IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 05-12-2008 CORAM: THE HONOURABLE MRS. JUSTICE PRABHA SRIDEVAN AND THE HONOURABLE MRS. JUSTICE K. K. SASIDHARAN Tax Case Nos.839 and 1499 of 2006 TC.No.839 of 2006 : Eastern Electrics No.170, N.S.C. Bose Road Chennai – 600 079 ... Petitioners Vs. The State of Tamil Nadu represented by the Commercial Tax Officer, Sowcarpet – III Assessment Circle Chennai – 600 001 ... Respondent Tax Cases (Revision) filed under Section 38 of the TNGST Act 1959 against the order of the Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench) in T.A.Nos.56 of 2000 dated 07-08-2000 against the order of the Appellate Assistant Commissioner (CT) II, VI Floor, Kuralagam Annexe Building, Chennai - 108 dated 19.11.1999 and made in Appeal No. and year A.P.96/98 against the order of the Commercial Tax Officer, Sowcarpet - III, Assessment Circle, Chennai-1, dated 03.02.1998 in TNGST/057179/92-93. TC.No.1499 of 2006 : Tvl. Chakrapani Oil & Rice Mills, No.28, Kollai Street, Madukkur. ..Appellant vs The State of Tamil Nadu, rep. by The Deputy Commercial Tax Officer, Pattukottai - II Assessment Circle, Pattukottai. ..Respondents Tax cases (Revision) filed under Section 38 of the TNGST Act 1954 against the order of the Joint Commissioner (SMR) Office of the Special Commissioner and Commissioner of Commercial Taxes, Chepauk, https://hcservices.ecourts.gov.in/hcservices/ Chennai - 5 dated 27.02.2002 in his Ref.No.M2/T1/36277/96- S.M.R.No.483/97 against the order of the Appellate Assistant Commissioner (CT) Thanjavur dated 05.03.1996 and made in Appeal No. and Year 683/95 against the order of the Deputy Commercial Tax Officer, Pattukottai - II dated 20.10.1995 in Assessment number and year TNGST.No.414931/94-95. For petitioner :: Mr. N. Inbarajan in TC.839/06 Mr.S.Sridharan in TC.1499/06 For respondent :: Mr. Haja Nazirudeen Spl.G.P.(T) in both TCs. ORDER (PRABHA SRIDEVAN,J.) In both the cases, the assessees are aggrieved by the levy of penalty under the Tamil Nadu Additional Sales Tax Act ('AST Act' in short). According to them, the department cannot do so, and rely on (2004) 136 STC page 606 (S.P.G. Ramasamy Nadar & Sons Vs. Commercial Tax Officer-III, Virudhunagar and others). 2. When the matters came up for admission, the Learned Special Government Pleader submitted that the above case was decided ignoring earlier decisions of our Court reported in (1980) 46 STC page 451 (S. Rajamani Vs. The State of Tamil Nadu), (1988) 69 Page 195 (Hindustan Import Export Corporation Vs. State of Tamil Nadu), and above all (1983) 53 STC page 1(Ashok Service Centre and another Vs. State of Orissa). He submitted that 136 STC 606 (cited supra) might require reconsideration. 3. The learned Special Government Pleader very fairly placed all the decisions for and against the department and argued the matter. 4. We will first deal with the pure question of law and then the two cases on their individual merits. 5. The AST act came into force in 1970. The validity of this Act was upheld in (1974) 34 STC 73(S. Kodar Vs. State of Kerala). The Act is a short one. We will extract the same. "The Tamil Nadu Additional Sales Tax Act, 1970 (ACT No.XIV of 1970) (Received the assent of the Governor on 22nd May 1970) An Act to provide for the levy of Additional Sales Tax WHEREAS it is considered necessary to levy an additional tax on the sale or purchase of goods; BE it enacted by the Legislature of the State of Tamil Nadu in the Twenty-first year of the Republic of India as follows: https://hcservices.ecourts.gov.in/hcservices/ Section 1. Short title and commencement.-- This Act may be called the Tamil Nadu Additional Sales Tax Act, 1970. Section 1(2). It shall be deemed to have come into force on the 1st April, 1970. Levy of additional tax in the case of certain dealers.-- .. Section 2 (1) (aa)... (aaa) On any amount of additional tax or penalty imposed by the assessing authority remaining unpaid under this Act, the dealer referred to in clause (aa) shall pay interest as specified in sub-section (3) of Section 24 of the said Act, in addition to such amount of additional tax or penalty due. (as amended by Act 14 of 2005) Section 2(1)(b). The provisions of the said Act shall apply in relation to the additional tax payable under clause (aa) as they apply in relation to the tax payable under the said sub- section. The provisions of the said Act shall apply in relation to the additional tax payable under clause (aa) and the interest payable under clause (aaa) as they apply in relation to the tax and interest payable under the said Act. (as amended by Act 14 of 2005) Section 2(3). Any dealer who collects the additional tax payable under sub-section(1) in contravention of the provisions of sub-section (2) shall be punishable with fine which may extend to one thousand rupees, and no Court below the rank of Presidency Magistrate or a Magistrate of the First Class shall try any such offence. Section 3-B. All the provisions relating to offences and penalties of the Tamil Nadu General Sales Tax Act, 1959 (Tamil Nadu Act 1 of 1959), hereafter in this section referred to as the said Act, shall, with necessary modifications, apply in relation to the assessment, re- assessment, collection and the enforcement of payment of any additional tax required to be collected under this Act, or in relation to any process connected with such assessment; re-assessment, collection or enforcement of payment as if the additional tax under this Act, were a tax under the said Act." Clause (aaa) was introduced and Clause (b) was substituted in its present form by the Amendment Act (14) of 2005 with retrospective effect from 01-04-1970. This was because of the decision in Kartik Roller Flour Mills which we will deal with later. S.3-B was inserted by Act 31 of 1996 from 16-04-1997." 6. The Statement of Objects and Reasons for the 1996 Amendment act is as follows: "With a view to simplifying the assessment and collection of sales tax the Government have decided to collect Additional sales tax payable under the Tamil Nadu https://hcservices.ecourts.gov.in/hcservices/ Additional Sales Tax Act, 1970 (Tamil Nadu Act 14 of 1970) by dealers other than a casual trader or agent of a non resident dealer or a local branch of a farm or company situated outside the state at the rate of 2.5 percent in respect of dealers whose taxable turnover exceeds Rs.100 crores but does not exceeds Rs.300 crores and at 3 percent in respect of dealers whose taxable turnover exceeds Rs.300 crores and to amend the said Act for the purpose. 2. Every dealer, who is liable to pay additional Sales Tax under the said Act has to furnish returns and statements in the prescribed form. But there is no specific provision in the said Act, to levy penalty for non submission of return or statement or furnishing incorrect or incomplete return or statement by the dealer. The Sales Tax Appellate Tribunal has also held that, in the absence of specific provisions in the said Act, penalty could not be levied for belated submission of returns or statements. The Government have, therefore, decided to amend the said Act for this purpose also. 3. The Bill seeks to give effect to the above decision." 7. In Kartik Mills’s case this Court held as follows: "7. The Tamil Nadu Additional Sales Tax Act by Section 2(1)(b), makes the provisions of the Tamil Nadu General Sales Tax Act applicable in relation to the additional tax payable, as they apply in relation to the tax payable under the said Act, Additional sales tax being a levy provided for in the special enactment relating to the levy of additional sales tax, the substantive provisions in relation to that levy have to be found in that enactment, and there being no substantive provision in the Tamil Nadu Additional Sales Tax Act for the levy of interest on additional tax, the provisions of the Tamil Nadu General Sales Tax Act providing for levy of interest on the sales tax payable under that enactment, cannot be construed as a source of power to the State to levy interest on the additional sales tax. 8. Having regard to the development of the law subsequent to the decision rendered in the case of Deputy Commissioner (C.T.) Vs. M. Murugesan & Bros. (58 STC 143) the law laid down in the decision rendered in W.P.No.11632 of 1999, as also in W.P.No.11631 of 1999, in our view is consistent with the law declared by the Supreme Court by the Constitution Bench in the case of J.K. Synthetics (94 STC 422) (supra), and in the case of India Carbon (106 STC 406) (supra) and does not require any reconsideration." 8. This was followed in 136 STC 606 (cited supra), wherein it is held thus: "The next question is as to whether levy of penalty on the surcharge is legal and proper? https://hcservices.ecourts.gov.in/hcservices/ Learned counsel, appearing for the Revenue, would draw the attention of this Court to a ruling of this Court reported in [1985] 58 STC 143 [Deputy Commissioner (C.T.) Vs. M. Murugesan and Bros.] and submit that the Tamil Nadu Sales Tax (Surcharge) Act (24 of 1971) would clearly stipulate that all the provisions of the Tamil Nadu Sales Tax Act, which apply to the levy of sales tax, will be applicable to levy of surcharge and that being so, penalty can be levied on surcharge as well. However, learned counsel, appearing for the petitioner, would draw the attention of this Court to a ruling of this Court in Karthik Roller Flour Mills Pvt. Ltd. v. State of Tamil Nadu (Writ Petition Nos.6777 and 6778 of 2001, dated 14-08-2002), where, a division Bench of this Court, after pointing out the subsequent rulings of the Supreme Court in the case of J.K. Synthetics [1994] 94 STC 422 and in the case of India Carbon Ltd. [1997] 106 STC 460, held that the ruling reported in Deputy Commissioner (C.T.) v. M. Murugesan and Bros. [1985] 58 STC 143 (Mad.) is no longer a good law. We find considerable force in the submission made by the learned counsel for the petitioner. The levy of penalty on surcharge cannot be sustained." 9. The Learned Special Government Pleader submitted that the issue will have to be looked at in the context of the State Act and not the CST Act. He submitted that J.K.Synthetics and India Carbon dealt with CST Act, which did not have any provision for levying interest, and those decisions were given in that context. They will not apply to the present case where the original Act namely the Tamil Nadu General Sales Tax Act ('TNGST Act' in short) contains the penalty provision and in view of S.2(1)(b), the penalty sections in TNGST Act must be read into the AST Act. He also submitted that the Amendment Act 1976 cannot be construed as a provision that introduces the levy of penalty for the first time, but as a clarificatory piece of legislation which reiterates what has been the correct position all along. He referred to the following decisions: (i) (1980) 46 STC page 451 (S. Rajamani Vs. The State of Tamil Nadu) (ii) (1983) 52 STC 131 (The State of Tamil Nadu Vs. P.M.A. Mathurai Veerasamy & Co.) (iii) (1983) 53 STC page 1 (Ashok Service Centre and another Vs. State of Orissa) (iv) (1985) 58 STC 143 (Deputy Commissioner (C.T), Coimbatore Division, Coimbatore Vs. M. Murugesan and Bros.) (v) (1988) 69 Page 195 (Hindustan Import Export Corporation Vs. State of Tamil Nadu), (vi) Order in W.P.Nos.11631 and 11632 of 1999 (Ms. Hotel Dasaprakash Vs. The Tamil Nadu Taxation Special Tribunal) (vii) Order in W.P.Nos.6777 and 6778 of 2001 (Tvl. Karthik Roller Floor Mills V. The State of Tamil Nadu) https://hcservices.ecourts.gov.in/hcservices/ (viii) (2004) 136 STC 606 (SPG. Ramasamy Nadar & Sons Vs. Commercial Tax Officer-III, Virudhunagar and others) (ix) (1974) 34 STC 73 (Kodar Vs. State of Kerala) (x) (1993) 90 STC 84 (Engine Valves Limited Vs. Union of India and others) (xi) (1977) 39 STC 12 (Manickam and Co. Vs. The State of Tamil Nadu) (xii) (1994) 94 STC 422 (J.K. Synthetics Ltd., Vs. Commercial Tax Officer) (xiii) (1997) 106 STC 460 (India Carbon Ltd. Vs. State of Assam) (xiv) (2006) 145 STC 137 (Godrej Soaps Ltd. and another Vs. State of Maharashtra and others) (xv) (1973) 13 STC 190 (Krishnamurthi and Co. Vs. State of Madras and another) 10. Mr. Inbarajan, learned counsel appearing for the assessee, would, on the other hand, submit that the Kartik Mills Case lays down the correct law and no reconsideration is required. According to him, no penalty can be levied retrospectively without a charging section. He agrees that the position is different from the date S.3-B was introduced. But for the prior years i.e., before the Amendment Act was enacted, there can be no levy of penalty. He submitted that the fact that the India Carbons Case or J.K. Synthetics arose in respect of the CST Act made no difference to the legal position. He relied on the following: (i) (1985) 58 STC 143 (Deputy Commissioner (C.T), Coimbatore Division, Coimbatore Vs. M. Murugesan and Bros.) (ii) (1994) 94 STC 422 (J.K. Synthetics Ltd., Vs. Commercial Tax Officer) (iii) (1997) 106 STC 460 (India Carbon Ltd. Vs. State of Assam) 11. Now we will take up each decision, one by one. a) 34 STC 73 (cited supra) dealt with the validity of the AST Act. It was upheld. "Entry 54 in List II authorises the State Legislature to impose a tax on the sale or purchase of goods. So, the contention of the appellants that the additional sales tax is not a tax on sales but on the income of the dealer is without any basis." But the validity is not challenged here. So it is not necessary to dwell on this case any further. b) 39 STC 12 (cited supra) In this, the assessee claimed refund of tax in accordance with S.15 (b) of the CST Act. The Supreme Court held that even if there was some ambiguity in the Clause (b) of S.15 as it originally read, it had been clarified by the Amendment Act 1976. In this context, the Supreme Court said, https://hcservices.ecourts.gov.in/hcservices/ "The amendment made in clause (b) can thus be taken to be an exposition by the legislature itself of its intent contained in the earlier provision. ... As already mentioned above, the legislature as a result of the amendment, clarified what was implicit in the provisions as they existed earlier. An amendment which is by way of clarification of an earlier ambiguous provision can be useful aid in construing the earlier provision, even though such amendment is not given retrospective effect." This was relied on by the Special Government Pleader to buttress his case that the Amendment act 1996 was only to make clear what was implicit even originally, i.e. the right to levy penalty. c) 46 STC 451(cited supra) This related to collection of surcharge under the TNST Surcharge Act. The Division Bench held, "The learned counsel for the appellant then contended that, in any event, with regard to the surcharge part of it, the Board should not have taken any action under section 22 because section 22 will not apply to the collection of surcharge. In this context, he relied on sub-section (2) of section 3 of the Tamil Nadu Sales Tax (Surcharge) Act, 1971, and contended that that section does not either expressly or by necessary implication make section 22 apply to the collection of surcharge. Section 3(2) of the Tamil Nadu Sales Tax (Surcharge) Act, 1971, reads as follows: Section 3(2) Save as otherwise provided in this Act, the provisions of the said Act shall apply in relation to the surcharge payable under sub-section (1) as they apply in relation to the tax payable under the said Act. Having regard to the fact that what was sought to be levied under the Act of 1971 was only a surcharge which was dependent upon the liability to pay sales tax and also the language of section 3(2), we are unable to uphold the contention of the learned counsel for the appellant. Section 3(2) will apply every provision of the Tamil Nadu General Sales Tax Act, 1959, as is applicable to sales tax, to the surcharge. Under these circumstances, we cannot hold that the order of the Board of Revenue is erroneous from any point of view." The above S.3(2) is identical to S.2(1)(b) in AST Act and therefore, it was contended that it would support the levy of penalty. d) 52 STC 131 (cited supra) In this case, the Division Bench held, "The expressions, "tax payable" and "surcharge payable" in section 3(2) of the Tamil Nadu Sales Tax (Surcharge) Act, 1971, stand in contrast with "penalty payable." If, in enacting the Surcharge Act, it was the intention of the legislature that the entire gamut of the provisions of the Tamil Nadu General Sales Tax Act, 1959, were to be applied to levy of surcharge, then it could have very well said that all the provisions of the Sales Tax Act would apply to the https://hcservices.ecourts.gov.in/hcservices/ levy of surcharge. In that event section 22 of the Tamil Nadu General lSales Tax Act, 1959, providing for levy of penalty for any illegal or unauthorised collection of tax would also have been attracted by reference to levy of surcharge. However, section 3(2) of the Surcharge Act is more restrictively worded, and therefore, on the language of the provision, there is no scope for levy of penalty under section 22 of the Sales Tax Act for illegal or unauthorised collection of surcharge." Therefore, our Court has construed an identically worded section as giving no scope for levying penalty. e) 53 STC 1(cited supra) This is the trump card in the hand of the learned Special Government Pleader, according to whom it answers all the questions. In this case, the question was whether the levy of additional tax under the Orissa AST Act was a single point levy or multipoint levy.This Act is identical to the Tamilnadu AST Act. Levy of single point tax and prohibition of tax at more than one point is the important feature of the Principal Act. The Supreme Court held as follows: "The assumption made by the High Court that the Act was an independent Act having nothing to do with the principal Act is not correct. The Act only levied some extra sales tax in addition to what had been levied by the principal Act. The nature of the taxes levied under the Act and under the principal Act was the same and the legislature expressly made the provisions of the principal Act mutatis mutandis applicable to the levy under the Act. The additional sales tax was in the nature of a surcharge over and above what was due and payable by an assessee under the principal Act. The Act, though it had a long title, a short title and other usual features of every statute, could not be considered as an independent statute. It had to be read together with the principal Act to be effective. In the circumstances the conclusion reached by the High Court that the two Acts were independent of each other was wrong. We are of the view that it is necessary to read and to construe the two Acts together as if the two Acts are one, and while doing so to give effect to the provisions of the Act which is a later one in preference to the provisions of the principal Act wherever the Act has manifested an intention to modify the principal Act." Therefore, they held that, "when S. 3(1) of the Act is read in the light of the subsection 2 thereof. S.8 of the Principal Act,which prescribes a single-point levy immediately becomes attracted." According to the learned Special Government Pleader, the observations of the Supreme Court that the AST Act must be read together with the Principal Act, clearly show that right from the beginning the charging provision must be deemed to have existed. We must see whether these observations would extend even to charging sections by which penalty is levied. https://hcservices.ecourts.gov.in/hcservices/ f) 58 STC 143 (cited supra) again dealt with S.3 (2) of the Surcharge Act. "Therefore, in order to effectuate levy and collection of surcharge imposed under section 3(1), section 3(2) which forms an integral part of the charging section, should be understood attracting all the provisions of the principal Act, save as otherwise provided in the Surcharge Act, 1971. We find that there is no provision in the Surcharge Act excluding the provision in section 22 of the principal Act. So it must be understood as attracting all the provisions of the principal Act, as are applicable to the levy of sales tax, for the levy of surcharge as well. Following the decision of the Supreme Court in Ashok Service Centre v. State of Orissa [1983] 53 STC 1 (SC) we hold that the penalty has rightly been levied in this case under section 22 of the Tamil Nadu General Sales Tax Act, 1959 read with section 3(2) of the Surcharge Act. In view of the decision of the Supreme Court in Ashok Service Centre v. State of Orissa [1983] 53 STC 1 (SC), the decision rendered by this Court in State of Tamil Nadu v. Mathurai Veerasamy & Co. [1983] 52 STC 131 cannot be taken as laying down the law correctly." g) 69 STC 195 (cited supra) "... yet in view of the specific provisions of section 3(2) of the Surcharge Act and section 22(2) of the Sales Tax Act and inasmuch as Deputy Commissioner (C.T.) v. M. Murugesan and Bros. [1985] 58 STC 143(Mad.) has considered the decision of the Supreme Court in Ashok Service Centre v. State of Orissa [1983] 53 STC 1, we are of the view that the suo motu restoration of the penalty imposed by the assessing authority, by the Board, is correct and in accordance with law. ... We hold that the provision in section 3(2) of the Surcharge Act would apply to all the provisions of the Sales Tax Act. h) We have already extracted from Kartik Mills case i) 90 STC 84(cited supra) In this case, our High Court held thus: "The words "sales tax law of the appropriate State" in sections 2(i), 8(2)(b) and 8(2-A) of the Central Sales Tax Act, 1956, will encompass any law providing for the levy of sales tax, and not merely the general sales tax law only. The additional tax, surcharge and additional surcharge levied under the Tamil Nadu Additional Sales Tax Act, 1970 and the Tamil Nadu Sales Tax (Surcharge) Act, 1971, respectively, are therefore, includible in the computation of the rates of tax for the purposes of section 8(2)(b) and section 8(2-A) of the Central Sales Tax Act, 1956." j) 94 STC 422(cited supra) In this, the dispute was whether the assessee was required to pay interest on the additional sales as under the Rajasthan Act. The following extracts are useful. https://hcservices.ecourts.gov.in/hcservices/ "Before we proceed further we must emphasise that penalty provisions in a statute have to be strictly construed and that is why we have pointed out earlier that the considerations which may weigh with the authority as well as the court in construing penal provisions would be different from those which would weigh in construing a provision providing for payment of interest on unpaid amount of tax which ought to have been paid." 16. It is well-known that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging