TMI Blog1995 (1) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... th instalment was to comprise the balance payable. The petitioner had been making payments in accordance with the instalment facility granted by the second respondent. However, by proceedings dated 4-6-1985 the second respondent directed that on the balance of Rs. 13.70 lakhs the petitioner has to pay interest at the rate of Rs. 17.5 % per annum. It is also stated that in exercise of the powers conferred on him under Rule 230 of the Central Excise Rules, 1944, all the goods excisable goods at the premises of the petitioner and also all the goods to be manufactured thereafter were detained until the payment of duty of Rs. 13.70 lakhs, plus interest at the rate of 17.5 % per annum. On 10-2-1987 the petitioner received a communication from the second respondent stating that, the interest had been calculated at Rs. 1.56 lakhs and the petitioner had been required to pay the said amount at an early date. On receipt of the above communication, the petitioner addressed a letter to the second respondent on 19-2-1987 requesting for waiver of the interest. The petitioner also requested for a speaking order on its representation. The second respondent issued a speaking order on 26-2-1987 stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arrears with interest at the rate of 17.5% in terms of Finance Ministry's letter No. 15/209/84/IX-1, dated 20-4-1985 and that the Accountant General audit party had also pointed out that the arrears should be realised with interest at the rate of 17.5%. On receipt of the said letter, the Superintendent of Central Excise was requested by a letter dated 2-11-1990 to send a copy of the Finance Ministry's letter referred to together with a copy of the Trade Notice or any Notification issued for information of the trade in this regard. On 13-2-1992 the first respondent issued another letter directing the petitioner to pay interest quantifying the same at Rs. 2,74,012.63, against which the present Writ Petition is filed. 4.In W.P. No. 7203 of 1992 the petitioner is a manufacturer of electrical lighting bulbs. It had entered into an agreement on 16-5-1977 with M/s. Hindustan Machine Tools Ltd. (in short `H.M.T.') appointing it as the sole selling agent for the sale of bulbs. The agreement had come into force with effect from 1-4-1978. Under the agreement the trade marketing commission was payable to the H.M.T. The Asstt. Collector by his order dated 9-12-1979 held that H.M.T. is a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be levied or collected except by authority of law. That there are three stages in the imposition of tax viz., there is declaration of the liability, that is the part of the statute which determines what persons in respect of what properties are liable and that next there is assessment; that the liability does not depend on assessment; that exhypothesi, has already been fixed; but assessment particularises exact sum which a person liable has to pay and lastly, come the methods of recovery, if the person taxed does not voluntarily pay. Counsel submit that the taxing power will comprehend within it the power to provide for collection of tax including prescribing methods of recovery of amounts of tax if the person liable to pay the tax does not voluntarily pay; that the power to make a law with respect to a tax includes the power to make provisions in the relevant statute with respect to all matters ancillary and incidental and also for collection of tax; that providing for payment of interest on delayed payment of tax is a method usually adopted in fiscal laws to ensure that the amount of tax which is due is paid by the prescribed time and provisions in that behalf form part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest at 17.5 % per annum will be chargeable on monthly basis instead of 12%. Thus at the end of each month, the interest at 17.5 % on the outstanding dues should be calculated and added to the outstanding dues." Counsel submits that in view of Rule 233 of the Central Excise Rules, the Union of India was issuing instructions from time to time imposing interest in case facility of payment of arrears in instalments was granted. The Central Board of Customs and Excise and the Principal Collectors are competent to issue supplementary instructions, the levy of interest is in accordance with law and Rules. Counsel also submits that the petitioners having availed of the facility of payment of arrears of tax in instalments cannot now turn round and say that they are not liable to pay the interest on the ground that the Act does not empower the levy of interest. 7.The question, therefore, is whether the Central Excises and Salt Act empowers the levy of interest on delayed payment of Central Excise duty. 8.In this context we may refer to the provisions of the Act and the Rules made under the Act. None of the provisions of the Central Excises and Salt Act provides for levy of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as such or by way of penalty, in the absence of express provision of law imposing liability therefor. This rule is founded upon two fundamental reasons : (1) that taxes are not debts in the ordinary sense of contractual obligations and are therefore not within the meaning of the General interest laws, and (2) that as impositions by Governmental autho- rities, they do not bear interest except by the express provisions of statute." 10.We may now refer to Article 265 of the Constitution of India which empowers the Parliament to levy tax. The relevant provision reads as follows :- Art. 265. "No tax shall be levied or collected except by authority of law." 11.Article 265 deals with two stages of imposition of tax. The first stage is levy and the second stage is collection. As far as the levy is concerned, the Courts have interpreted that it includes the levy as well as assessment. Thus Article 265 postulates that before any tax can be levied and collected there must be a validly enacted law by an appropriate legislature imposing such tax and providing for its collection. Before referring to the interpretation placed by the Supreme Court on the construction of Article 265, we may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular case and determining its amount.......We think that, although the connotation of the term "levy" seems wider than that of "assessment", which it includes, yet, it does not seem to us to extend to "collection"." 14.In Khazan Chand v. State of Jammu and Kashmir the question that arose for consideration was whether the State of Jammu and Kashmir has legislative power to provide for payment of interest in case of late payment of tax. While considering the scope of the legislative power of the State of Jammu and Kashmir to provide for payment of interest on the amount of tax due, the learned Judges referred to the passage Witney v. Commissioner of Inland Revenue (supra) and further held :- "The taxing power of the State will also comprehend within it the power to provide for quantification of the liability of persons made liable to pay the tax. This is done by the provisions relating to assessment. The taxing power will also comprehend within it the power to provide for collection of tax including prescribing the methods of recovery of the amount of tax due if the person liable to pay the tax does not voluntarily pay it. The power to make a law with respect to a tax includes no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch ought to have been paid earlier, i.e., within the prescribed time or the specified period and which has not been paid; that interest is made payable because Government to that extent is deprived of the use of money which otherwise it could have got at an early point of time and that on the contrary, provision for payment of interest being a method for collecting or recovering its revenue, it is for the State to decide what is most efficacious for this purpose, and the defaulter has no moral right to make any grievance in this behalf. 19.In J.K. Synthetics Ltd. v. Commercial Taxes Officer it was held : "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 payment."...... "But it must also be realised that provision by which the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that arose for consideration was whether the interest is payable on security deposit on advanced consumption deposit. It was observed :- "Strictly speaking, the word "interest" would apply only to two cases where there is a relationship of debtor and creditor. A lender of money who allows the borrower to use certain funds deprives himself of the use of those funds. He does so because he charges interest which may be described as a kind of rent for the use of the funds". "Accordingly, it is held that the claim for interest cannot be legally founded either on common law or equity." "We are also unable to accept the argument advanced on behalf of consumers that because the Electricity Boards charge interest on belated payments, interest must be paid on security deposits. Interest on belated payments is by way of penalty. That has no bearing." 24.It emerges from the above that under Article 265 of the Constitution of India no tax shall be levied or collected without an authority of law and that Article 265 contemplates two stages - one is levy of tax and other is collection of tax and that levy of tax includes declaration of liability and assessment, namely, quantification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a power to make provisions in the relevant statute with respect to all matters ancillary and incidental to the levy, assessment, collection and recovery of tax. Providing for payment of interest in case of delayed payment of tax is a method usually adopted in fiscal legislation to ensure that the amount of tax which is due is paid by the prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing statute. Interest be ordinarily claimed from an assessee who has withheld payment of any tax payable by him and it is always calculated at the prescribed rate on the basis of actual amount of tax withheld and extent of delay in paying it and that such interest is compensatory in character and not penal. The payment of interest in case of default in payment of tax is a means of compelling an assessee to pay tax by a prescribed date. Interest is made payable on that amount of tax which ought to have been paid earlier, i.e., within the prescribed time or the specified period and which has not been paid; that interest is made payable because Government to that extent is deprived of the use of money which otherwise it could have got at an early point o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case the order under Section 70 of the Act was made after the assessed amount of duty was paid up and as such nothing was due on the date the order was made on which the interest could be levied and as such Section 70 of the Estate Duty Act, 1953, in terms did not apply. The impugned order asking the petitioner to pay interest on the estate duty and the recovery proceedings were illegal." 29.In I.T.O. v. Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd., the question that arose for consideration was; exemption was granted from payment of Income-tax by the Income-Tax Commissioner in respect of weaving division of the assessee for ten years, but then deferred the decision regarding the staple fibre division until the factory started functioning in 1954. The assessee moved the High Court against the order refusing to grant exemption from payment of Income-tax in respect of staple fibre division. He succeeded in the Writ Petition, but on appeal it was set aside and upheld the order of the Commissioner refusing to grant exemption. As a result of which, a huge amount of Income-tax became due from the respondent and provisional assessments were made for the years 1959-60 to 1964-65 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the period January to March, 1965. But from April 1, 1965, it was bound to pay interest at the rate of 6% per annum as found by the Income-tax Officer." 30.In Gulbanu Razack v. Asstt. Commr. of I.T. (Investn.) this Court was considering a case where the amounts belonging to persons other than the assessee were seized. The question that arose for consideration was while refunding the amount so seized whether the Income-Tax authorities are bound to pay interest. It was held :- "No interest can be awarded under the Income-tax Act, 1961, unless provision is made in the Act to cover the contingency. When the Legislature has laid down the procedure in the 1961 Act for claims being preferred by third parties and their adjudication by the departmental authorities under Section 132(5) or Section 132(11) of the Income-tax Act, 1961, the Legislature cannot be said to be unaware of the possibility of consequential claims for interest by such third parties in cases of refund. When no provision is contained in the Act to cover the cases of non-assessees, the Court cannot make an award of interest." 31.It was also observed :- "The interest cannot be awarded in such cases under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t bring in within its scope penal interest levied for belated return or non-payment of advance tax. But levy of penal interest under Section 139 or Section 215 of the Act was merely in the regular assessment order." 38.From the above observation, it is clear that the learned Judges were dealing with a case where whether the order of penal interest can be made while passing the assessment order under Section 243 of the Income-tax Act. We may point out under the Income-tax Act the authorities are empowered to levy interest on delayed payment of tax. Interest cannot be awarded under Section 4 of the Interest Act, 1978 as it is not payable under the common law or in equity. 39.The learned Standing Counsel for the respondents also relied on the judgment of the Delhi High Court in C.I.T. v. Mahabir Parshad Sons, where it was held :- "The charging of interest (in connection with advance tax as well as delay in submission of the return) is an integral process of the assessment except where the ITO chooses to determine the liability for interest by an independent order." This judgment has no relevance as under the Income-tax Act power is conferred on the authorities to levy intere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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