ition Nos
12695 13478 82 13352 of 1983 99 100 133 34 231 234 36 of 1984
Under article 32 of the Constitution of India Civil Appeals Nos 322 351 of 1984 Appeals by Special leave from the Judgment and Order dated the 24th June 1983 19th August 1983 1st September 1983  29th December 1983 of the Jammu and Kashmir High Court in Writ Petition Nos 430  88682 36481 47881 13282 33880 52580 48580 6783 40482 68182 67981 68882 47281 67882 864 23081 22983 47681 22883 47180 28783 68282 34482 62182 30280 62480 4683 91283 55882 and 62383
K K Venugopal and Anil Dev Singh Satish Vig section P Sharma L K Gupta Vimal Dave R C Kaushik and Subhash Sharma for the PetitionersAppellants
Altaf Ahmed for the Respondents
The Judgment of the Court was delivered by MADON J
This group of Writ Petitions and Appeals by Special Leave challenges the constitutional validity of sub sections 1 2 and 3 of section 8 of the Jammu and Kashmir General Sales Tax Act 1962 J  K Act XX of 1962 and seeks to quash the orders directing the Petitioners and Appellants before us herein after for the sake of brevity referred to as the Assessees to pay interest on the amount of tax due according to the quarterly returns filed by them but not paid within the prescribed time
ALL the Assessees are registered as dealers under the Jammu and Kashmir General Sales Tax Act 1962 hereinafter referred to as The Act
Sub section 1 of section 7 of the Act requires every dealer liable to pay tax under the Act to furnish in the prescribed form a return of his turnover for a year within 120 days from the expiry of that year
Sub section 2 of section 7 provides as follows Without prejudice to the provisions of sub section 1 every dealer shall also furnish in the prescribed form quarterly returns for each quarter of the year within thirty days from the expiry of that quarter
Every such return shall be accompanied by a Treasury Receipt or any other proof of having paid the tax due on that return Thus the tax due according to a quarterly return is to be paid by the dealer before filing such return and proof of payment of the tax so due is to accompany such return
Sub sections 1 2 3 7 and 8 of section 8 omitting what is not relevant for our purpose provide as follows 1 The tax assessed or any other amount demanded under this Act shall be paid in such manner and within 865 such time not being less than fifteen days from the date of the notice of demand
as may be specified in the notice
In default of such payment the whole of the amount then remaining due shall become recoverable in accordance with sections 16 and 16 A x x x x x x 2 If the tax or any other amount due under this Act is not paid by the dealer or any other person by whom it is payable within the period specified in demand notice the dealer or such other person shall be liable to pay interest on the tax or other amount from the date it was payable to the date of actual payment at the following rates a If the default is for a period of not exceeding three months at 1 per month b If the default is for a period exceeding three months but less than six months at 2 per month c If the default is for a period exceeding six months at 3 per month Provided that where as a result of an order under Sections 11 12 24 or an order of the Court the amount of tax or other sum on which interest was payable under this sub section has been reduced the interest shall be reduced accordingly and excess interest paid if any shall be refunded
Explanation Interest shall be charged for full month and not for a part of the month
3 Quarterly tax shall be paid before furnishing a quarterly return but not later than the date prescribed under sub section 2 of Section 7
X X X X X 7 Where a dealer furnishes a revised return under sub section 4 of Section 7 and the tax payable is more than the tax paid on the basis of original return he shall pay the extra tax payable before furnishing the revised return 866 Provided that if the tax already paid is in excess of the tax payable such excess amount shall be treated to have been paid towards the tax payable for the quarter next following the date of furnishing such revised return
8 Notwithstanding anything contained in this Act if a dealer fails to pay the tax payable under this Section the provisions of sub section 2 of this Section Section 16 and Section 16 A shall apply mutatis mutandis to the recovery thereof
Explanation 1 Quarterly Tax means the tax payable on the basis of a quarterly return required to be furnished by sub section 2 of Section 7
Explanation 2 Interest under sub section 2 of this Section on the extra tax payable on the basis of revised return shall be payable from the date next following the date on which the tax was payable on the basis of original return
 The Assessees filed their quarterly returns within the time prescribed by the Act but without paying the tax due according to such returns
Some of them also filed revised returns thereafter
The tax due was paid by the Assessees after several months and in some cases by instalments
In a few cases the full amount of tax was not paid even by the date the assessment order in their cases came to be made
In the case of most of the Assessees the Assessing Authority levied penalty under sub section 2 of section 8 of the Act before making any assessment
In other cases orders requiring interest to be paid were made along with the assessment orders
It may be mentioned that in cases where the assessment orders were made the returns filed by the Assessees were accepted as correct
Those Assessees who are Appellants before us filed writ petitions in the Jammu and Kashmir High Court challenging the validity of section 8 of the Act under which interest was sought to be recovered from them as also the demand for payment of interest
These writ petitions were heard along with other writ petitions in which other questions arose
The High Court dismissed all these writ petitions but made no order as to the costs thereof
The petitioners before the High Court fell into four categories namely 867 1 Dealers who had neither filed their returns nor deposited the tax due from them and the Assessing Authority had determined the amount of tax payable by them and issued a composite notice of demand calling upon them to deposit the amount of tax along with interest due on it
2 Dealers who had filed their returns but had not deposited the full amount of tax due according to such returns and the Assessing Authority having accepted the returns had issued a composite notice of demand calling upon them to pay the amount of tax along with interest due on it
3 Dealers who had filed their returns but had paid the tax due according to such returns after the expiry of the prescribed time and in whose cases the Assessing Authority had accepted the returns and had issued a notice of demand asking them to pay interest on the amount of tax for the period for which such payment was delayed
4 Dealers who had filed their returns and had paid the tax due according to such returns by the prescribed time but the Assessing Authority had not accepted the returns and had enhanced the amount of tax payable by these dealers and had issued a composite notice of demand calling upon them to pay the amount of tax so enhanced along with interest on it
We are concerned in these Petitions and Appeals only with dealers who fall under categories 2 and 3 above as also with those dealers who had filed their returns but had not paid the amount of tax due according to such returns by the prescribed time but had paid it later and notices were issued against them calling upon them to pay interest for the period of default before making any order of assessment We are not concerned in these Petitions and Appeals with those dealers who fall under categories 1 and 4 above
At the hearing of these Petitions and Appeals no arguments whatever were advanced before us in support of the contention that sub section 1 of section 8 was unconstitutional and the challenge 868 to that sub section must therefore fail
The only contentions which were urged at the hearing were as follows 1 The charging of interest to the Asssssees is violative of Article 265 of the Constitution of India as there was no legislative power in the State Legislature to make a law providing for payment of interest if the amount of tax was not paid by the prescribed time and for this reason the provisions of section 8 of the Act in so far as they provide for payment of such interest are beyond the legislative competence of the State Legislature and therefore unconstitutional
2 Sub section 2 of section 8 of the Act is void as infringing Article 14 of the Constitution because its provisions are discriminatory arbitrary and unreasonable 3 The Assessees carried on business on credit basis and as by the dates when they filed their quarterly returns their customers had not paid to them the price of goods sold to them the Assessees were not bound to pay tax along with their returns but were bound to pay tax in respect of those transactions of sale only when the amount of sale price was received by them from their customers
4 In some cases the amount of interest claimed from the Assessees exceeded the amount of tax paid by them and therefore the demand for such excess amount of interest was bad in law
5 The Assessees were not liable to pay any interest on the amount of tax not paid in time without a notice of demand for payment of such amount of tax having been first issued to them
6 Interest was levied by the Assessing Authority for the entire period of default at the maximum rate prescribed by sub section 2 of section 8 which was contrary to the provisions of that sub section
We will first examine the correctness of the contention that the impugned provisions of section 8 of the Act are violative of Article 265 of the Constitution of India
Article 265 of the Constitution 869 provides that No tax shall be levied or collected except by authority of law
 Thus Article 265 postulates that before any tax can be levied and collected there must be a valid law enacted by an appropriate legislature imposing such tax and providing for its collection
The submission on behalf of the Assessees was that under the Constitution the Legislature of the State of Jammu and Kashmir has no legislative power to provide for payment of interest in case of late payment of tax
It was not the contention of the Assessees as indeed it could not be that the Legislature of the State of Jammu and Kashmir had no legislative power to enact a law levying a tax on the sale or purchase of goods taking place within the State and making provisions for the collection of such tax because the constitutional position in this behalf is clear and indisputable
Under clause 1 of Article 246 of the Constitution of India Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule to the Constitution referred to as the Union List and under clause 3 of the same Article the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II of the Seventh Schedule to the Constitution referred to as the State List
Taxes on the sale or purchase of newspapers and on advertisements published therein fall under Entry 92 of the Union List and taxes on the sale or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter State trade or commerce fall under Entry 92A of the Union List while taxes on the sale or purchase of goods other than newspapers subject to the provisions of Entry 92A of List I fall under Entry 54 of the State List
Thus so far as sales tax is concerned the Constitution bifurcates the legislative field of taxation between the Union and the States
As a result of this bifurcation the subject of taxes on intra State sale or purchase of goods other than newspapers falls exclusively within the State power of taxation
The Constitution of India however does not apply in its entirety to the State of Jammu and Kashmir because that State holds a special position in the constitutional set up of our country
Article 370 of the Constitution of India makes special provisions with respect to the State of Jammu and Kashmir
Under sub clause c of clause 1 of Article 370 the provisions of Articles 1 and 370 apply in relation to the State of Jammu and Kashmir and under sub clause d of clause 1 of Article 370 such of the other provisions of the Constitution apply in relation to that State subject to such exceptions and modifications as the President may specify by an order issued with the concurrence of the Govern 870 ment of that State
Thus by reason of the application of Article 1 to the State of Jammu and Kashmir by sub clause c of clause 1 of Article 370 the State of Jammu and Kashmir is one of the States which from the Union of India and by virtue of sub clause d of clause 1 of that Article so far as the provisions of the Constitution other than those of Articles 1 and 370 are concerned the President of India has the power with the concurrence of the Government of the State of Jammu and Kashmir to issue an order specifying which of them shall apply to that State and whether such provisions shall apply in their entirety or subject to such exceptions and modifications as may be specified in that order
Article 370 also envisages the convening of a Constituent Assembly for that State and the framing of a separate Constitution for it
In exercise of the power conferred by clause 1 of Article 370 the President of India with the concurrence of the Government of the State of Jammu and Kashmir has made the Constitution Application to Jammu and Kashmir Order 1954 C O 48
This order deals with the entire constitutional position of the State of Jammu and Kashmir within the framework of the Constitution of India except only the internal Constitution of the State Government to be framed by the Constituent Assembly of that State
The Constituent Assembly of the State of Jammu and Kashmir framed its own Constitution repealing and replacing its earlier Constitution
This new Constitution called the Constitution of Jammu and Kashmir was adopted and enacted by the Constituent Assembly of that State on November 17 1965
By the Constitution Application to Jammu and Kashmir Order 1954 C O 48 as amended from time to time the provisions of the Constitution of India as in force on June 20 1964 and as amended by the Constitution Amendment Acts set out in clause 2 of that Order apply in relation to the State of Jammu and Kashmir subject to the exceptions and modifications set out in the said clause
By sub clause 6 a of clause 2 of the said Presidential Order clause 1 of Article 246 of the Constitution of India is made applicable to the State of Jammu and Kashmir with certain modifications with which we are not concerned while clause 3 of Article 246 is not made applicable to that State
Sub clause 22 of clause 2 of the said Presidential Order applies Lisi I in the Seventh Schedule to the State of Jammu and Kashmir with the omissions and modifications mentioned in the said sub clause
These omissions and modifications are however irrelevant for our purpose inasmuch as Entries 95 and 92A of List I apply to the State of Jammu and 871 Kashmir in an unmodified form
By the same sub clause List II in the Seventh Schedule namely the State List does not apply to the State of Jammu and Kashmir Section 5 of the Constitution of Jammu and Kashmir however provides as follows 5 Extent of executive and legislative Power of the State The executive and legislative power of the State extends to all matters except those with respect to which Parliament has power to make laws for the State under the provisions of the Constitution of India
 Thus under the constitutional provisions applicable to the State of Jammu and Kashmir the power of the Stage Legislature to enact a law relating to taxes on intra State sale or purchase of goods is the same as that of the Legislatures of other States in India
By sub clause 7 of clause 2 of the said Order Article 265 is made applicable to the State of Jammu and Kashmir
Further section 114 of the Constitution of Jammu and Kashmir is in terms identical with Article 265 of the Constitution of India and equally provides that No tax shall be levied or collected except by authority of law
 The question which we therefore have to consider is Whether in the exercise of its power to make a law with respect to taxes on the sale or purchase of goods taking place within the State the Legislature of that State has the legislative competence to provide for payment of interest on the amount of tax due according to the return filed by an assessee but not paid within the prescribed time As was pointed out by Lord Dunedin in Whitney vs Commissioner of Inland Revenue1 a passage cited with approval by the Federal Court in Chatturam and others vs Commissioner of Income Tax Bihar2 and by this Court in Messrs Chatturam Horilram Ltd vs Commissioner of Income Tax Bihar and Orissa2 Now there are three stages in the imposition of a tax there is the declaration of liability that is the part of the statute which determines what persons in respect of what property are liable
Next there is the assessment
872 Liability does not depend on assessment
That ex hypothesis has already been fixed
But assessment particularizes the exact sum which a person liable has to pay
Lastly come the methods of recovery if the person faxed does not voluntarily pay
 It would follow from the above decisions that the power to make a law with respect to a tax comprehends within it the power to levy that tax and to determine the persons who are liable to pay such tax the rates at which such tax is to be paid and the even which will attract liability in respect of such tax
This is done by the charging sections of the particular tax law
The taxing power of the State will also comprehend within it the power to provide for quantification of the liability of persons made liable to pay the tax
This is done by the provisions relating to assessment
The taxing power will also comprehend within it the power to provide for collection of tax including prescribing the methods of recovery of the amount of tax due if the person liable to pay the tax does not voluntarily pay it
The power to make a law with respect to a tax includes not only what has been set out above but also a power to make provisions in the relevant statute with respect to all matters ancillary and incidental to the levy assessment collection and recovery of tax
Collection of tax by the State may be either after the liability is quantified by assessment or may be prior to actual assessment by requiring the assessee to pay before any assessment is made the amount of tax admitted to be due and payable by him
This is done by making provisions such as those for advance payment of tax and for self assessment contained in the Income Tax Act 1961
This is also what sub section 3 of section 8 of the Act does by requiring that the quarterly tax payable on the basis of a quarterly return required to be furnished by sub section 2 of section 7 shall be paid before furnishing such return
This is a mode of collection of revenue in advance before quantification of the actual tax liability and the Legislature would be well within its right and would competent to provide for recovery of such amount if it is not by the prescribed time
The Act as its long title shows is An to provide for the levy of a general tax on the sale or purchase goods in the State and for other matters of connected therewith a one of the methods of collection of revenue adopted by it is to require that tax due according to the quarterly returns should be paid before filing such returns and it was within the legislative competence of the Legislature of the State of Jammu and Kashmir to provide for recovery of the amount of tax due under quarterly 873 returns if default is made in paying such amount by the prescribed time
This has been done by the State Legislature by enacting subsection 8 of section 8 under which the provisions of sub section 2 of section 8 and of sections 16 and 16 A are made applicable mutatis mutandis to the recovery of tax payable by a dealer if he fails to pay it
Sub section 2 of section 8 provides for payment of interest section 16 provides for recovery of tax as arrears of land revenue and section 16 A provides for issue of a garnishee notice to a person from whom money is due or may become due to the assessee or to a person who holds or may subsequently hold money for or on account of the assessee to pay to the Assessing Authority as much of the money as is sufficient to pay the amount due by the assessee by way of tax
Thus payment of interest in case of default in payment of tax is a means of compelling an assessee to pay the tax due by the prescribed date
It is a mode of recovery of tax and well within the legislative power of the State
The challenge to sub section 2 of section 8 on the ground that the provisions of that sub section infringe Article 14 of the Constitution is a twofold one namely 1 that the said sub section is discriminatory and 2 that it is arbitrary and unreasonable
Sub clause 4 of clause 2 of the Constitution Application to Jammu and Kashmir Order 1954 makes Article 14 of the Constitution of India applicable to the State of Jammu and Kashmir
With respect to the charge of discrimination it was submitted that such high rates of interest for non payment of tax are not to be found in the sales tax law of any other State and therefore by enacting the said sub section 2 of section 8 and providing for payment of interest at the rate of two per cent per month when the period of default exceeded three months but did not exceed six months and for interest at the rate of three per cent per month if the default was for a period exceeding six months dealers in the State of Jammu and Kashmir were hostilely discriminated against as compared with dealers in other States
This argument wholly overlooks the very basis of the scheme of distribution of legislative power contained in our Constitution
Our Constitution is federal in its structure and a salient feature of a federal polity is distribution of legislative and administrative powers between the federated unit and the federating units that is between the federal government 874 and the State governments
Thus matters in respect of which our Constitution makers felt that there should be uniformity of law throughout the country have been placed by them in the Union List List I in the Seventh Schedule to the Constitution conferring exclusive power upon Parliament to make laws with respect thereto while matters which they felt were of local concern and may require laws to be made having regard to the particular needs and peculiar problems of each State have been assigned to the State Legislatures by placing them in List II of the Seventh Schedule that is the State List
Inter State trade and commerce is a matter which affects all the States in India and thus the whole country
It is for this reason that in the Seventh Schedule to the Constitution the subject of taxes on the sale or purchase of goods taking place in the course of inter State trade or commerce has been put in List I and made a Union subject
Taxes on the sale or purchase of goods taking place within the State affect only those who carry on the business of buying and selling goods within the State and therefore this subject has been put in List II of the Seventh Schedule namely the State List
Sales tax is the biggest source of revenue for a State and it is for the State to decide how and in what manner it will raise this revenue and to determine which particular transactions of sale or purchase of goods taking place within that State should be taxed and at what rates and which particular transactions of sale or purchase of goods should be exempted from tax or taxed at a lower rate having regard to the subject matter of sale as for instance where particular goods constitute necessities for the poorer classes of people or where the goods in question are of such a nature as are required to be exempted from tax or taxed at a lower rate in order to encourage a local industry
Consideration of these matters must from the nature of things differ from State to State
Similarly it is for each State to determine the methods it will adopt to collect its revenue from this source and to decide which methods would be most efficacious for this purpose
The provisions of the sales tax law of each State must therefore necessarily differ in various respects from the provisions of sales tax laws of other States
If the provisions of the legislation of every State on a particular topic are to be identical in every respect there is no purpose in including that topic in the State List and it may as well be included in the Union List
Merely because the provisions of a State law differ from the provisions of other State laws on the same subject cannot make such provisions discriminatory
The second part of the challenge under Article 14 was with 875 respect to the rates at which interest is payable under sub section 2 of section 8 on the amount of tax paid after the expiry of the prescribed date of payment
It is true that the rate of two per cent per month and particularly the rate of three per cent per month can be said to be on the high side but we fail to see how this would render the provisions of that sub section void or unconstitutional
Providing for payment of interest in case of delayed payment of tax is a method usually adopted in fiscal legislation to ensure that the amount of tax which is due is paid by the prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing statute
It is for the State to provide by what means payment of tax is to be enforced and a person who does not pay the amount of tax lawfully and admittedly due by him can hardly complain of the measures adopted by the State to compel him to pay such amount
It neither lies in the default s mouth to protest against the rate of interest charged to him nor is it open to him to dictate to the State the methods which it should adopt for recovering the amount of tax due by him
In this connection it is pertinent to note that under section 10 B of the Act where as a result of an order made in appeal or revision a refund has become due to the dealer or any other person on account of tax or penalty found to have been paid in excess the State Government is required to pay to such dealer or person simple interest at the rate of 12 per cent per annum on the amount of such refund from the date such payment was made upto the date on which such refund was granted and in case of delay in refunding the excess amount interest at the rate of 24 percent per annum if the refund is granted beyond a period of three months out before the expiry of six months from the date of the appellate or revisional order and at the rate of 36 per cent per annum if it is granted thereafter
Thus under the Act the same rates of interest apply both to the dealer who has made default in payment of tax due by him and to the State Government in case of default made by it in making payment of the amount of tax or penalty which has become refundable as a result of an appellate or revisional order
The graduated rates of interest provided by sub section 2 of section 8 cannot therefore be characterized as arbitrary or unreasonable
The remaining contentions are directed not against the constitutionality of the impugned statutory provisions but against the legality of the impugned orders
The first of these contentions is that the assessees having sold goods on credit basis are not liable to pay the quarterly tax until they have received from their custo 876 mers the price of goods sold to them
This contention is founded upon as assumption that the liability to pay the tax under the Act is contigent upon receipt of the sale price an assumption not warranted by the provisions of the Act
Under the Act the liability to pay sales tax is cast upon a dealer
This is made clear by section 4 of the Act which is headed Liability to tax under this Act
 The relevant provisions of sub section 1 of section 4 are as follows Subject to the provisions of this Act every dealer except the one dealing exclusively in gods declared tax free under Section 5 shall pay for each year tax on his taxable turnover at a rate not exceeding twenty five per cent of such turnover as may be determined by the Government and notified by the Government in the Government Gazette and such tax shall be charged on the sale of goods once only
X X X X X X Under section 6 a dealer who has become liable to pay under section 4 is prohibited from carrying on business as a dealer until he has been registered in accordance with the provisions of the Act
Clause g of section 2 inter alia defines a dealer  as meaning any person who carries on whether regularly or otherwise the business of selling purchasing or distributing goods directly or indirectly for cash or for deferred payment or for commission remuneration or other valuable consideration
Clause L 1 defines the expression sale with all its grammatical variations and cognate expressions as meaning any transfer of property in goods otherwise than by mortgage hypothecation charge or pledge by any person for cash or deferred payment or for any other valuable consideration 
Clause L II defines sale price as meaning inter alia the amount of valuable consideration paid or payable to a dealer for any sale made including any sum paid or payable for anything done by the dealer in respect of the goods at the time of or before delivery thereof other than the actual cost of outward freight or delivery or the cost of installation when such cost is separately charged Under clause n of section 2 turnover includes the aggregate of the amounts of sale and purchase and parts of sale and purchase made by any dealer whether as principal agent or in any other capacity
It is clear from the above statutory provisions that the liability to pay sales tax is that of the dealer and not of the person who purchases goods from him and for the purposes of sales tax it is 877 immaterial whether the price of goods has been paid to the dealer or is payable to him The fact that a dealer has sold goods on credit is therefore wholly immaterial
This Act imposes the liability to pay sales tax on dealers
This liability is irrespective of the fact whether he has made profit of loss in his business and whether he has received the sale price or not
When the liability to pay sales tax is cast by the statute on the dealer he may pass on to his customer the amount of tax payable by him but he can only do so as a term of the contract of sale
Unless and until the purchaser agrees to pay to his vendor the amount of sales tax payable by the vendor he is not bound to pay it to the vendor
Where however the purchaser agrees to pay such amount it forms part of the sale price on which sales tax would be payable to the State
Under the sales tax laws of some States a dealer is permitted to recover or collect from the purchaser the amount of sales tax payable by him
Even then the dealer can recover or collect such amount only if the purchaser agrees to pay it
In such cases under those sales tax laws the amount so recovered or collected is not treated either in whole or in part as part of the sale price and not taxed provided the amount not taxed is paid over to the State or tax on the full amount that is including the amount of tax so recovered or collected is required to be paid along with the quarterly or monthly return as the case may be and then at the time of assessment refund of the whole or part of the tax on the amount so collected is given to the dealer
In this connection a reference was made to section 64 A of the  substituted for the original section 64 A by the Sale of Goods Amendment Act 1963 under which unless a different intention appears from the terms of the contract in the event of any duty of customs or excise on goods or any tax on the sale or purchase of goods being imposed increased decreased or remitted in respect of any goods after the making of any contract for the sale or purchase of such goods without stipulation as to the payment of such duty or tax where duty or tax was not chargeable at the time of the making of the contract or for the sale or purchase of such goods duty paid or tax paid where duty or tax was chargeable at that time if such imposition or increase so takes effect that the duty or tax or increased duty or tax as the case may be or any part of such duty or tax is paid or is payable the seller may add so much to the contract price as will be equivalent to the amount paid or payable in respect of such duty or tax or increase of duty or tax and is to be entitled to be paid and to sue for and recover such addition and if 878 such decrease or remission so takes effect that the decreased duty or tax only or no duty or tax as the case may be is paid or is payable the buyer may deduct so much from the contract price as will be equivalent to the decrease of duty or tax or remitted duty or tax and is not to be liable to pay or be sued for in respect of such deduction
We do not find Section 64 A of the to have any relevance to the point before us
That section is subject to a different intention appearing from the terms of the contract and gives a right to the seller to add the amount of customs or excise duty or sales tax or purchase tax to the price of goods where such duty or tax is imposed for the first time after the contract of sale is made where the contract does not contain any stipulation as to payment of duty or tax or in case the goods are sold duty paid or tax paid where the rate of such duty or tax is increased to add the extra duty or tax to the contract price
That section also gives a corresponding right to the buyer to deduct so much from the contract price as will be equivalent to the decrease of duty or tax or remitted duty or tax where any decrease or remittance in duty or tax takes place after the making of the contract of sale
Section 64 A thus provides for the rights and liabilities inter se of a seller and buyer of goods where any customs or excise duty or any sales tax or purchase tax is imposed or its rate increased or decreased or such duty or tax remitted in whole or in part after the making of the contract of sale
This section does not deal with the liability of the seller to pay sales tax to the Government
Under section 8 B of the Act where a registered dealer realizes any amount by way of tax from the purchaser he is required to deposit it in the Government Treasury or in the office of the Deputy Sales Tax Commissioner within one month of its realization
Where a dealer so deposits the tax he would get credit for it against the amount of tax payable by him but from this it does not follow that where he has not been able to recover the amount of tax or sale price from his customers he is not bound to comply with the statutory requirements of sub section 3 of section 8 under which he has to pay tax according to the quarterly return furnished by him before the date prescribed for filing such return
The Assessees were therefore bound to pay the tax due according to the quarterly returns filed by them before filing such returns and the fact that their Customers had not paid to them the sale price did not exempt them from their statutory liability in this behalf
The next contention namely that the Assessing Authority was 879 not entitled to impose interest the amount of which exceeded the amount of tax in respect of which default had been made in paying it by the prescribed date is equally without any substance
No reason was advanced in support of this contention and we fail to see on what principle the Hindu Law rule of damdupat can be made applicable to a sales tax legislation
The recovery provisions of the Act are meant for speedy and prompt collection of revenue
These provisions are not meant for the benefit of defaulting tax payers and such defaulters cannot claim that the amount of interest payable by them on delayed tax payment should be scaled down as if they were entitled to claim relief under a debt relief law
In taking up such a contention the concerned Assessees have overlooked the fact that the amount of interest payable by them would not have exceeded the amount of tax not paid by them by the prescribed date had they paid the tax due earlier as also the fact that they would not have been liable to pay any amount at all by way of interest had they paid the tax due by the prescribed date
We now turn to the contention that the Assesses were not liable to pay interest unless a notice of demand was first issued to them calling upon them to pay the amount of quarterly tax due from them
In support of this submission reliance placed upon subsections 1 and 2 of section 8 of the Act
In our opinion reliance placed upon those sub sections is misconceived for in doing so the Assessees have overlooked the other relevant provisions of section 8
Sub section 1 of section 8 requires that the tax assessed or any other amount demand under the Act is to be paid in such manner and within such time not being less than fifteen days from the date of the notice of demand as may be specified in the notice and it is when default is made in making such payment that the whole of the amount then remaining due becomes recoverable in accordance with sections 16 and 16 A of the Act
Sub section 2 of section 8 lays down that if the tax or any other amount due under the Act is not paid within the period specified in the notice of demand the defaulter will become liable to pay interest on the tax or other amount from the date it was payable to the date of actual payment at the rates mentioned in the said sub section
Under sub section 3 of section 8 quarterly tax is to be paid before furnishing the quarterly return but not later than the date prescribed under subsection 2 of section 7
As we have seen under sub section 2 of section 7 quarterly returns are to be furnished within thirty days from the expiry of the quarter and such return is to be accompanied by a Treasury Receipt or any other proof of payment of tax due 880 according to that return
This requirement implies that the tax due according to a quarterly return has to be paid before the filing of that return by the prescribed date therefor
Under sub section 8 of section 8 if a dealer fails to pay the tax payable under that section the provisions of sub section 2 of section 8 and of sections 16 and 16 A are to apply mutatis mutandis to the recovery thereof
Thus provisions of sub section 2 of section 8 apply when quarterly tax is not paid before furnishing a quarterly return under sub section 3 of section 8 but by the express terms of sub section 8 of section 8 the provisions of sub section 2 of that section will apply to the recovery of quarterly tax not in their entirety but mutatis mutandis
Under sub section 1 the tax assessed or any other amount demanded is to be paid within the time specified in the notice of demand
Under sub section 3 the quarterly tax is to be paid before furnishing the quarterly return but not later than the date prescribed under sub section 2 of section 7
Thus by sub section 3 the time for payment of quarterly tax is not made dependent upon the issuance of a notice of demand and the date for payment to be specified in it but it is statutorily fixed and as under sub section 8 of section 8 the provisions of sub section 2 are to apply mutatis mutandis to the recovery of quarterly tax necessary changes must be made in the provisions of sub section 2 in their application to the recovery of quarterly tax payable under sub section 3
Accordingly the requirement of sub section 2 that interest will be chargeable from the date specified for payment in the notice of demand cannot be applied to the payment of quarterly tax and necessary alterations as required by sub section 8 will therefore have to be made in the provisions of sub section 2 in their application to a default made in payment of quarterly tax and sub section 2 must be read as providing that interest under sub section 2 will become payable from the date prescribed by sub section 3 of section 8 for payment of quarterly tax
There is thus no substance in this contention
We may also mention that in the case of certain other orders made under the Act demanding interest on default being made in payment of quarterly tax the challenge thereto on the ground that no interest can be charged unless a notice has been issued demanding payment of quarterly tax was negatived by this Court in Messrs Royal Booi House etc
vs State of Jammu and Kashmir and others
881 We now turn to the last contention raised before us namely that the Assessing Authority was not entitled to charge interest at the maximum rate but could only charge interest at the graduated rate specified in sub section 2 of section 8
It appears that in most if not in all orders which have been impugned in these Petitions and Appeals interest on the amount of quarterly tax not paid in time has been imposed at a uniform rate for the full period of default and not according to the scale of rates prescribed by sub section 2 of section 8
Thus where the default was for a period exceeding three months but not exceeding six months interest has been levied for the full period of default at the rate of two per cent per month and where the default was for a period exceeding six months interest at the rate of three per cent per month has been levied for the entire period of default
In our opinion this is not warranted by the terms of sub section 2 of section 8 of the Act
Sub section 2 provides for different rates of interest depending upon the length of the period of default
If the default was for a period not exceeding three months then the interest could only be charged at the rate of one per cent per month and where the default was for a period exceeding three months but not exceeding six months then the interest which could be charged can only be one per cent month for the first three months of default and two per cent per month for the remaining period In the same way if the default was for a period exceeding six months interest could be charged only at the rate of one per cent per month for the first three months of default at the rate of two per cent per month for the next three months of default and at the rate of three per cent per month for the remaining period of default
The grievance made by the Assessees is justified and their challenge to the impugned orders on this ground must therefore succeed
In the result though we uphold the constitutionality of sub sections 1 2 and 3 of section 8 of the Jammu and Kashmir General Sales Tax Act 1962 we make the rule issued in each of the Writ Petitions before us absolute only to the extent that we restrain the State and Jammu and Kashmir from recovering from the Assessees who are Petitioners before us interest on the amount of quarterly tax paid after the expiry of the date prescribed for payment thereof by sub section 3 of section 8 of the Act at a rate other than the rate of one per cent per month for the first three months of default and at the rate of two per cent per month for the next three 882 months of default and at the rate of three per cent per month for the period of default exceeding six months
We also allow the Appeals filed by the Assessees who are Appellants before us to the same limited extent by setting aside the order of dismissal of their writ petitions passed by the Jammu and Kashmir High Court and making the rule issued in each of those writ petitions absolute only to the limited extent specified above
On an application made to us in that behalf we grant to the Petitioners and Appellants before us three months  time from today to make payment of the amount of interest due and payable by them according to this Judgment and the State of Jammu and Kashmir will not until the expiry of the said period of three months take any steps to recover such amount of interest from any of the Petitioners and Appellants
As the Petitioners and Appellants before us have partly succeeded in the Writ Petitions and Appeals filed by them we make no order as to the costs of these Writ Petitions and Appeals
NVK Appeals  Petitions partly allowed


Summary:
The appellants and the petitioners were assessees registered as dealers under the Jammu and Kashmir General Sales Tax Act 1962
They filed their quarterly returns within the time prescribed by the Act but without paying the tax duo according to such returns
Some of them also filed revised returns thereafter
The tax due was paid by the assessees after several months and in some cases by instalments
In a few cases the full amount of tax was not paid even by the date the assessment orders came to be made
In the case of most of the Assessees the Assessing Authority levied penalty under sub section 2 of section 8 of the Act before making any assessment
In other cases orders requiring interest to be paid were made along with the assessment orders
The assessees who were appellants in this Court had filed writ Petitions in the High Court challenging the validity of section 8 of the Act under which interest was sought to be recovered as also the demand for payment of interest
The High Court dismissed the Writ Petitions
In the Appeals and Writ Petitions to this Court the assessees were a dealers who had filed their returns but had not deposited the full amount of tax due according to such returns and the Assessing 859 Authority having accepted the returns had issued a composite notice of demand calling up them to pay the amount of tax along with interest due on it b dealers who had filed their returns but had paid the tax due according to such returns after the expiry of the prescribed time and in whose cases the Assessing Authority had accepted the returns and had issued a notice of demand asking them to pay interest on the amount of tax for the period for which such payment was delayed and c dealers who had filed their returns but had not paid the amount of tax due according to such returns by the prescribed time but had paid it later and notices were issued against them calling upon them to pay interest for the period of default before making any order of assessment
It was contended on their behalf that 1 The charging of interest from the assessees was violative of Article 265 of the Constitution as there was no legislative power in the State Legislature to make a law providing for payment of interest if the amount of tax was not paid by the prescribed time and for this reason the provisions of section 8 of the Act in so far as they provide for payment of such interest are beyond the legislative competence of the State Legislature and therefore unconstitutional
2 Sub section 2 of section 8 of the Act was void as infringing Article 14 of the Constitution because its provisions are discriminatory arbitrary and unreasonable
3 The Assessees carried on business on credit basis and as by the dates when they filed their quarterly returns their customers had not paid to them the price of goods sold to them the Assessees were not bound to pay tax along with their returns but were bound to pay tax in respect of these transactions of sales only when the amount of sale price was received by them from their customers
4 In some cases the amount of interest claimed from the Assessees exceeded the amount of tax paid by them and therefore the demand for such excess amount of interest was bad in law
5 The Assessees were not liable to pay interest on the amount of tax not paid in time without a notice of demand for payment of tax being first issued
6 Interest was levied by the Assessing Authority for the entire 860 period of default at the maximum rate prescribed by sub section 2 of section 8 which was contrary to the provisions of that sub section
 HELD  The constitutionality of sub section 1 2 and 3 of section 8 of the Jammu and Kashmir General Sales Tax Act 1962 upheld
The State however restrained from recovering from the Assessees interest on the amount of quarterly tax paid after the expiry of the date prescribed for payment by sub section 3 of section 8 of the Act at a rate other than the rate of one per cent per month for the first three months of default and at the rate of two per cent per month for the next three months of default and at the rate of three per cent for the period of default exceeding six months
881 G H 882A 1
i The Constitution af India does not apply in its entirety to the State of Jammu and Kashmir because that State holds a special position in the Constitutional set up of the country
Article 370 makes special provisions with respect to the State of Jammu and Kashmir
Under sub clause c of clause 1 of Article 370 the provisions of Articles 1 and 370 apply in relation to the State of Jammu and Kashmir and under sub clause d of clause 1 of Article 370 such of the other provisions of the Constitution apply in relation to that State subject to such exceptions and modifications as the President may specify by an order issued with the concurrence of the Government of the State
In exercise of the power conferred by clause 1 of Article 370 the President of India with the concurrence of the Government of the State of Jammu and Kashmir has made the Constitution Application to Jammu and Kashmir Order 1954 C O 48 which was amended from time to time
The provisions of the Constitution of India as in force on June 20 1964
and as amended by the Constitution Amendment Acts set out in clause 2 of that Order apply in relation to the State of Jammu and Kashmir subject to the exceptions and modifications set out in the said clause
By sub clause 6 a of clause 2 of the said Presidential Order Clause 1 of Article 246 of the Constitution of India was made applicable to the State of Jammu and Kashmir with certain modifications while clause 3 of Article 246 was not made applicable to the State
Sub clause 22 of clause 2 of the said Presidential Order applies List I in the Seventh Schedule to the State of Jammu and Kashmir with the omissions and modifications mentioned in the said sub clause
Entries 92 and 92A of List I apply to the State of Jammu and Kashmir in an unmodified form
By the same sub clause List II in the Seventh Schedule namely the State List does not apply to the State of Jammu and Kashmir
870G H 871A B ii Thus under section 5 of the Constitution of Jammu and Kashmir the executive and legislative power of the State extends to all matters with respect to which Parliament has power to make laws for the State under the provisions of the Constitution of India under the Constitutional provisions applicable to the State of Jammu and Kashmir the power of the State Legislature to enact a law relating to taxes on intra State sale or purchase of goods is the same as that of the Legislatures of other States in India
By sub clause 7 of clause 2 of the said Order Article 265 is made applicable to the State of Jammu and Kashmir
Section 114 of the Constitution of 861 Jammu and Kashmir is in terms identical with Article 265 of the Constitution of India which provides that No tax shall be levied or collected except by authority of law 871B D iii The power to make a law with respect to tax comprehends within it the power to levy that tax and to determine the persons who are liable to pay such tax the rates at which such tax is to be paid and the event which will attract liability in respect of such tax
This is done by the charging sections of the particular tax law
The taxing power of the state will also comprehend within it the power to provide for quantification of the liability of persons made liable to pay the tax
This is done by the provisions relating to assessment
The taxing power will also comprehend within it the power to provide for collection of tax including prescribing the methods of recovery of the amount of tax due if the person liable to pay the tax does not voluntarily pay it
The power to make a law with respect to a tax includes not only what has been set out above but also a power to make provisions in the relevant statute with respect to all matters ancillary and incidental to the levy assessment collection and recovery of tax
Collection of tax by the State may be either after the liability is quantified by assessment or may be prior to actual assessment by requiring the assessee to pay before any assessment is made the amount of tax admitted to be due and payable by him
872B E Whitney vs Commissioners of Inland Revenue  T C 79 110 Chatturam and others vs Commissioner of Income Tax Bihar 1947 FCR116 126  308 Messrs Chatturam Horilram Ltd vs Commissioner of Income Tax Bihar and Orissa  297 8  715 6 referred to
iv One of the methods of collection of revenue adopted by the Act is to require that tax due according to the quarterly returns should be paid before filing such returns and it was within the legislative competence of the Legislature of the State of Jammu and Kashmir to provide for recovery of the amount of tax due under quarterly returns if default is made in paying such amount by the prescribed time
872H 873A v Payment of interest in case of default in payment of tax is a means of compelling an assessee to pay the tax due by the prescribed date
It is a mode of recovery of tax and well within the legislative power of the State
873C 2
i Inter State trade and commerce is a matter which affects all the States in India and thus the whole country
It is for this reason that in the Seventh Schedule to the Constitution the subject of taxes on the sale or purchase of goods taking place in the course of inter State trade or commerce has been put in List I and made a Union subject
Taxes on the sale or purchase of goods taking place within the State affect only those who carry on the business of buying and selling goods within the State and therefore this subject has been put in List II of Seventh Schedule namely the State List
874C D 862 ii Sales tax is the biggest source of revenue for a State and it is for the State to decide how and in what manner it will raise this revenue and to determine which particular transactions of sale or purchase of goods taking place within that State should be taxed and at what rates
and which particular transactions of sale or purchase of goods should be exempted from tax or taxed at a lower rate having regard to the subject matter of sale as for instance where particular goods constitute necessities for the poorer classes of people or where the goods in question are of such a nature as are required to be exempted from tax or taxed at a lower rate in order to encourage a local industry
Consideration of these matters must therefore differ from State to State
Similarly it is for the each State to determine the methods it will adopt to collect its revenue from this source and to decide which methods would be most efficacious for this purpose
If the provisions of the legislation of every State on a particular topic are to be identical in every respect there is no purpose in including that topic in the State List and it may as well be included in the Union List
Merely because the provisions of a State law differ from the provisions of other State laws on the same subject cannot make such provisions discriminatory
874D G iii Interest is payable under sub section 2 of section 8 on the amount of tax paid after the expiry of the prescribed date of payment
The rate of two per cent per month and particularly the rate of three per cent per month can be said to be on the high side but this would not render the provisions of that sub section void or unconstitutional
Providing for payment of interest in case of delayed payment of tax is a method usually adopted in fiscal legislation to ensure that the amount of tax which is due is paid by the prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing statute
It is for the State to provide by what means payment of tax is to be enforced and a person who does not pay the amount of tax lawfully and admittedly due by him can hardly complain of the measures adopted by the State to compel him to pay such amount
875A C iv Under the Act the same rates of interest apply both to the dealer who has made default in payment of tax due by him and to the State Government in case of default made by it in making payment of the amount of tax or penalty which has become refundable as a result of an appellate or revisional order
The graduated rate of interest provided by sub section 2 of section 8 cannot therefore be characterised as arbitrary or unreasonable
875F G 3
i Under the Act the liability to pay sales tax is cast upon the dealer
This is made clear by sections 46 and clauses G L 1 L II and n of section 2
It is immaterial whether the price of goods has been paid to the dealer or is payable to him
The fact that a dealer has sold goods on credit is therefore wholly immaterial
This liability is irrespective of the fact whether the dealer has made profit or loss in his business and whether he has received the sale price or not
876H 877A B ii Section 64 A of the does not deal with the liability of the seller to pay sales tax to the Government
878E 863 In the instant case the Assessees were bound to pay the tax due according to the quarterly returns filed by them before filing such returns and the fact that their customers had not paid to them the sale price did not exempt them from their statutory liability
878G 4
The recovery provisions of the Act are meant for speedy and prompt collection of revenue
These provisions are not meant for the benefit of defaulting tax payers and such defaulters cannot claim that the amount of interest payable by them on delayed tax payment should be scaled down as if they were entitled to claim relief under a debt relief law
879 B C 5
Under sub section 8 1 the tax assessed or any other amount demanded is to be paid within the time specified in the notice of demand
Under sub section 3 the quarterly tax is to be paid before furnishing the quarterly return but not later than the date prescribed under sub section 2 of section 7
Accordingly the requirement of sub section 2 of section 8 that interest will be chargeable from the date specified for payment in the notice of demand cannot be applied to the payment of quarterly tax and necessary alterations as required by sub section 8 so section 8 will therefore have to be made in the provisions of sub section 2 in their application to a default made in payment of quarterly tax and sub section 2 must be read as providing that interest under sub section 2 will become payable from the date prescribed by sub section 3 of section 8 for payment of quarterly tax
880B F Messrs Royal Boot House etc
vs State of Jammu and Kashmir and others
CMP Nos 32413 and 32414 of 1983 decided on January 6 1984 by P N Bhagvati Ag
C J and Venkataramiah and Varadarajan JJ
referred to
Sub section 2 of section 8 of the Act provides for different rates of interest depending upon the length of the period of default
881D In the instant cases interest on the amount of quarterly tax not paid in time has been imposed at a uniform rate for the full period of default and not according to the scale of rates prescribed by sub section 2 of section 8
881 B