forward by the learned
counsel for the appellant is that no penalty can be levied under Section 10
of the Act for not filing the return. If a return is not filed within the
prescribed period, the learned counsel says, the only course available to G
the Assessing Authority is to make a best judgment assessment as provided .
by Rule 6(5) of the Rules. The learned counsel says that in the present
case, penalty has been levied not for the failure to pay any amount due nor
for the failure to supply any information which the appellant was called
upon to suppl~ but only for non-filing of the return within the prescribed H
690 SUPREME COURT REPORTS [i995] SUPP. 5 S.C.R.
....
A period. As a proposition of law, the learned counsel is right. Section 10 is
the only provision in the Act providing for levy of taxes. Sub-section (1)
provides for levy of penalty on conviction for failure to pay any sum payable
under Section 5 or Section 7 within the prescribed period. Sub-section (2)
provides for levy of penalty on two grounds, viz., failure to supply any
B information which the person concerned is called upon to supply under the
rules or where the person knowingly supplies false information. For not
filing the return, it is true, no penalty can be levied under Section 10. But
the more important question in this case is, whether any penalty has been
levied in this case, and if so, on what ground. The two notices/orders
impugned in the writ petition are ambiguous and do not make it clear
C whether the amount of Rs. 5,000 mentioned therein is a tax or a penalty.
The impugned notices also speak of fine but do not say, under which
provision are they levied. In these circumstances, the proper course, in our
opinion, is to quash the two orders/notices impugned in the writ petition
with a direction to the Assessing Authority to pass appropriate orders
D afresh in accordance with law, after hearing the assessee, keeping in view
the position of law explained in this judgment. The authority can also
ascertain whether the appellant's case that he has 'deposited Rs. 10,000 in
advance is correct and, if so, what is its effect in law - and its relevance in
the matter of levy of penalty, fine or interest. It is made clear that in the
proceedings which shall now be taken by the Assessing Authority pursuant
E to this order, the assessee shall not be entitled to raise any objection on
the ground of limitation. He shall, of course, be free to raise all such other
grounds as are open to him in law.

The appeal is allowed with the above directions. The order of the
High Court shall stand modified accordingly. No costs.

l.M.A. Appeal allowed.

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t