Government Medical Store Depot Vs. Sales Tax Tribunal and ors. - Court Judgment

Excerpt:
- m.m. kumar, j.1. on the directions issued by this court in stc no. 1 of 1990, vide order dated may 22, 1997, following two questions have been referred by the sales tax tribunal ii, haryana, chandigarh (for brevity, 'the tribunal') for determination by this court:(a) whether, in the facts and circumstances of the case, interest under section 59 of the haryana general sales tax act, 1973, is chargeable even on the demands which are quashed in appeal?(b) whether, in the facts and circumstances of the case, the interest under section 59 chargeable even without service of demand notice?2. brief facts of the case as per the statement of case are that the petitioner is a department of government of india under the ministry of health and family welfare. the assessee-petitioner had not applied for registration and had continued its business of sale of medicines as an unregistered dealer. the sales tax authorities created an additional demand of rs. 1,48,62,465 in respect of the assessment years 1973-74 to 1977-78. additionally, interest of rs. 1,24,73,995 and penalty of rs. 59,91,000 on the tax for which no demand notices were issued, were also raised. the tax was finally paid towards the end of 1987. the basic reason for non-issuance of demand notices given was the stay order passed firstly by this court and then by the honourable supreme court.3. originally the assessment orders dated february 13, 1975, october 10, 1977, december 30, 1977, march 27, 1978 and february 15, 1979 (assessment years 1973-74 to 1977-78), were passed by the assessing authority. thereafter on appeal the appellate authority issued remand order and then the assessing authority passed fresh orders. thereafter, the joint excise and taxation commissioner (appeals) ambala, passed two orders dated may 23, 1988 and may 24, 1988. it is pertinent to notice that order dated may 23, 1988 was passed by the jetc (a) in four appeals arising out of reassessment orders under the provisions of the haryana general sales tax act, 1973 (for brevity, 'the hgst act') and the central sales tax act, 1956 (for brevity, 'the cst act'), in respect of the assessment years 1974-75 and 1975-76, whereas the other order dated may 24,1988 was passed in 8 appeals against the assessment orders pertaining to assessment years 1976-77, 1977-78, 1978-79 and 1981-82. in all 12 appeals were filed against the aforementioned two orders passed by the jetc (a). the tribunal clubbed all the appeals as common questions of facts and law were involved.4. the first issue under consideration before the revenue authorities was regarding transfer of goods of the union government to other departments and to the depots of the petitioner in other states. it was contended by the petitioner that the same cannot be considered as sale, rather it was inter-departmental transfers/supplies on demand. thus, cannot be subjected to tax.5. the second issue was with regard to the direction given by the first appellate authority to the assessing authority to charge interest under section 59 of the hgst act read with section 9(2) of the cst act on the amount of tax which was finally assessed. in that regard the stand taken by the petitioner is that charging of interest is automatic and the interest chargeable must be looked into. the interest cannot be levied as originally stay was granted by this court and subsequently by the supreme court. the revenue has defaulted by not issuing demand notices in time. in the absence of issuance of such demand notices, no opportunity was available to the petitioner to file reply by denying the assessment. therefore, the petitioner cannot be burdened with interest because the demand notices have been issued after a lapse of a number of years. before the tribunal, it was also asserted that levy of interest by the assessing authority is not maintainable. however, the tribunal, instead of deciding the controversy, remanded the matter to the assessing authority. ultimately, the matter was decided against the petitioner-dealer on september 13, 1988 (a3). the operative part of the order passed by the tribunal reads thus:after hearing both the counsel, i do not think there is anything wrong or illegal in the direction given by the first appellate authority. interest under section 59 may be chargeable in this case and it has to be seen as to from which date such interest, if at all, has to be charged. this has to be decided taking into account the fact that the recovery of tax was stayed by the high court and the supreme court for quite some time and the department was not in a position to issue any demand notices. such interest would also be chargeable only on the amount of tax finally assessed. it is a fact that although the assessment years relate to the periods 1973-74 onwards, tax was finally paid towards the end of 1987. thus, the question of charging interest would arise in this case although the first appellate authority has said that the question of charging interest has to be looked into because the levy of interest is automatic and assessed by operation of the law. i, therefore, find no merit in the contention of the counsel for the appellant that this direction is illegal and should be quashed...(emphasis added)6. after dismissal of the appeals by the tribunal, an application under section 42(1) of the hgst act was filed by the petitioner-dealer for referring various questions of law to this court for determination, by asserting that those questions arose from the order of the tribunal dated september 13, 1988 (a3). the said application was dismissed and the tribunal refused to refer questions of law to this court, vide order dated january 10, 1990 (a4) by holding as under:i have given thought to the pleadings of the parties and seen the facts on record. i have also perused the orders of the tribunal. firstly, case has been remanded by the first appellate authority to the assessing authority for de novo assessment. the appellate authority is fully competent to remand the case with such directions as may be deemed necessary in the case. position with regard to levy of interest under section 59 is self-evident and the first appellate authority has remanded the case to the assessing authority for de novo assessment. therefore, the case is not mature for making a reference to the high court on the proposed question of law. furthermore, the legal position on the posed questions is self-evident and no case is made out for making a reference to the high court on these issues. the reference is, therefore, declined.7. thereafter, a further application was made under section 42(2) (b) of the hgst act to this court with a prayer for referring various questions of law and for setting aside order dated january 10, 1990 passed by the tribunal, refusing to refer the questions of law. it was in the backdrop of aforementioned facts that this court vide order dated may 22, 1997 passed in stc no. 1 of 1990, has ordered that two questions of law be referred to this court.8. mr. kamal sehgal, learned counsel for the petitioner-dealer, has argued that on the plain language of section 59 of the hgst act, no interest and/ or penalty could be levied in the absence of any demand in respect thereof by the assessing authority. according to the learned counsel the provision postulates the payment of interest in a case where amount specified in any notice of demand whether tax or penalty is not paid within a specified period or within 30 days from the date of service of such notice. in that eventuality the dealer was liable to pay simple interest. however, in the present case for the reason of stay order no demand notice was issued for payment of interest or penalty.9. no one has put in appearance on behalf of the state of haryana to support the order of the tribunal.the background facts, judgment of the supreme court and intendment of section 2(c) of the hgst act.10. it is highly significant to notice that hgst act was enacted on may 5, 1973 and the earlier statute, namely, punjab general sales tax act, 1948, as applicable to haryana (for brevity, 'the pgst act') was repealed by section 65 of the hgst act. the assessee-petitioner had partially succeeded in legal battle when it contested the claim of the revenue to pay tax in respect of the assessment years, which were covered by the pgst act. the controversy eventually rolled on to the supreme court in the case titled as government medical store depot v. state of haryana : [1986] 63 stc 198 : [1986] 3 scc 669. the whole argument revolved around the definition of expression 'dealer' under the pgst act and under the hgst act. the honourable supreme court has found that the expression 'dealer' used in and defined under both the acts is entirely different from each other. it would, thus, be profitable to read both the definitions which are set out hereinbelow:pgst act:2(d) 'dealer' means any person including a department of government who in the normal course of trade sells or purchases any goods in the state of punjab, irrespective of the fact that the main place of business of such person is outside the said state and where the main place of business of any such person is not in the said state, 'dealer' includes the local manager or agent of such person in punjab in respect of such business...hgst act:2(c) 'dealer' means any person including a department of government who carries on, whether regularly or otherwise, trade, whether with or without a profit motive, directly or otherwise for cash, deferred payment, commission, remuneration or other valuable consideration, of purchasing, selling, supplying or distributing any goods in the state, or import into, or exporting out of the state, any goods irrespective of the fact that the main place of business of such person is outside the state, and where the main place of business of such person is not in the state, includes the local manager or agent of such person in the state in respect of such business.11. after citing the aforesaid definitions from both the acts the honourable supreme court opined that 'the existence or absence of profit is irrelevant when identifying a dealer under the hgst act whereas no such element is present in the definition of the word 'dealer' under the pgst act as was applicable to the haryana before may 5, 1973'. the supreme court then goes on to observe in paras 10 and 11 of the judgment as under:10. what is important to note is that definition of the word 'dealer' in the haryana act has been framed only for the purpose of the provisions of that act. the opening words of the definition section, section 2, make it clear that the expressions defined by that section are the expressions as used in the haryana act. wherever, the word 'dealer' is used in the haryana act, one must turn to the definition contained in section 2(c) of that act. now, except for a few specified provisions, the haryana general sales tax act came into force on may 5, 1973. section 6, its charging provision, commenced to operate from that date. section 6(1) of the haryana act declares that the first year of which the turnover is liable to tax under that act is the year 'immediately preceding the commencement of this act'. it is obvious that section 6 does not govern the assessment years which are the subject of these appeals. therefore, it is immaterial for our purposes that the definition of the word' 'dealer' under the haryana act has to be read retrospectively with effect from september 7, 1955. because, as we have pointed out, section 2(c) relates to the word 'dealer7 contained in the provisions of the haryana act, and the charging provision of the haryana act did not operate during the assessment years in question with which these appeals are concerned. these appeals will be governed by the punjab general sales tax act, and it is section 2(d) of that act which must be looked to for ascertaining the definition of the word 'dealer' in that act.11. it may be mentioned that section 65 of the haryana general sales tax act repealed the punjab general sales tax act. section 65 contains a proviso that such repeal will not affect the previous operation of the repealed act or any right, title, obligation or liability already acquired, accrued or incurred thereunder. the liability incurred by a dealer in respect of the years under consideration in these appeals is a liability incurred under the charging provision, section 4, of the punjab general sales tax act. to ascertain who such dealer is one must read the definition of the word 'dealer' in the punjab general sales tax act. no reference is permissible for that purpose to the definition in the haryana general sales tax act. no doubt the further language in the proviso to section 65 of the haryana general sales tax act provides that anything done or any action taken in respect of the liability incurred under the punjab general sales tax act will be deemed to have been done or taken in the exercise of the powers conferred by or under the provisions of the haryana act as if that act was in force on the date on which such thing was done or action taken. this merely refers to the provisions enacted for the purpose of enforcing the liability and realising the tax, and does not affect the position that the charge is under section 4 of the punjab general sales tax act, and to appreciate who the 'dealer' mentioned therein is, one must turn to section 2(d) of the punjab act.12. it is, thus, evident that the definition of word 'dealer' in section 2(c) of the hgst act would apply to the assessment year commencing from 1972-73. it also includes a department of government. the definition also rules out profit-motive from the expression 'dealer'. the assessee-petitioner would, thus, be liable to pay tax which it has concededly paid. in that regard we may place reliance on judgments of the honourable supreme court rendered in the cases of joint director of food v. state of andhra pradesh : [1976] 38 stc 329 : [1976] 3 scc 598 and board of revenue v. a.m. ansari : [1976] 38 stc 577 : [1976] 3 scc 512. in the later judgment the honourable supreme court has held that under the statute applicable to an assessee profit-motive was not essential constituent. therefore, it would all depend on the statutory definition given by the concerned statute.13. it was in the aforesaid circumstances that the parties were locked in legal battle which went on till 1986. in this court the matter was concluded on october 18, 1976 when the writ petitions filed by the assessee-petitioner were dismissed.. then the matter travelled to the honourable supreme court and was eventually decided in 1986. it is undisputed that all along there has been an interim order staying recovery firstly by this court and then by the supreme court. the assessee-petitioner had succeeded partially in respect of those assessment years which are covered by the hgst act and the assessee-petitioner concededly deposited tax liability without any interest towards the end of year 1987 in respect of assessment years commencing from 1973-74 onwards. it is evident that no notice of demand could be issued for payment of interest during all those years on account of stay orders by the courts. the assessee-petitioner is now disputing its liability to pay interest on the delayed payments of tax which was not paid on account of interim order passed by either this court or by the honourable supreme court.the controversy in the present case and determination of legal issues:14. in the present case, section 2(c) defines the word 'dealer'. it includes government departments. it also expressly provides that whether a dealer trades with or without profit-motive it would not be material. therefore, the assessee-petitioner would be covered by the definition of word 'dealer' as given in section 2(c) of the hgst act because the argument that it works on 'no-profit no-loss' basis could not be sustained. the assessee-petitioner is, thus, liable to pay tax. the question then is whether the assessee-petitioner is liable to pay interest.15. it is true that the assessing authority did not assess or charge any interest on the tax assessed nor it was paid by the assessee-petitioner. such interest is payable under section 59 of the hgst act. the charging of interest would in fact be automatic and arises by operation of law. the assessing authority is not under any legal obligation to issue show-cause notice before charging interest on the tax assessed. therefore, they cannot be absolved from their liability to pay interest under section 25(5) of the hgst act and section 9(2) of the cst act read with section 25(5) of the hgst act on the tax which was payable by them during the period of assessment. it is well-settled that if an unregistered dealer fails to pay the tax due then it cannot be considered to have committed a lesser offence or default than a dealer who has, in fulfilment of his legal obligation, got himself registered under the hgst act and the cst act.16. in order to answer the questions posed in this reference, it would first be necessary to peruse section 59 of the hgst act, which is as under:section 59. interest on failure to pay tax or penalty.--(1) if the amount specified in any notice of demand, whether as tax or penalty, is not paid within the period specified in such notice, or in the absence of such specification, within thirty days from the date of service of such notice, the dealer shall be liable to pay simple interest on such amount at one per cent per month from the date commencing after the end of the said period of one month and if the default continues thereafter at one-and-a-half per cent per month for the whole of the period he continues to make default in the payment or a sum of ten rupees, whichever is greater:provided that where the recovery of any tax or penalty is stayed by the appellate authority under sub-section (6) of section 39 or by the high court or the supreme court, the amount of such tax or penalty shall be recoverable with interest at the rate mentioned above on the amount ultimately found due; and such interest shall be payable on such amount from the date the tax or penalty first became due:provided further that where the amount of tax or penalty, not paid or paid less, does not exceed five hundred rupees, the interest payable thereon shall not exceed the amount of tax or penalty not so paid or paid less subject to the minimum of ten rupees:provided further that for the purposes of calculation of interest, a period of fifteen days or more shall be deemed to be one month and an amount of fifty rupees or more shall be deemed to be one hundred rupees and a period of less than fifteen days and an amount of less than fifty rupees shall be ignored.(2) the interest payable under this section shall be deemed to be tax under this act for purposes of collection and recovery.(emphasis added)17. a perusal of the aforesaid provision presupposes the issuance of a demand notice for payment of tax or penalty. the question concerning payment of interest arises if the demand is not met within the specified period or 30 days from the date of service of such notice. accordingly, simple interest on such amount is payable at the rate of one percentum per month from the date commencing after the end of period of one month. the first proviso appended to sub-section (1) of section 59 further shows that if the recovery of any tax or penalty has been stayed by the appellate authority under sub-section (6) of section 39 of the hgst act or by the high court or the supreme court then the amount of tax or penalty was to be recovered with interest at the rate of one percentum per month if it was ultimately found due. sub-section (6) of section 39 of the act clothes the appellate authority with the power to pass any interim order. the amount of interest is payable from the date when tax or penalty first becomes due. it has further been provided by sub-section (2) of section 59 that interest payable under this section has to be deemed as tax under the hgst act for the purposes of collection and recovery. the first proviso to section 59(1) makes it abundantly clear that the stay order concerning recovery of tax or penalty either by the appellate authority under sub-section (6) of section 39 or by the high court or the supreme court is not to affect the recovery of penalty or interest.18. the question of charging of interest is no longer res integra. the question has been considered by the honourable supreme court in the case of haji lai mohd. biri works v. state of u.p. : [1973] 32 stc 496 : [1974] 3 scc 137. the supreme court while referring to the provisions of the u.p. sales tax act, 1948 has observed that there was no provision in that act which made it obligatory on the part of the assessing officer to make an assessment in respect of interest which the amount of sales tax would carry under section 8(1 a) of the act. there is also no provision in the u.p. act which requires the issuance of notice of demand in respect of the interest by the assessing authority to the assessee. accordingly it was held that the interest is to be added to the amount of tax and shall be deemed for all purposes to be part of the tax. the aforesaid deeming provision has been added only for the purpose of recovery. the object apparently appears to be that the amount of interest should be recovered in the same manner as the amount of sales tax. it was with a view to put the matter beyond any pale of controversy and to obviate any objection that the interest on sales tax cannot be recovered as land revenue that sub-section (1-a) of the u.p. act provided that the interest was to be added to the amount of tax and be deemed for all purposes to be part of the tax. the supreme court further held that the amount of interest cannot be predicated till such time as the arrears of sales tax are paid and it is consequently not possible to specify a definite figure in respect of the interest in the recovery certificate at the time the arrears of sales tax are paid. there can be no difficulty in finding the amount of interest which has become due.19. in para 10 the argument that interest on arrears of sales tax could not be realised for the period when the recovery was stayed, the supreme court has held as under:10. argument has also been advanced by mr. sen that the interest on arrears of sales tax could not be realised for the period during which the recovery of sales tax was stayed. we find it difficult to accede to this contention because there is nothing in the language of section 8(1a) of the act which prevents the running of interest because of the operation of any stay order. indeed, the liability to pay interest is created by the statute and the sales tax officer has no discretion to grant any exemption from the payment of interest.(emphasis added)20. the aforesaid view has also been followed by the supreme court in the case of calcutta jute . v. state of bihar [2004] 13 scc 380. therefore, the matter is covered against the assessee-petitioner and in favour of the revenue.21. when the principles enunciated in the aforesaid judgments are applied to the facts of the present case it becomes evident that the provisions of the hgst act are pari materia to section 8(1a) of the u.p. act which was subject-matter of consideration of their lordships of the supreme court in haji lal mohd. biri works case : [1973] 32 stc 496 : [1974] 3 scc 137. section 25(5) of the hgst act makes it absolutely clear that if a dealer fails to pay tax as per the provisions of section 25(2a) and (3) then he would be liable to pay in addition to the tax payable, simple interest on the amount of tax remaining unpaid at one per cent per month from the date commencing with the date following the last for the payment of tax. section 25(5) along with the proviso is reproduced hereunder:section 25. submission of returns and payment of tax.--(1) to (4)(5). if any dealer fails to pay tax, as required by sub-section (2a) or by sub-section (3), he shall be liable to pay in addition to the tax payable, simple interest on the amount of tax remaining unpaid at one per cent per month from the date commencing with the date following the last date for the payment of tax, for a period of one month and at one-and-a-half per cent per month thereafter during the period he continues to make default in the payment:provided that where the amount of tax not paid as required under sub-section (2a) or sub-section (3) does not exceed five hundred rupees, the interest payable thereon shall not exceed the amount of tax not so paid:provided further that for the purposes of calculation of interest, a period of fifteen days or more shall be deemed to be one month and the amount of fifty rupees or more but less than one hundred rupees shall be deemed to be one hundred rupees and a period of less than fifteen days and an amount of less than fifty rupees shall be ignored.22. a perusal of the aforesaid provision makes it evident that the assessee has to pay simple interest in case he fails to make payment of tax as per the provisions of and within the period specified in section 25 of the hgst act. as in the u.p. act, likewise in the hgst act, there is no provision which makes it obligatory on the part of the assessing authority to make an assessment in respect of interest which the amount of sales tax under section 8 would carry. there is also no provision in the hgst act which requires issuance of notice of demand in respect of interest by the assessing authority to the assessee before the assessing authority forwards recovery certificate to the collector. furthermore, like the u.p. act, section 59(2) of the hgst act also provides in unequivocal terms that interest shall be considered as tax for the purpose of collection and recovery.23. we are further of the view that under section 59 a specific provision has 23 been made by the first proviso to sub-section (1) of section 59 that where the recovery of tax or penalty has been stayed by the appellate authority under sub-section (6) of section 39 or by the high court or the supreme court then the amount of such tax or penalty becomes recoverable with interest at the rate mentioned above on the amount ultimately found due and such interest is payable on such amount from the date the tax or penalty first became due. therefore, the legislature has made its intention absolutely clear that the stay order issued by either the appellate authority, or the high court or by the supreme court would not adversely affect the right of the revenue to charge interest if eventually tax is found to be due and payable by the assessee. in the present case the assessee-petitioner has succeeded partially before the supreme court in the year 1986 (supra) wherein it has been held that the assessee-petitioner would not be liable to pay tax in respect of the assessment years covered by the pgst act (as applicable to haryana) as it has not been held to be 'dealer'. however, the legal position became different when the pgst act was repealed and the hgst act came into force with effect from may 5, 1973. the definition of expression 'dealer' is entirely different in its contents and intendment as enacted by section 2(c) of the hgst act. therefore, the tax liability under the hgst act has been conceded. it follows that once the tax liability has arisen then the liability to pay interest would also arise. however, it is necessary to point out that question no. 1 is based on the fact that some demand of tax has been quashed and interest has been claimed on that demand of tax. merely because at one forum demand was quashed, that would not absolve the assessee-petitioner from payment of tax if finally it has been found due. if tax is payable then interest would also be payable as per statutory provision. therefore, we find that both the questions of law have to be answered against the assessee-petitioner and in favour of the revenue.24. the argument of learned counsel for the petitioner-dealer that the judgments of the honourable supreme court in the cases of state of kerala v. joy varghese [1999] 112 stc 651 and vikrant tyres ltd. v. first income-tax officer, mysore [2002] 127 stc 5 do not advance the submissions made by the learned counsel. at first blush the aforesaid judgments would seem to apply to the facts of the present case but on a deeper examination it is revealed that the provisions governing the payment of interest are entirely different from section 59 of the hgst act, which is reproduced in the preceding para. for example, in none of these cases a provision has been made which may be equivalent to first proviso to section 59 of the hgst act, which in unmistakable terms provides that recovery of any tax or penalty shall be made with interest even when there is a stay order by the appellate authority or by the high court or by the supreme court, provided the amount is ultimately found due. the interest payable on such amount has to be assessed from the date when tax or penalty first becomes due.25. in view of the above, we answer the questions nos. 1 and 2 in favour of the revenue and against the assessee-petitioner. the reference is accordingly disposed of.