1994 (5) TMI 257 - HC - VAT and Sales Tax

Summary

Issues:
1. Assessment of tax liability on imported goods supply.
2. Liability for penal interest under section 23(3) of the Act.
3. Interpretation of the liability for penal interest in case of default in tax payment.

Detailed Analysis:

1. The petitioner, stationed in Patna, entered into an agreement to supply imported inedible tallow to a company in Ernakulam. The agreement stated that the tax payable would be on the purchaser's account. The assessing authority held the petitioner liable for tax and surcharge, which was challenged by the petitioner. The petitioner argued that tax payment was only due after the assessment order and notices of demand were served, and part of the amount was paid within the specified period. The government pleader, however, contended that penal interest was due from the date the petitioner defaulted in filing the return and paying the tax, relying on a Full Bench decision. The court noted that the liability for penal interest arises from default in tax payment within the prescribed time.

2. The petitioner was served with notices demanding payment of penal interest under section 23(3) of the Act. The petitioner disputed the demand, arguing that penal interest should only apply to the outstanding balance on a specific date. The government pleader supported the demand, citing the obligation to file a return and pay tax by a certain date. The court analyzed the interpretation of section 23(3) and the requirement for an assessment to trigger the liability for penal interest. The court found that in this case, no assessment was made until March 4, 1985, and hence, the demand for penal interest was not justified.

3. The court considered the argument that an assessee who files a return but does not pay tax may be liable for penal interest, while one who does not file a return escapes penal interest but faces severe penalties. The court distinguished a Supreme Court decision related to the Income-tax Act, emphasizing that the situation in the present case did not warrant penal interest from the date of default. The court allowed the petition, quashed the demands for penal interest, and directed the recovery of interest only on the outstanding tax amount as of a specific date. The judgment clarified the liability for penal interest under section 23(3) and highlighted the necessity of an assessment to trigger such liability.