TMI Blog1994 (9) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... recovery proceedings under the Act. The said interim order reads as under: "Pending notices, it shall be open to the respondent to take assessment proceedings for determination of the tax and to issue the notice of demand but recovery pursuant to the demand shall not be effected." Pursuant to that order, the respondent-authorities completed the assessment for the relevant assessment year 1985-86, in the case of the appellant on June 21, 1990. Thereafter, they raised a demand as permitted by the Supreme Court on June 29, 1990. That demand was raised pursuant to the assessment order passed under section 6B in form No. 6 of the Act read with section 13(1) of the Act. As we are to interpret section 13 for resolving the controversy raised before us, it will be useful to extract section 13 in extenso, as under: "13. Payment and recovery of tax.-(1) The tax or any other amount due under this Act shall be paid in such manner in such instalments, subject to such conditions, on payment of such interest and within such time, as may be prescribed. (2) If default is made in making payment in accordance with sub-section (1), (i) the whole of the amount outstanding on the date of defau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed with the interim stay order of the Supreme Court against recovery of such tax, the appellant did not respond to the notice. It is the case of the Revenue that once 21 days expired from the service of the demand notice, that is on July 27, 1990, the appellant became a defaulter within the contemplation of section 13(1) read with section 13(2) of the Act. However, recovery could not be effected of the tax or penalty or any amount thereof, concerning the same, till the stay against the recovery as granted by the Supreme Court was operating. The writ petition came to be dismissed by the Supreme Court on March 4, 1991. Thereafter, the appellant paid some of the tax dues and for remaining tax dues further notice was issued to him. The appellant has no grievance regarding the payment of the balance of tax dues. However, his contention is that from July 27, 1990 to March 4, 1991, as he was armed with the stay order against recovery as granted by the Supreme Court, he cannot by any stretch of imagination be called to be a defaulter in payment of tax as contemplated under section 13(2) of the Act. Of course, he has no objection to payment of appropriate penalty amount under section 13, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reference hereinafter. In the light of these rival contentions the following points arise for determination: 1.. Whether the appellant can be called a defaulter in payment of tax dues within the meaning of section 13(2) of the Act for the period from July 27, 1990 to March 4, 1991, when there was already a stay order of the Supreme Court current and operative against the Revenue restraining it from recovering the said amount from the appellant? 2.. Whether the demand notice issued under section 13(2) could have been treated to have resulted in the appellant being dubbed as a defaulter only because he did not pay within 21 days from raising of such demand when he was not bound to pay the amount demanded because of the Supreme Court stay order? 3.. Whether the decision of the Division Bench of this Court in [1986] 62 STC 418 [App.] (Sha Ghelabhai Devji Co. v. Assistant Commissioner of Commercial Taxes), is distinguishable on facts or whether it was required to be reconsidered? 4.. Whether in the light of the decision of the Supreme Court in [1965] 16 STC 318 (State of Rajasthan v. Ghasilal) the respondents cannot recover the penalty amount under section 13(2) for the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government treasury or to the Commercial Tax Inspector/Bill Collector of the office, failing which the amount will be recovered as if it were an arrear of land revenue and that he will be liable to penalty as provided in section 13 of the Act. 7.. In view of the aforesaid Supreme Court interim order, the Revenue was permitted to complete the assessment and even to raise the demand. Now once the demand was permitted to be raised as per section 13(1) read with the aforesaid rules, and by way of notice in form No. 6, it became obvious that there was a demand against the appellant to pay the assessed tax within 21 days of the service of notice of demand. Once, that happened sub-section (2) of section 13 automatically got attracted and its consequence is automatic, namely, he also becomes a defaulter in the payment of tax in accordance with the said section on account of not making the payment within the specified time and therefore became liable to pay penalty amount under sub-section (2) of section 13 which is operating. 8.. Mr. Dattu, learned counsel for the appellant, submitted that the appellant cannot be called a defaulter within the meaning of section 13(2) of the Act, fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ete not only the assessment but also to raise the demand in the light of the assessment. Once the demand is raised, because of the automatic operation of section 13(1) read with section 13(2) of the Act, the appellant could be said to have become a defaulter on the expiry of 21 days of notice. It is true that there was a stay against coercive recovery of that amount. Still there was no prohibition for the appellant without prejudice to his rights and contentions to pay the amount of tax demanded guarding against the possibility of liability to pay penalty if ultimately the stay order got vacated and he lost before the Supreme Court which eventuality actually happened in the facts of the present case. By way of abundant caution, in order to avoid liability to pay the penalty, demanded tax could have been paid. That would not be in violation of the stay order. It has to be appreciated that there was no provision in the Act for imposing any liability of interest on the assessee for late payment of tax except in cases where the assessing authority while granting instalments to the assessee to pay the tax can impose interest but otherwise there is no provision for levying of interest on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt. We cannot treat the permission given by the Supreme Court to raise the demand for tax pending proceedings before it as a mere surplusage or a superfluity. We cannot presume that the Supreme Court was oblivious of the automatic effect of section 13(2) once demanded tax was not paid within the requisite time mentioned in the notice of demand. Consequently if the assessee took the voluntary risk of not making the payment awaiting decision of the Supreme Court and if ultimately lost the case, obviously he cannot avoid the automatic operation of section 13(2). The second point therefore also has to be rejected. 11.. Point No. 3: So far as third point is concerned it is necessary to have a close look at the decision of the Division Bench in [1986] 62 STC 418 (Kar) [App] (Sha Ghelabhai Devji Co. v. Assistant Commissioner of Commercial Taxes). In that case, the tax dues were sought to be recovered by issuance of notice. The defaulter/assessee had not complied with that notice. On the contrary a writ petition was filed wherein a stay was obtained against the recovery. Ultimately when the stay was vacated and when the Revenue sought to recover the amount of penalty under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and raises by operation of law. It is not necessary to even specify it in the recovery certificate. Mr. Dattu submitted placing reliance on a later Constitutional Bench judgment of the Supreme Court that liability for penalty is different from that for interest. We will refer to that judgment a little later. Suffice it to stay that in [1973] 32 STC 496 (Haji Lal Mohd. Biri Works v. State of U.P.) the Supreme Court at page 500 of the Report has considered a similar argument which was advanced by Mr. Sen for the assessee that interest on arrears of sales tax could not be realised for the period the order was stayed. The Supreme Court disallowed this contention as there was nothing in the language of section 8(1A) of that Act which prevented the running of interest because of the operation of any stay order. Indeed the liability to pay interest was created by the statute and the Sales Tax Officer had no discretion to grant any exemption from payment of interest. Mr. Dattu tried to distinguish this judgment by submitting that Supreme Court was concerned with the interest and we are concerned with penalty. So far as penalty is concerned, the Constitutional Bench of the Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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