Case: J.K. Synthetics Limited Vs. Commercial Taxes Officer

These appeals by special leave are directed against certain assessment orders made by the CTO relating to the asst. yrs.78 under the RajasthanAct, 1954 (hereinafter called the Act) and the CentralAct, 1956 (hereinafter called the Central Act). The question relates to payment of interest on tax on the amount of freight charged in respect of sale of cement under the relevant Cement Control Order. The returns were filed by the appellant on the premises that the amount of freight charged in respect of sale of cement under the said Control Order did not form part of the sale price for the payment ofappellant contends that it had raised the contention bona fide but the same was rejected by this Court by its judgment and order dt. 22nd Aug., 1978 in the case of Hindustan Sugar Mills Ltd. vs. State of Rajasthan and J.K. Synthetics Ltd. vs. CTO, Kota. By the said decision this Court held that the freight element formed part of the price of cement andwas leviable on the sale price inclusive of the freight amount. The appellant was, therefore, required to payon the sale price inclusive of the freight. There is now no dispute on the question of computation of the sale price for calculating the salest contends that it had raised the contention bona fide but the same was rejected by this Court by its judgment and order dt. 22nd Aug., 1978 in the case of Hindustan Sugar Mills Ltd. vs. State of Rajasthan and J.K. Synthetics Ltd. vs. CTO, Kota. By the said decision this Court held that the freight element formed part of the price of cement ands leviable on the sale price inclusive of the freight amount. The appellant was, therefore, required to payon the sale price inclusive of the freight. There is now no dispute on the question of computation of the sale price for calculating the sales

Court's reasoning:
Therefore, on a conjoint reading of ss. 7(1), (2) and (2A), r. 25, the information to be furnished under Form ST 5 and the form of verification, it becomes clear that the dealer must deposit the full amount of tax due on the basis of information furnished, which information must be correct and complete to the best of the dealers knowledge and belief without he being guilty of wilful omission. If the dealer has furnished full particulars in respect of his business, without wilfully omitting or withholding any particular information which has a bearing on the assessment of tax, which he honestly believes to be correct and complete, it would be difficult to hold that the dealer had not acted bona fide in depositing the tax due on that information before the submission of the return. Ofcourse the tax so deposited is to be deemed to be provisional and subject to necessary adjustments in pursuance of the final assessment. Sec. 7AA empowers levy of penalty if the assessing authority is satisfied that any dealer has without reasonable cause failed to furnish the return under s. 7(1) within the time allowed. The use of the words without reasonable cause clearly implies that if the dealer can show reasonable cause for his lapse he cannot be visited with the penalty prescribed by s. 7AA. To put it differently if reasonable cause is shown by the dealer for the lapse, he cannot be visited with penalty under this provision. This is also suggestive of the fact that the legislature desired to be harsh with wilful defaulters or those guilty of wilful omission of material information and not with dealers who failed to supply some information under the bona fide belief that the same was not necessary or those who had failed to pay the full tax due not with a view to evading or avoiding the liability to pay the tax but because they bona fide believed that they were liable to pay the tax assessed by them on the basis of the return and no more. If at a later date on the basis of a different interpretation put on the language of the relevant provisions of the law, the dealer becomes liable to pay tax in excess of that already paid, he may be called upon to make good the difference but he cannot be visited with penalty under s. 7AA unless it is shown that the dealer had withheld payment of the differential tax by wilfully withholding material information or had acted without reasonable cause in committing thethe amount of tax payable under(2) is paid on the basis of return, not on the basis of final assessment, there can be no question of payment of interest under cl. (a) of s. 11B. Similarly, if the tax is paid according to the return as required by(2A), in other words, if the full amount of tax due shown in the return is paid, there can be no question of charging interest under cl. (a) of s. 11B. So far as cl. (b) is concerned it is asituation. Where tax is found due on final assessment and the dealer is required to make good the difference, a notice of demand will issue. If the dealer fails to pay the tax within the time specified in the notice and if no time is specified within 30 days from the receipt of notice, he is required to pay interest at the rates prescribed by theBut if he pays the difference of tax within the prescribed time, there is no question of charging interest. If such an interpretation is not placed and if the Revenues plea is accepted serious anomalies wouldif the liability to pay interest on the balance tax amount accrues from the date of submission of returns under s. 7, cl. (b) of s. 11B r/w s. 11(2) would be rendered nugatory. Otherwise one would be required to hold that interest would be payable from the date of submission of the return till the date of issuance of notice of demand and thereafter no interest would have to be paid till the expiry of the specified period or thirty days, as the case may be, and thereafter interest would have to be paid at a given rate for the first three months and thereafter at a higher rate. Such could not be the legislative intent. Secondly, take the case of a dealer who has failed to submit a return and is subjected to assessment of tax on the basis of best judgment. Pursuant to the said assessment he deposits the tax. Such a dealer would not be liable to pay interest on the balance tax if the tax assessed under s. 10 is higher than what was provisionally assessed. He can always claim that he cannot be made liable to pay interest for the error of the authority in making the provisional assessment under s. 7A. The defaulter would be in a better position than a dealer who complies with the requirement of s. 7(1). And if he can show reasonable cause, he would also escape the penalty clause in ss. 7AA and 16(1). More or less a similar situation may arise in the matter of payment of interest where provisional assessment is made under s. 7B. Of course such a dealer may become liable to penalty but that is a different matter altogether. Take also the case of a dealer who submits a return without depositing the tax on the basis thereof. Under s. 25(4) the authority may or may not take cognizance of the return. If cognizance is not taken the dealer would be treated on par with one who has not submitted a return but if cognizance is taken he must be treated as one who is liable to pay interest under cl. (a) of s. 11B of the Act. Therefore, the view canvassed by the Revenue leads to incongruous situation which can never be the legislative intent. This is how the situation emerges on a plain reading of the provisions of the Act as they stood before Act 4 of 1979 came into force. After the substitution of s. 11B by Act 4 of 1979 the situation has changed altogether. What we have said earlier has nothing to do with s. 11B as introduced by Act 4 of 1979. We may now examine the case law on which reliance was placed.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 interest on delayed payments, etc. Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same. [See Whitney vs. IRC 1926 AC 37, CIT vs. Mahaliram Ramjidas Indian United Mills Ltd. vs. CEPT and Gursahai Saigal vs. CIT 1963 (3) SCR 893 ]. 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 levied under law and it cannot be recovered by way of damages for wrongful detention of the amount. [See Bengal Nagpur Railway Co. Ltd. vs. Ruttanji Ramji and Union of India vs. A.L. Rallia Ram Our attention was, however, drawn by Mr. Sen to two cases. Even in those cases, CIT vs. M. Chandra Sekhar and Central Provinces Manganese Ore Co. Ltd. vs. CIT, all that the Court pointed out was that provision for charging interest was, it seems, introduced in order to compensate for the loss occasioned to the Revenue due to delay. But then interest was charged on the strength of a statutory provision, may 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 Cos case, that if the Revenues contention is accepted it leads to conflicts and creates certain anomalies which could never have been intended by the legislature.8. Let us look at the question from a slightly different angle. Sec. 7(1) enjoins on every dealer that he shall furnish prescribed returns for the prescribed period within the prescribed time to the assessing authority. By the proviso the time can be extended by not more than fifteen days. The requirement of s. 7(1) is undoubtedly a statutory requirement. The prescribed return must be accompanied by a receipt evidencing the deposit of full amount of tax due in the State Government on the basis of the return. That is the requirement of s. 7(2). Sec. 7(2A), no doubt, permits payment of tax at shorter intervals but the ultimate requirement is deposit of the full amount of tax due shown in the return. When s. 11B(a) uses the expression tax payable under(2) and (2A) of s. 7, that must be understood in the context of the aforesaid expressions employed in the twoTherefore, the expression tax payable under the said twois the full amount of tax due and tax due is that amount which becomes due ex hypothesi on the turnover and taxable turnover shown in or based on the return. The word payable is a descriptive word, which ordinarily means that which must be paid or is due, or may be paid but its correct meaning can only be determined if the context in which it is used is kept in view. The word has been frequently understood to mean that which may, can or should be paid and is held equivalent to due. Therefore, the conjoint reading of ss. 7(1), (2) and (2A) and 11B of the Act leaves no room for doubt that the expression tax payable in s. 11B can only mean the full amount of tax which becomes due under(2) and (2A) 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 s. 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 cl. (a) of s. 11B. 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 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.Let us look at the question from a slightly different angle. Sec. 7(1) enjoins on every dealer that he shall furnish prescribed returns for the prescribed period within the prescribed time to the assessing authority. By the proviso the time can be extended by not more than fifteen days. The requirement of s. 7(1) is undoubtedly a statutory requirement. The prescribed return must be accompanied by a receipt evidencing the deposit of full amount of tax due in the State Government on the basis of the return. That is the requirement of s. 7(2). Sec. 7(2A), no doubt, permits payment of tax at shorter intervals but the ultimate requirement is deposit of the full amount of tax due shown in the return. When s. 11B(a) uses the expression tax payable under(2) and (2A) of s. 7, that must be understood in the context of the aforesaid expressions employed in the twoTherefore, the expression tax payable under the said twois the full amount of tax due and tax due is that amount which becomes due ex hypothesi on the turnover and taxable turnover shown in or based on the return. The word payable is a descriptive word, which ordinarily means that which must be paid or is due, or may be paid but its correct meaning can only be determined if the context in which it is used is kept in view. The word has been frequently understood to mean that which may, can or should be paid and is held equivalent to due. Therefore, the conjoint reading of ss. 7(1), (2) and (2A) and 11B of the Act leaves no room for doubt that the expression tax payable in s. 11B can only mean the full amount of tax which becomes due under(2) and (2A) 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 s. 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 cl. (a) of s. 11B. 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 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.The learned counsel for the Revenue placed strong reliance on the decision of this Court in Kesoram Industries & Cotton Mills Ltd. vs. CWT. Reference was to the discussion on the third question, namely, whether the assessee owed a debt on the valuation day within the meaning of s. 2(m) to be deductible in computing the net wealth of the assessee.In that case the assessee had in the accounts for the year ending 31st March, 1957, shown a certain amount as provision for payment ofand super tax. The majority answered the question in the affirmative whereas the third learned Judge disagreed. In the view we are taking on the relevant provisions of the Act it is unnecessary for us to examine the merit or demerit of the rival views.10. In the result we are of the view that the majority opinion expressed by Venkataramiah, J. in the Associated Cement Cos case (supra) does not, with respect, state the law correctly and in our view the legal position was correctly stated by Bhagwati, J. in his minority judgment.