IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED:20-10-2009 CORAM: THE HONOURABLE MR. JUSTICE V. RAMASUBRAMANIAN W.P.Nos.15265, 15546, 15818, 16150 and 16223 of 2009 And M.P. Nos.1, 2, 1, 2, 1, 2, 1, 2 and 1, 2 of 2009 M/s.Jagadeeswaran Textiles (P) Ltd., Represented by its Managing Director P.Govindasamy. .. Petitioner in all WPs vs. The Commercial Tax Officer, Udumalpet (North), Udumalpet, Coimbatore District. .. Respondent in all WPs These writ petitions are filed under Article 226 of the Constitution of India praying for the issuance of writ of Certiorari calling for the records on the file of the respondent. i. In Form 29 made in ROC.No./4212/99(92-93) dated 29.5.2009, Form No.29 made in TNGST/21714/93-94 dated 29.5.2009, in form No.29 made in TNGST 281714/94-95 dted 29.5.2009 respectively quash the same as illegal and violative of orders passed by this Court in W.P.no.963,902 and 907/08 dated 4.2.2008 as well as Section 24 of TNGST Act 1959 in W.P.No.15265/09,15546/09 and 15818/09. ii. In Form 29 made in ROC.No.4212/99 (95-96) dated 29.5.2009 and Form No.29 made in ROC.No.4212/99 (96-97) dated 29.5.2009 quash the same as illegal and violative to section 24 of the TNGST ACT 1959 in (W.P.Nos.16150/09 and 16223/09) For Petitioner in all WPs : Mrs.R.Hemalatha For Respondent in all WPs : Mr.R.Mahadevan, Additional Govt. Pleader (Taxes) C O M M O N O R D E R All these writ petitions arise out of separate demands made by the respondent in Form No.29, demanding interest under Section 24 (3) of the Tamil Nadu General Sales Tax Act, 1959, in respect of the assessment years 1992-1993, 1993-1994, 1994-1995, 1995-1996 and 1996-1997. 2. Heard Mrs.R.Hemalatha, learned counsel appearing for the petitioner and Mr.R.Mahadevan, learned Additional Government https://hcservices.ecourts.gov.in/hcservices/ Pleader (Taxes) for the respondent. 3. In respect of the assessment years 1992-1993, 1993-1994 and 1994-1995, the petitioner reported a total and taxable turnover in the monthly returns filed in Form A-1. However, their accounts were called for and checked by the respondent and thereafter, revised assessment orders were passed on 20.2.1995, 20.2.1995 and 5.6.1996 respectively. After 11 years of the passing of those orders, the petitioner filed applications under Section 16D before the Special Committee, in 2007, but the Special Committee rejected the applications, by orders dated 30.10.2007 passed in SCP Nos.117, 115 and 116 of 2007 in respect of the assessment years 1992-1993, 1993-1994 and 1994-1995 respectively. 4. Thereafter, the petitioner filed writ petitions in W.P.Nos.902, 907 and 963 of 2008. Those writ petitions were allowed by this Court, by a common order dated 4.2.2008, subject to the condition that the petitioner pays the entire tax and penalty within 12 weeks. In the meantime, the petitioner was directed to produce necessary records and also peruse the relevant records as permitted by the respondent and after such perusal, the Assessing Officer was directed to pass fresh orders of assessment. 5. In accordance with the said order of this Court, the Assessing Officer summoned the petitioner and the petitioner appeared before him on 28.1.2009 and 3.2.2009 and produced the records. Finding that there was no variation, the Assessing Officer issued a final notice inviting objections to be filed on or before 12.2.2009 and 18.2.2009. Since the petitioner did not respond to the notices, the Assessing Officer passed fresh orders of assessment dated 16.2.2009, 16.2.2009 and 18.2.2009. 6. After passing fresh orders of assessment in respect of the assessment years 1992-1993, 1993-1994 and 1994-1995, on 16.2.2009, 16.2.2009 and 18.2.2009 respectively, the Assessing Officer took note of the belated payments of tax made by the petitioner in respect of all these assessment years and consequently issued Form 29 under Section 24(3) of TNGST Act, 1959, demanding interest for the delay in making payments. 7. Therefore, challenging the assessment orders dated 16.2.2009, 16.2.2009 and 18.2.2009 in respect of the assessment years 1992-1993, 1993-1994 and 1994-1995, the petitioner came up with three writ petitions in W.P.Nos.15040 to 15042 of 2009, contending that the Assessing Officer did not comply with the directions of this Court in the earlier batch of writ petitions. The petitioner also filed three writ petitions in W.P.Nos.15265, 15546 and 15818 of 2009, challenging the demand of interest. 8. Similarly, in respect of the assessment years 1995-1996 and 1996-1997, the petitioner reported a total and taxable turnover in their monthly returns. But after calling for the accounts and checking them, the Assessing Officer passed orders dated 24.3.2000. After 7 years of the passing of those orders, the petitioner filed https://hcservices.ecourts.gov.in/hcservices/ applications under Section 16D before the Special Committee in SCP Nos.114 and 118 of 2007 respectively. The Special Committee allowed the applications by separate orders dated 30.10.2007, on the ground that the cancellation of Registration Certificate led to interstate purchases of Cotton being treated as local purchases and that since registration had been obtained afresh, the petitioner could be given an opportunity. In pursuance of the orders of the Special Committee, the Assessing Officer reopened the assessment and passed fresh orders of assessment on 26.3.2009 and 28.4.2009 in respect of the assessment years 1995-1996 and 1996-1997. Consequent upon the fresh orders of assessment, the Assessing Officer issued Form 29 demanding interest under Section 24(3) for the belated payment of tax. Therefore challenging this demand for interest, the petitioner has filed 2 writ petitions in W.P.Nos.16150 and 16223 of 2009. 9. Since all the writ petitions raise a common question as to the liability of the petitioner to pay interest, all of them were taken up together for disposal. 10. The assessment orders, relating to the five assessment years viz., 1992-1993, 1993-1994, 1994-1995, 1995-1996 and 1996- 1997, have now attained finality, in the sense that the time limit for filing statutory appeals have expired and the petitioner has not filed any statutory appeal against any of them. The assessment orders relating to the years 1992-1993, 1993-1994 and 1994-1995, were challenged directly in W.P.Nos.15040 to 15042 of 2009, but by a separate order passed today, I have dismissed the writ petitions. 11. Admittedly, the petitioner has also paid the entire amount of tax as on date in respect of all these assessment years. Therefore, there is no dispute as on date, about two essential factors viz., (i) the quantum of tax liability and (ii) the dates on which the petitioner discharged the liability by making payments. 12. For determining a dealer's liability to pay interest under Section 24(3), there are three essential factors viz., (i) the quantum of tax liability (ii) the date on which the liability arose and (iii) the date on which the liability was discharged. Out of these three factors, the factors 1 and 3 are not in dispute as on date. But there is a dispute as to the date on which the liability can be said to have arisen, for the purpose of determining whether the petitioner is a defaulter, liable to pay interest. 13.The liability to pay interest is disputed by the petitioner, primarily on three grounds viz., (i) that the date on which fresh orders of assessment were passed, is the date on which the liability to pay tax could be construed to have arisen, for the purposes of Section 24(3); (ii) that when the liability is covered by a deferral scheme, no interest is payable, by virtue of Section 17-A (2) of the Act and (iii) that in any case, there cannot be any liability to pay interest on disputed turnover, until such dispute got resolved. https://hcservices.ecourts.gov.in/hcservices/ FIRST CONTENTION: 14. Placing reliance both upon the second proviso under sub- section (3) of Section 24 and upon the decision of the Supreme Court in Philips India Ltd vs. Assistant Commissioner, Commercial Taxes {(2004) 136 STC 636}, Mrs.R.Hemalatha, learned counsel for the petitioner, contended that the petitioner could be construed as a defaulter, only if he had failed to make payment of the tax determined in the fresh orders of assessment passed after remand by this Court in the first three cases and after remand by the Special Committee in the remaining two cases. It is her contention that the fresh orders of assessment effaced, substituted or replaced the original order of assessment and hence the petitioner cannot be stamped as a defaulter, from the date of the original order of assessment, so as to attract interest under Section 24(3). In paragraph-9 of its decision in Philips India, the Supreme Court held that once the original assessments are set aside and remanded for re-computation, the original orders ceased to exist and that therefore the liability would be to pay the amount before the date set out in the fresh notices. Therefore, the learned counsel for the petitioner contended that the demand under Section 24(3) is unsustainable. 15. The issue of interest on belated payment of tax has always been a vexed one, with judicial decisions swinging from one extreme to the other. The reason for the judicial mind acting like a pendulum, on this issue, is perhaps the fact that many times courts were confronted either with the question of penalty (not interest) or with genuine disputes which led to non payment/ belated payment of tax. 16. In State of Rajasthan vs. Ghasilal (AIR 1965 SC 1454), a Constitution Bench of the Supreme Court, while considering the liability to pay penalty, held that " till the tax payable is ascertained by the assessing authority under section 10 or by the assesseee under section 7(2) (of the Rajasthan Act) no tax can be said to be due within section 16 (1)(b) of the Act, for till then there is only a liability to be assessed to tax." It was held therein that there must be a tax due and there must be a failure to pay the tax due within the time allowed, so as to attract penalty. 17. When the above observations of the Constitution Bench in Ghasilal were sought to be relied upon by an assessee, in a subsequent case, Associated Cement Co. Ltd., Vs. Commercial Tax Officer {(1981) 4 SCC 578}, a three judges Bench made a distinction between penalty and interest. On the question of penalty, the Judges were of the unanimous opinion that no penalty can be levied for non inclusion of freight charges in the taxable turnover and non payment of tax in respect of such charges. But on the question of payment of interest under section 11B of the Rajasthan Sales Tax Act, the Judges were divided even on the purport of the decision of the Constitution Bench in Ghasilal. In paragraph-40 of the judgment, the majority (of 2 Judges) opined that even as per Ghasilal, the tax becomes payable, for the purpose of Section 11B, https://hcservices.ecourts.gov.in/hcservices/ before assessment is made, though it becomes due when return is filed under section 7(2) or ascertained under section 10. Relying upon the observations of Sikri.,J., in Ghasilal, the majority in Associated Cement Company held that a tax can become payable, even before assessment is made. In paragraph 41 and 42, the majority view in Associated Cement Company was expressed as follows:- "41. We are of opinion that either by delaying the filing of the return or not filing it at all or by filing a return wrongly claiming that a certain part of the turnover is not taxable or by not disclosing a part of the taxable turnover in the return an assessee cannot escape the liability to pay interest under Section 11-B(a) on the amount of tax withheld, as a consequence of his own action or inaction, from the last date on which it had to be paid as per sub- section (2) or sub-section (2A), of Section 7, as the case may be read with the Rules." "42. We are of the view that the statutory liability under Section 11-B (a) arises wherever there is default in payment of the tax within the period allowed by law irrespective of any doubt which an assessee may be entertaining about the liability to pay the tax." However P.N.Bhagwati.,J, in his minority opinion held that so long as the assessee pays the amount of tax, which according to him is due on the basis of the return filed by him, there would be no default on his part and that the liability of the assessee to deposit the amount of tax cannot depend upon a future discretionary event of final assessment by the assessing authority. Therefore, he held that where the assessee paid the full amount of tax due as per the return filed by him, no interest would be leviable on the tax further payable by him in the revised returns on account of freight charges being included. 18. In so far as Tamilnadu General Sales Tax Act, 1959 is concerned, section 12 (3) imposes penalty and section 24 (3) levies interest. In Sakthi Sugars vs. Assistant Commissioner {(1985) 59 STC 52}, a Division Bench of this Court considered the constitutional validity of Section 24(3) and held that the payment stipulated by Section 24(3) is compensatory and not penal in character. 19. Though it was held in Sakthi Sugars that a provisional assessment under Rule 18(3) of the Tamil Nadu General Sales Tax Rules, would not be covered by Section 24(3), the Act was amended thereafter by Act 78 of 1986 with effect from 1.1.1986. It is only by the said amendment that sub-section (3) of Section 24 and the two provisos thereunder, as they stand on date, replaced the then existing provision. 20. After the amendment to Section 24(3), a Division Bench of https://hcservices.ecourts.gov.in/hcservices/ this Court held in Apollo Tubes Ltd vs. Additional Deputy Commercial Tax Officer {(1994) 93 STC 339}, that the liability to pay interest is not only automatic but that the Section enjoins a liability to pay interest in addition to the amount due by way of tax. 21. But again, the question as to whether an assessee is required to pay interest on the additional sales tax upon the inclusion of freight charges in the sale price and whether interest under Section 11-B of the Rajasthan Sales Tax Act was payable only upon final assessment being made and a notice of demand being issued, was referred to a Constitution Bench in J.K.Synthetics Ltd vs. Commercial Tax Officer {1994 (4) SCC 276}. While the assessee relied upon the decision of the Constitution Bench in Ghasilal, the Revenue relied upon the decision of the three Judges Bench in Associated Cement Company. Even at the outset, the Constitution Bench in J.K.Synthetics, made it clear in paragraph-9 that the penalty provisions in a Statute have to be strictly construed and 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 for payment of interest on unpaid amount of tax. While emphasising that the rule of interpretation of a charging provision may be different from the interpretation adopted in respect of a machinery provision, the Bench pointed out in paragraph-9 as follows:- "But the machinery provisions need not be strictly construed. The machinery provisions must be so construed as would enable smooth and effective collection of the tax from the dealers liable to pay tax under the Statute. Section 11-B provides for levy of interest on failure of the dealer to pay tax due under the Act and within the time allowed. Should this provision be strictly construed or should it receive a broad and liberal construction, is a question which we will have to consider in determining the sweep of the said provision." After pointing out in paragraph-16 that ordinarily the charging section which fixes the liability is strictly construed, while the rule of strict construction is not extended to the machinery provisions, the Bench held that the machinery provisions must be so construed as would effectuate the object and purpose of the Statute and not defeat the same. But the Bench also made a small distinction, between other machinery provisions and the provision relating to levy of interest, in the following words:- "But it must also be realised that provision by which the authority is empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage, interest can be https://hcservices.ecourts.gov.in/hcservices/ levied under law and it cannot be recovered by way of damages for wrongful detention of the amount." 22. After referring to two earlier decisions, which held that the provision for charging interest was to compensate for the loss occasioned to the Revenue due to delay, the Bench opined that even then the provision has to be given only its plain meaning. In the later part of paragraph-16, the Bench held (in J.K.Synthetics) as follows:- "But then interest was charged on the strength of a statutory provision, may be its objective was to compensate the Revenue for delay in payment of tax. But regardless of the reason which impelled the Legislature to provide for charging interest, the Court must give that meaning to it as is conveyed by the language used and the purpose to be achieved. Therefore, any provision made in a statute for charging or levying interest on delayed payment of tax must be construed as a substantive law and not adjectival law. So construed and applying the normal rule of interpretation of statutes, we find, as pointed out by us earlier and by Bhagwati, J., in the Associated Cement Co. case, that if the Revenue's contention is accepted it leads to conflicts and creates certain anomalies which could never have been intended by the Legislature." "The conjoint reading of Sections 7(1), (2) and (2-A) and 11-B of the Act leaves no room for doubt that the expression 'tax payable' under Section 11-B can only mean the full amount of tax which becomes due under sub-sections (2) and (2-A) of the Act when assessed on the basis of the information regarding turnover and taxable turnover furnished or shown in the return. Therefore, so long as the assessee pays the tax which according to him is due on the basis of information supplied in the return filed by him, there would be no default on his part to meet his statutory obligation under Section 7 of the Act and, therefore, it would be difficult to hold that the 'tax payable' by him 'is not paid' to visit him with the liability to pay interest under clause (a) of Section 11-B. It would be a different matter if the return is not approved by the authority but that is not the case here. It is difficult on the plain language of the section to hold that the law envisages the assessee to predicate the final assessment https://hcservices.ecourts.gov.in/hcservices/ and expect him to pay the tax on that basis to avoid the liability to pay interest. That would be asking him to do the near impossible." Therefore, the Constitution Bench in J.K.Synthetics, overruled the majority view in Associated Cement Company and upheld the minority view of Bhagwati, J. 23. However, the decision in J.K.Synthetics, was distinguished by a Division Bench of this Court in Godrej & Boyce Manufacturing Co. Ltd vs. Joint Commissioner of Commercial Taxes {1995 (97) STC 44}, on the ground that the provisions of Sections 7(2), 7(2-A) and 11-B of the Rajasthan Sales Tax Act, are not in pari materia with the provisions of Sections 13(2), 24(1) and 24(3) of the Tamilnadu Act and Rule 18(2) of the Tamilnadu Rules. The Division Bench, after distinguishing J.K.Synthetics, chose to follow the earlier Division Bench in Apollo Tubes and held that there need not be an order of assessment, before interest is levied under Section 24(3) of the Act. 24. Again in Calcutta Jute Manufacturing Co. and Another vs. Commercial Tax Officer {1997 (106) STC 433}, a two Judges Bench of the Apex Court was concerned with the question whether an assessee was liable to pay interest on the turnover tax for the period during which, the recovery of tax was stopped by orders of the Court. After distinguishing J.K.Synthetics on facts, the Supreme Court held that the challenge to the constitutional validity of a charging provision (which resulted in a stay order and subsequent belated payment), cannot be equated to a dispute whether the freight charges would form part of the sale price or not. Thereafter, the Bench held in paragraph-16 as follows:- "16. The tax amount which they should have paid as per Section 6B remained with the appellant during the entire period and they would have earned good profit with that amount. The State, to which the tax amount should necessarily have gone, was not able to utilize it for public purposes. When appellants had the advantage of keeping the amount of tax without paying it to the State exchequer only because the High Court granted orders restraining the State from recovering that amount from the assessee, no act of the Court shall cause prejudice to any party. The prestine doctrine couched in the maxim "actus curiae neminem gravabit" has ever remained a salutary and guiding principle." 25. Similar views, as expressed by the Apex Court in paragraph-16 of Calcutta Jute Manufacturing Co., (extracted in the preceding paragraph) were expressed by a Division Bench of this Court in E.I.D. Parry (India) Ltd vs. Assistant Commissioner of Commercial Taxes {2002 (126) STC 399}, paragraph-36 of which reads as follows:- https://hcservices.ecourts.gov.in/hcservices/ "36. For the purpose of Section 13(2), the tax payable by the assessee is not an amount which is confined to the erroneous original returns filed by the assessee, but is an amount which is payable in terms of the revised corrected returns filed by the assessee. The returns being returns of self- assessments, the basis for calculating the tax is the figures set out in that return. It is wholly impermissible for an assessee to file a defective return, disclaim liability for payment of tax as also of any interest for delayed payment of tax on the basis of that incorrect return and thereafter file a revised return including therein the correct taxable turnover admitting the liability for payment of further amounts by way of tax, and then claim that it is not liable for payment of any interest for the delay in remitting the tax from the date of original return to the date of the revised return." 26. Though the Division Bench that decided E.I.D. Parry (India) Ltd., did not seek to distinguish the decision of the Constitution Bench in J.K.Synthetics, another Division Bench distinguished J.K.Synthetics on the following lines, in Ashok Leyland Ltd vs. Assistant Commissioner (CT) {2002 (127) STC 73}:- "Thus the language employed in the Tamil Nadu Provision as "actual turnover for each month" and the requirement of the provision that the dealer has to furnish the return showing his "actual turnover for each month" and pay tax on the basis of such return is in contra distinction to the expression employed the 'tax payable' under Section 11-B of the Rajasthan Act, which only mean the full amount of tax becomes due under sub sections (2) and (2-A) of the Act make clear that the provisions of the Rajasthan Act and the Tamil Nadu Act are not comparable provisions." 27. The distinction so made as above, was also reiterated by another Division Bench of this Court in Indian Commerce and Industries Co. Pvt. Ltd vs. Commercial Tax Officer {2003 (129) STC 509}, on the ground that the provisions of the Rajasthan Act are not in pari materia with the provisions of the Tamil Nadu Act. Thus, almost all the Division Benches of this Court, right from Apollo Tubes Ltd., Godrej & Boyce Manufacturing Co. Ltd., and E.I.D. Parry (India) Ltd., upto Indian Commerce and Industries Co. Pvt. Ltd., were of the view that interest under Section 24(3) was automatic. All these Division Benches of this court, were also of the view that the provisions of the Rajasthan Act are not comparable to Tamilnadu Act. https://hcservices.ecourts.gov.in/hcservices/ 28. However, the decision of the Division