Gujarat High Court

Shri Kantha Vibhag Sahakari Khand ... vs State Of Gujarat on 19 August, 2023

Bench: Biren Vaishnav

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               IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                R/SPECIAL CIVIL APPLICATION NO. 19623 of 2021


FOR APPROVAL AND SIGNATURE:


HONOURABLE MR. JUSTICE BIREN VAISHNAV

and
HONOURABLE MR. JUSTICE DEVAN M. DESAI

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1 Whether Reporters of Local Papers may be allowed to see the judgment ?

2 To be referred to the Reporter or not ?

3 Whether their Lordships wish to see the fair copy of the judgment ?

4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ?

========================================================== SHRI KANTHA VIBHAG SAHAKARI KHAND UDHYOG MANDLI LTD Versus STATE OF GUJARAT ========================================================== Appearance:

UCHIT N SHETH(7336) for the Petitioner(s) No. 1,2 MS. SHRUNJAL SHAH, ASSISTANT GOVERNMENT PLEADER for the Respondent(s) No. 1,2 ==========================================================

CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV and HONOURABLE MR. JUSTICE DEVAN M. DESAI

Date : 19/08/2023

CAV JUDGMENT (PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV)

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1 Rule returnable forthwith. Ms. Shrunjal Shah,

learned Assistant Government Pleader, waives service of

rule on behalf of the respondent - State. With consent of

the learned advocates appearing for the respective

parties, the matter is taken up for final hearing today.

2 By way of this petition under Article 226 of the

Constitution of India, the petitioners have prayed as

under:

"A This Hon'ble Court may be pleased to issue a writ of mandamus or writ in the nature of mandamus or any other appropriate writ or order quashing and setting aside demand notice dated 30.10.2021 (annexed at Annexure A) issued by the 2nd Respondent authority under the amnesty scheme;

B This Hon'ble Court may be pleased to issue a writ of certiorari or writ in the nature of certiorari or any other appropriate writ or order modifying assessment order dated 20.12.2020 in so far as tax paid by the Petitioners is adjusted against interest liability under the Vat Act and the tax paid may please be treated as adjusted against principal tax liability as per the assessment order;

C This Hon'ble Court may be pleased to declare that the Petitioners do not have any further liability under the Vat Act for the year 2016-17 having paid the tax due as per original intimation given by the Respondents under the amnesty scheme"

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3 Facts in brief are as under:

3.1 The petitioner No.1, is a Co-operative Society

Limited. Petitioner No.2 is the Managing Director and

authorized signatory of the first petitioner. The

petitioners are engaged in the business of manufacture

and sale of Sugar.

3.2 It is the case of the petitioners that while they have

paid tax dues as per returns filed under the Gujarat Value

Added Tax Act (for short "VAT Act"), insofar as the years

2015-16 and 2016-17 are concerned, the petitioners have

subsequently realized that payment of some amounts of

tax had been missed at the time of filing of returns.

3.3 The State of Gujarat had announced Vera Samadhan

Yojana, 2019, by a Resolution dated 11.09.2019, which

was, thereafter, superseded by a new Resolution dated

06.12.2019. The petitioners filed an application under the

amnesty scheme on 10.01.2020, wherein, it was pointed

out that the amount of tax paid for the year 2016-17 was

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Rs.2,39,55,879/- while the amount of tax which the

petitioners had additionally declared as payable under

the scheme was Rs.2,25,53,290/-. On receipt of the

application, online intimation letter was received by the

petitioners regarding installments to be paid and even as

per the intimation letter, the amount of tax payable under

the VAT Act for the year 2016-2017 was Rs.2,25,53,290/-.

The petitioners complied with the installments granted

without any default. In the interregnum, the petitioners

were called for audit assessment under Sec.34(2) of the

VAT Act. The petitioners informed the authorities that

they had approached by way of an application under the

amnesty scheme. However, while assessing the turnover

and tax liability which was exactly in terms of declaration

made by the petitioners under the amnesty scheme, the

authority while calculating the outstanding tax liability,

adjusted the tax paid by the petitioners along with the

returns against interest computed on additional tax

liability declared under the scheme by the petitioners.

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3.4 The petitioners immediately approached the

authority and even filed an application for rectification of

the assessment order under Sec.79 of the VAT Act on

26.08.2021. The rectification application was rejected by

an order dated 04.08.2021 on the ground that the

adjustment against interest liability was in terms of

Sec.30(6) of the VAT Act.

3.5 Despite several representations praying for

consideration of the issue, the authorities proceeded to

issue the impugned demand notice on 30.10.2021

demanding tax from the petitioners on the ground that

higher amount of tax was computed in the assessment

order.

4 Mr.Uchit Sheth, learned counsel for the petitioners,

would make the following submissions:

4.1 That on an application filed under the amnesty

scheme, an intimation letter was issued, wherein, the

outstanding tax amount as mentioned by the petitioners

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in their application was accepted. The petitioners paid

the amount. Despite this, the application under the

scheme is partially rejected by passing an assessment

order. In the assessment order, interest has been

imposed on the tax declared by the petitioners under the

amnesty scheme, and thereafter, the tax paid by the

petitioners along with returns has been illegally adjusted

against such interest. He would therefore submit that

artificial short fall of tax payment has been created as a

result of such illegal adjustment.

4.2 That the total tax liability declared by the petitioners

in the application under the amnesty scheme was

Rs.4,65,09,169/-. Out of such tax, since an amount of

Rs.2,39,55,879/- was paid by the petitioners along with

the returns, the amount of outstanding tax was

Rs.2,25,53,290/-. Hence, the amount of tax liability

assessed in the assessment order and the amount of tax

declared by the petitioners under the scheme was equal.

The petitioners are, therefore, entitled to the complete

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waiver of interest and penalty. The impugned notice

dated 30.10.2021, therefore, is contrary to the intention

of the terms of the amnesty scheme.

4.3 Reading the scheme, including the preamble thereof

it is submitted that the object of the scheme was to

reduce administration cost and also give substantial relief

to the dealers. Mr.Sheth, learned counsel, relying on a

decision in the case of Sunflower Developers Vs. State

of Gujarat., reported in 2019 SCC Online 6611, would

submit that discussing the amnesty scheme, the Court

had observed that the officers are duty bound to respect

the object and purpose of the scheme. Mr.Sheth, learned

counsel, would rely on a decision in the case of Sky

Industries Ltd vs. State of Gujarat, rendered in

Special Civil Application No. 246 of 2023, where even

though there was a shortfall of Rs.2,000/-, the Court

opined that such a shortfall could not be recovered.

4.4 Mr.Uchit Sheth, learned counsel, would submit that

if the interpretation of the respondent is accepted, it

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would violate Article 14 of the Constitution of India. The

petitioners cannot be worse off because part of the tax

amount has been paid along with the returns prior to

filing of the application under the amnesty scheme.

Because of the payment of tax made prior in point of

time, would not make him an assessee so as to give

advantage to dealers who did not make payment prior to

the scheme. Mr.Uchit Sheth, learned Counsel, would

submit that this Court, in the case of Safal Developers

Vs. State of Gujarat, in Special Civil Application No.

1338 of 2016, relied on a decision of the Hon'ble

Supreme Court and held that if adjustment of the tax paid

prior to the declaration of the amnesty scheme is not

granted, it would amount to putting a premium on non

payment of taxes. Mr.Sheth, learned counsel, would also

rely on a decision of this Court in the case of Varmora

Granito Pvt Ltd Vs. State of Gujarat, in Special Civil

Application No. 4650 of 2023.

4.5 With regard to imposition of interest under

Sec.30(5) and 30(6), learned counsel for the petitioners

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would submit that the same is wholly without jurisdiction.

Reading Sec.30, Mr.Sheth, learned Counsel, would

submit that the Act provides that a dealer must pay only

tax due. In the case of the petitioners, the purchase tax

was never due or payable. Therefore, interest cannot be

imposed under Sec.30(5) r/w. Sec.42(6) and 42(7).

4.6 Mr.Sheth, learned Counsel, would further submit

that the term "due and payable" would mean actual

payment due. It was not a case where the taxes were due

and payable, but was a case where the petitioners had

claimed erroneous input tax credit of the purchase tax

amount. Reliance was placed on a decision of the

Constitution Bench of the Hon'ble Supreme Court in the

case of J.K.Synthetics Ltd., Vs. Commercial Tax

Officer, reported in 1994 (4) SCC 276. The judgement

has been followed by this Court in the case of Brook

Bond India Ltd Vs. State of Gujarat., reported in

1998 SCC Online Guj. 530. Mr. Sheth, learned counsel,

would further submit that reliance placed by the

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respondents on the audit report is also misconceived.

4.7 Mr.Sheth, learned counsel, would submit that

interest under Sec.30(5) and 30(6) has to be waived

under the amnesty scheme.

5 Ms.Shrunjal Shah, learned Assistant Government

Pleader appearing for the respondent - State, would

submit as under:

5.1 According to learned AGP, reading the scope of the

scheme would indicate that the benefit of the scheme can

only be taken on the additional amount disclosed under

the scheme. Ms.Shah, learned AGP, would submit that as

per Clause 4.1, only after the payment of complete tax

demand, interest and penalty will be remitted.

5.2 Ms.Shah, learned AGP, would further submit that as

per the provisions of the GVAT Act, the original amount

that was paid by the petitioners, not disclosed under the

scheme was to be applied towards interest and penalty,

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and therefore, there is no provision for remission of such

interest and penalty.

5.3 Ms.Shah, learned AGP, would further submit that as

per the Vera Samadhan Scheme, the only remission is

that of the tax and penalty on the amount disclosed in the

scheme. The scheme does not anywhere state that the

original amount that was paid as per return filed, will

have the benefit of waiver of penalty and interest. As per

the return filed, an amount of Rs.2,54,04,223/- was

payable, but only Rs.2,39,55,879/- was paid. Therefore, an

amount of Rs.14,48,344/- though payable, was not paid.

Interest therefore on such amount was to be levied under

Sec.30(5) of the Act. Similarly, a tax liability of

Rs.2,11,04,946/- has been admitted by the petitioners in

the return for which the petitioners have availed input tax

credit which was not available to the petitioners.

5.4 Ms.Shrunjal Shah, learned AGP, would further

submit that it was not a voluntary disclosure under the

scheme to the extent of Rs.2,25,53,292/- which was

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relevant. What is important is that the amount of tax was

not paid within the stipulated time period, and therefore,

the amount paid had to be appropriated as per the

provisions of Sec.30(6) of the Act. Reading the provisions

of Sec.30 of the Act, Ms.Shah, learned AGP, would submit

that the tax had to be paid within the stipulated time

frame which admittedly was not paid. Once the liability is

admitted by way of a self assessment, tax would become

due and payable. She would therefore submit that the

petition deserves to be dismissed.

6 Having considered the submissions made by the

learned counsels appearing for the respective parties,

what is important to note is that while the petitioners

paid tax due as per the returns filed under the VAT Act

for the years 2015-2016 and 2016-2017, it appears that,

they realized that they had missed paying some amounts

of tax. Pursuant to the Vera Samadhan Yojana, 2019, the

petitioners filed an application on 10.01.2020 under the

amnesty scheme. A declaration was made that the

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petitioners were in arrears of demand to the extent of

Rs.2,25,53,290/-. As per the summary of tax payable, the

details are as under:

       VAT on Sales             25404224
       VAT on purchase          21104945.6
       Total Payable            46509169
       VAT paid                 23955879
       VAT Payable              22553290

6.1 It is the case of the petitioners that of the total tax

payable of Rs.4,65,09,169/-, since an amount of

Rs.2,39,55,879/- was paid along with the returns, the

outstanding tax was towards purchase tax of

Rs.2,25,53,290/-, i.e. Rs.14,48,345 + Rs.2,11,04,945/-.

6.2 Perusal of the intimation letter pursuant to the

application made under the scheme also indicated the

same figure i.e. of Rs.2,25,53,290/-. The Assessment

Order (page 59 of the paper book) also indicated that the

tax payable was assessed at Rs.4,65,09,169/- which was

equal to the amount of tax declared by the petitioners in

the application under the amnesty scheme. The amount of

assessed tax which was outstanding, which figures match

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with the intimation letter, was the exact amount which

was declared by the petitioners in an application under

the scheme and the amount was paid during the time

stipulated in the scheme.

6.3 In other words, if the three documents are compared

i.e. the application for amnesty, the letter of intimation

and the assessment order, there is no dispute to the

extent that the outstanding tax demand for the purpose of

which amnesty was sought was identical. There was no

reason, therefore, for the authorities to partially reject

the case of the petitioners by adjusting the tax paid with

returns against interest imposed on tax declared under

the amnesty scheme. This has resulted in creating, as is

rightly submitted by the learned counsel for the

petitioners, an artificial shortfall of tax payment as a

result of such illegal adjustment.

6.4 The amnesty scheme is on record. Reading the

objects and the purpose of the scheme, it is evident that

the scheme was introduced to reduce the administrative

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cost by quick recovery of old dues and also give

substantial relief to the dealers. Reading the relevant

clause of the scheme would further indicate that it was

not open for the respondents to reject complete waiver of

interest and penalty in case of the applicants who have

paid the full amount of tax. In case of the present

petitioners, the petitioners paid the full amount of tax,

which is evident as declared by them in the application

filed under the scheme. Reading the relevant clause of

the scheme would indicate as under:

(a) The outreach of the scheme was in context of

assessment, re-assessment, outstanding dues of assessed

tax, reassessed tax or tax which were outstanding as a

result of revision and appellate proceedings. Such

assessee falling in the aforesaid categories could take the

benefit of the amnesty scheme. Clause 4 dealt with the

benefits available under the scheme in accordance with

Clause 4.1 thereof, which indicated that on payment of

complete outstanding tax dues, there will be remission of

interest and penalty. Sub-clause 2 of Clause 4.1 further

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indicated that under the amnesty scheme, part of the tax

dues which have been paid, shall be adjusted on payment

of the remaining part and on such payment of the

remaining dues, interest on the remaining outstanding

dues paid and penalty thereon shall be given the benefit

of remission. Clause 4.4 of the scheme would indicate

that where assessment or re-assessment or a revision is

still pending, and in such case if a businessman gives a

self declaration of the outstanding tax dues then such an

assessee would be entitled to the benefit of remission of

interest and penalty.

6.5 All these relevant clauses of the scheme would

indicate that an assessee who self declares a tax amount

under the amnesty scheme would get remission of

interest and penalty. The intention of the scheme has

been explained by this Court in its judgement in the case

of Sunflowers Developers (supra). Paragraphs 20 and

21 of the judgement, read as under:

"20. In this backdrop, it may be germane to refer to the object behind the above referred amnesty scheme. The preamble of the amnesty scheme

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provides that the Goods and Services Act has been brought into force in the State with effect from 1.7.2017. Prior to the coming into force of this enactment, there were approximately more than 20,000 cases pending at different levels under the Sales Tax Act, Value Added Tax Act, Central Sales Tax Act, Motor Spirit Taxation Act, Entry Tax Act and Sugar Cane Purchase Tax Act. As a result considerable recoveries of the amounts involved in such cases were outstanding. Various business associations in the State had made representations for expeditious and effective disposal of such old cases. By this scheme the Government will get the amounts of old pending recoveries, the business segment will get a huge relief and the administrative cost of the Government will be reduced. Considering this submission a proposal had been made for introducing the amnesty scheme. Under this scheme, the outstanding recoveries under the above enactments are to be covered.

21. Thus, the object of the amnesty scheme is to bring about expeditious and effective resolution of old disputes and recoveries of old outstanding dues of the Government and reduction of administrative costs. Since such scheme is applicable to all pending cases, the officers acting under the relevant statutes are expected to respect the object of the scheme and to ensure that the assessees get the benefit under the scheme. Therefore, when a bona fide request is made by an assessee to adjourn the hearing of a case with a view to enable him to avail the benefit of the scheme, the concerned officer is duty bound to respect such request. Therefore, when in the present case, where the matter had not been taken up for hearing for a considerable period of time, when the petitioners requested the second respondent to keep the assessment proceedings in abeyance as they wanted to avail the benefit of the amnesty scheme, the respondent ought to have

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respected such request and afforded the petitioners sufficient time to avail the benefit of the amnesty scheme, however, on the contrary, the second respondent, in undue haste, has proceeded to pass an ex parte high pitched best judgment assessment order under section 34(8) of the GVAT Act."

6.6 In the case of Sky Industries (supra), the Court,

considering the decision in the case of

Sunflower(supra), observed that even a shortfall which

was sought to be recovered after verifying and granting

the benefit to the petitioner therein could not be

accepted. Paras 7.2 to 7.5 of the decision read as under:

" 7.2 It appears that the petitioner made an application under the amnesty scheme. However, while so doing, the petitioner through inadvertence mentioned the amount of outstanding tax as Rs.5,37,686/-, instead of Rs.5,39,787/-.

7.2.1 From a perusal of the record, it is revealed that, as per Clause-7(3) of the amnesty scheme, after the submission of application by the petitioner, within the period of 15 days, but, not later than 28.02.2020, the concerned officer of the Respondents was required to intimate the petitioner online, about the amount to be paid under the amnesty scheme.

7.2.2 It appears that the concerned Officer of the Respondents verified and intimated the petitioner that he was required to pay Rs.5,37,686/- under the amnesty scheme and the petitioner paid the said amount, accordingly.

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7.2.3 Now, it is the case of the Respondents that the petitioner was required to pay Rs.5,39,787/-, but, he paid Rs.5,37,686/-, i.e. Rs.2000/- less, and therefore, he cannot be granted the benefit of the amnesty scheme.

7.3 At this stage, it would be relevant to refer to the observations made by the Division Bench of this Court in the case of 'SUNFLOWERS DEVELOPERS'(Supra), more particularly, in Paragraphs-20 and 21 thereof, which reads thus;

20. In this backdrop, it may be germane to refer to the object behind the above referred amnesty scheme. The preamble of the amnesty scheme provides that the Goods and Services Act has been brought into force in the State with effect from 1.7.2017. Prior to the coming into force of this enactment, there were approximately more than 20,000 cases pending at different levels under the Sales Tax Act, Value Added Tax Act, Central Sales Tax Act, Motor Spirit Taxation Act, Entry Tax Act and Sugar Cane Purchase Tax Act. As a result considerable recoveries of the amounts involved in such cases were outstanding. Various business associations in the State had made representations for expeditious and effective disposal of such old cases. By this scheme the Government will get the amounts of old pending recoveries, the business segment will get a huge relief and the administrative cost of the Government will be reduced. Considering this submission a proposal had been made for introducing the amnesty scheme. Under this scheme, the outstanding recoveries under the above enactments are to be covered.

21. Thus, the object of the amnesty scheme is to bring about expeditious and effective

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resolution of old disputes and recoveries of old outstanding dues of the Government and reduction of administrative costs. Since such scheme is applicable to all pending cases, the officers acting under the relevant statutes are expected to respect the object of the scheme and to ensure that the assessees get the benefit under the scheme. Therefore, when a bona fide request is made by an assessee to adjourn the hearing of a case with a view to enable him to avail the benefit of the scheme, the concerned officer is duty bound to respect such request. Therefore, when in the present case, where the matter had not been taken up for hearing for a considerable period of time, when the petitioners requested the second respondent to keep the assessment proceedings in abeyance as they wanted to avail the benefit of the amnesty scheme, the respondent ought to have respected such request and afforded the petitioners sufficient time to avail the benefit of the amnesty scheme, however, on the contrary, the second respondent, in undue haste, has proceeded to pass an ex-parte high pitched best judgment assessment order under section 34(8) of the GVAT Act."

6.7 The contention of the learned AGP that in case of the

petitioners since the dues have not been completely paid,

the benefit of the scheme may not be available to the

petitioners as the scheme does not anywhere state that

the original amount that was paid as per the return filed,

if not paid, then interest on such amount and penalty also

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will have to be remitted is a complete misinterpretation of

the scheme which goes to frustrate the very object

thereof.

6.8 In the case of Safal Developers (supra), a Division

Bench of this Court had an occasion to consider the

amnesty scheme and in paras 10 to 13 of the decision, the

Division Bench held as under:

"10. On behalf of the respondents, it has been contended that in view of paragraph 7 of the scheme, the petitioners are not entitled to the benefit of the scheme as the amount of tax and interest has been paid prior to the scheme having been brought into effect. As noticed earlier, paragraph 7 of the scheme provides that the dealers shall be entitled to the benefit of the scheme only after the payment of the taxes payable under the scheme during the period of the scheme. In the opinion of this court, the contention that in cases where the tax and interest have been paid prior to the coming into force of the scheme, the scheme would not be applicable, does not appear to be a true construction of the provisions of paragraph 7. Paragraph 7 only provides that the dealer, to be entitled to the benefit of the scheme, shall have to have paid the taxes thereunder during the operation of the scheme. The same does not in any manner preclude those dealers who have already paid the tax prior to the coming into force of the scheme.

11. At this juncture, reference may also be made to paragraphs 10 and 13 of the scheme, which give a clear indication of the intent of the Government

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while introducing the scheme. Paragraph 10 of the scheme provides that the benefit of the scheme shall also be available to those cases where appeal proceedings are pending. However, the dealer who takes the benefit shall be required to withdraw the appeal to the extent of the transactions shown in paragraph 1(B) or shall be required to revise the appeal accordingly. Paragraph 13 provides that where in connection with transactions under paragraph 1(B), tax, interest and penalty has already been paid, then the dealer availing of the benefit of the scheme shall under no circumstances be entitled to refund of the amount so paid. On a conjoint reading of paragraph 10 and paragraph 13 of the scheme, it is evident that the intention is to grant benefit also to those dealers who have paid the tax and interest prior to coming into operation of the scheme. The only condition is that in case where the tax, interest and penalty has already been paid, the dealer shall not be entitled to refund thereof. The provisions of paragraph 7 of the scheme have to be construed in consonance with the provisions of paragraph 10 and 13 thereof, which clearly indicate that all those dealers who have paid the taxes during the period of operation of the scheme and prior thereto are brought within the ambit thereof.

12. Under the circumstances, the second ground raised by the respondents for denying the benefit of the amnesty scheme to the petitioners is also not in consonance with the provisions of the scheme. The respondents are, therefore, not justified in denying the benefit of the amnesty scheme to the petitioners. The above view is fortified by the view taken by the Karnataka High Court in the above referred decisions.

13. Examining the case from another angle, if the interpretation put forth by the respondents were to be accepted, the same would result in a situation

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where dealers who have paid their taxes prior to the coming into force of the scheme, would be denied the benefit thereof, whereas those dealers who have not paid the taxes would be granted the benefit of the scheme, which would be clearly violative of the constitutional provisions as envisaged under Article 14 of the Constitution of India and would amount to putting a premium on non-payment of taxes whereby dealers who have not paid taxes steal a march over those dealers who have paid their taxes in time."

6.9 If the proposition and the stand of the respondents

as made out is accepted, it would strike at the very root of

the amnesty scheme. What is evident is that out of the

total tax liability of Rs.4,65,09,169/-, the petitioners had

paid an amount of Rs.2,39,55,879/- along with the returns

filed which was prior to filing of an application under the

scheme. It was not a case where no tax at all was paid.

Having found a bonafide short fall, the remaining tax was

paid. In case where no payment of taxes are made by an

assessee-dealer, he would take advantage of the scheme,

and once on its having come into force, such a dealer

would get remission of penalty and interest. By an

interpretation put forward by the respondents, it cannot

be the case where the petitioners are worse off because

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of the fact that part of the amount of tax has already been

paid by the petitioners along with the returns prior to

filing of the application under the amnesty scheme. As

held by the Division Bench of this Court in Safal

Developers (supra), that even if there was no express

provision permitting adjustment of tax paid prior in point

of time, such adjustment was required to be made. The

decision of Safal Developers (supra), has also been

relied upon by the Division Bench in the case of Varmora

Granite Private Limited.

6.10 Coming to the interpretation in context of Sec.30(5)

and sub-sec(6) thereof, the stand of the respondent is that

the intention of Sec.30 is that the tax is to be paid within

the stipulated time frame. The petitioners, cannot take

the benefit of wilful mis-statement in the return stating

that the tax has been paid through ITC, and not making

any rectification. By making such a false statement,

according to the respondents, the dealer cannot get away

from the liability of interest. Sec.30(5) and Sec.30(6) r/w.

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Sec.42(7) of the Act, read as under:

"30. Periodical payment of tax and interest on non-payment of tax.

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(5) Where a dealer does not pay the amount tax within the time prescribed for its payment under this section, then there shall be paid by such dealer for the period commencing on the date of expiry of the aforesaid prescribed time and ending on date of payment of the amount of tax, simple interest at the rate of eighteen percent, per annum, on the amount of tax not so paid or on any less amount thereof remaining unpaid during such period.

(6) Where a dealer is liable to pay interest under sub-section (5) or under sub-section (7) of Section 42 and he makes payment of an amount which is less than the aggregate of the amount of tax, penalty and interest, the amount so paid shall be first applied towards the amount of interest, thereafter the balance, if any, towards the amount of penalty and thereafter the balance, if any, towards the amount of tax.

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42. Payment and recovery of tax and interest on delayed payment.

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(7) Where a dealer does not pay the amount of tax falling under sub-section (1) on or before the prescribed date, than there shall be paid by such dealer for the period commencing on the specified date and ending on the date of payment, simple interest at the rate of eighteen percent per annum on the amount of tax not so paid or any less amount

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thereof remaining unpaid during such period."

6.11 Reading the provisions would indicate that the

imposition of interest is on the payment of tax which was

due as per the return. Sec.30(6) would indicate that

where a dealer is liable to pay interest under Sub-section

(5) or under Sub-section(7) of Sec.42 and he makes

payment of an amount which is less than the aggregate of

the amount of tax, penalty and interest, the amount so

paid shall be first applied towards the amount of interest.

In case of the petitioners, at the relevant time, there was

no purchase tax due nor was it payable. Even as per the

judgement of the Constitution Bench and in the case of

J.K.Synthetics (supra), what is evident is that the

expression "tax payable" must be understood in the

context of the full amount of tax due. Paragraphs 13 and

16 to 17 of the decision, read as under:

"13. Bhagwati, J. after referring to Sections 3, 7, 10, 11 and 11-B of the Act, points out that Section 7(2) speaks of "full amount of tax due on the basis of the return" and adds: (SCC pp. 586-87, para 6)

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"We must look at the return actually filed by the assessee in order to see what is the full amount of tax due on the basis of such return. It is not the assessed tax nor is it the tax due on tile basis of a return which ought to have been filed by the assessee but it is the tax due according to the return actually filed that is payable under sub-section(2) of Section 7. This provision is really in the nature of self- assessment and what it requires is that whatever be the amount of tax due on the basis of self assessment must be paid up along with the filing of the return which constitutes self- assessment. I fail to see how the plain words of subsection (2) of Section 7 can be tortured to mean full amount of tax due on the basis of return which ought to have been filed but which has not been filed."

Pointing out that the construction pressed by the Revenue leads to a serious anomaly, the learned Judge proceeds to observe: (SCC p. 587, para 7) "If this construction were accepted, the tax payable under sub-section (2) of Section 7 would be the full amount of tax due on the basis of a correct and proper return and that would necessarily be the same as the tax assessed by the assessing authority, because what is a correct and proper return would be determinable only with reference to the assessment ultimately made. The assessment when made would show whether the return filed was correct and proper; it would be correct and proper if it accords with the assessment made; if it does not accord with the assessment, then to the extent to which it differs it would obviously have to be regarded as incorrect and improper. The consequence of the construction suggested on behalf of the Revenue would thus be that the tax payable under sub-section (2) of Section 7 would be the full amount of the tax as assessed, because

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that would represent the tax due on the basis of a correct and proper return and the assessee would have to deposit at the time of filing the return, an amount equivalent to the amount of the tax as assessed. If the assessee fails to do so, then apart from the liability to pay interest under Section 11-B, clause (a), the assessee would expose himself to penalty under Section 16, sub-section (1), clause

(n).... The Legislature could never have intended that the assessee should be liable, on pain of imposition of penalty, to deposit an amount which is yet to be ascertained through assessment."

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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 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 v. IRC6, CIT v. Mahaliram Ramjidas7, India United Mills Ltd. v. Commissioner of Excess Profits Tax, Bombay and Gursahai Saigal v. CIT, Punjab9). 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

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usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount. Our attention was, however, drawn by Mr Sen to two cases. Even in those cases, CIT v. M. Chandra Sekharl2 and Central Provinces Manganese Ore Co. Ltd. V. CIT13, 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 Co. case3, 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,

17. Let us look at the question from a slightly different angle. Section 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 15 days. The requirement of Section 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 Section 7(2). Section 7(2-A), no doubt, permits payment of tax at shorter intervals but the ultimate

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requirement is deposit of the full amount of 'tax due' shown in the return. When Section 11-B(a) uses the expression "tax payable under sub-sections (2) and (2-A) of Section 7", that must be understood in the context of the aforesaid expressions employed in the two sub-sections. Therefore, the expression 'tax payable' under the said two sub-sections is 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 Sections 7(1), (2) and (2-A) and 11-B of the Act leaves no room for doubt that the expression 'tax payable' in 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 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."

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6.12 Therefore, what was required to be seen was the

actual tax due as per the return actually filed by the

dealer and not the return which ought to have been filed.

Reading the Section as a whole indicates that the concept

of interest on such payments is on the payment of tax due

as per returns. In the case of the petitioners, the scrutiny

of the actual returns filed indicate that the petitioners

had claimed erroneous input tax credit of the purchase

tax amount shown in the return, and therefore, such