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1985 (3) TMI 310

s posted before us for disposal. 2. M/s. Sha Ghelabhai Devji and Company of Dharwad is a dealer and an assessee under the Karnataka Sales Tax Act of 1957 (Karnataka Act 25 of 1957) ("the Act") on the file of the Assistant Commissioner of Commercial Taxes (Assessment), Dharwad ("ACCT"). For the period from 25th October, 1965, to 12th November, 1966, the ACCT by his rectification order made under section 25A of the Act on 1st March, 1969, held that the purchase turnover of ₹ 21,47,000 of the petitioner on cotton and groundnuts was exigible to a sum of ₹ 42,940 as purchase tax under the Act, the validity of which was challenged by him in Writ Petition No. 352 of 1975. On 30th July, 1975, Vrnkataramiah, J. (as His Lordship then was), rejected the same, which was challenged by it in Writ Appeal No. 555 of 1975. On 29th September, 1975, a Division Bench of this Court admitted the said writ appeal and thereafter on 10th November, 1975, stayed the recovery on terms. On 9th June, 1978, a Division Bench of this Court dismissed the said writ appeal during which period the petitioner had the benefit of the said stay order. 3. On the termination of the proceeding .....

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f the Act, on the grounds that it was not severable from the latter ? We will examine these points in their order. Re : Point No. I Sri Srinivasan has urged that the plain language of section 13(2) of the Act does not permit this Court to construe the same as providing for automatic levy of interest as held by a Division Bench of this Court in Patel Volkart (P.) Limited v. Commissioner of Commercial Taxes in Karnataka (S.T.R.P. No. 64 of 1981 decided on 29th January, 1982) hereafter referred to as Volkart's case) (printed at page 411 supra) and the same requires reconsideration by a larger Bench. 9. Sri Babu has urged that there were no grounds to doubt the correctness of the ruling rendered by this Court in Volkart's case (printed at page 411 supra) and refer it to a larger Bench. 10. In order to appreciate this and the other points also, we consider it useful to briefly notice the scheme of the Act and its material provisions at the threshold. 11. As on 1st November, 1956, on which day the new State of Mysore now called as Karnataka comprising of the areas specified in section 7 of the States Reorganisation Act of 1956 (SR Act) came into being, there were various sales ta .....

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due under this Act shall be paid in such manner and 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 default shall become immediately due and shall be charge on the properties of the person or persons liable to pay the tax under this Act; and (ii) the person or persons liable to pay the tax under this Act shall pay a penalty equal to - (a) one per cent of the amount of tax remaining unpaid for each month for the first three months, after the expiry of the time prescribed under sub-section (1), and (b) two and one-half per cent of such amount for each month subsequent to the first three months as aforesaid. Explanation. - For purposes of clause (ii), the penalty payable for a part of a month shall be proportionately determined. (2A) Notwithstanding anything contained in sub-section (2), the State Government, may, subject to such conditions as may be prescribed, remit the whole or any part of the penalty payable in respect of any period of any person or class of persons." The s .....

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scribed therein. In a case like the one before us, the question whether the assessee had defaulted wilfully or not does not arise for consideration. What is relevant is the factum of the default and not the reason for the same." In Mutha Manickchand v. Commercial Tax Officer, Gangavathi [Writ Petitions Nos. 504 and 505 of 1966 decided on 13th March, 1967 (Mys)] to which we will make a detailed reference at a later stage, a Division Bench of this Court consisting of Narayana Pai, J. (as His Lordship then was), and Venkataswamy, J., upholding the validity of section 13(2) of the Act as it stood then, without reference to the ruling in Sha Jayantilal Khetsi's case (1966) 2 Mys LJ 614 on the scope of that provision expressed thus : "It is clear from the section that the penalty is a consequence which flows directly from the statute itself without the necessity of any authority making a specific order imposing or directing payment of penalty. But, all the penalty that accrues is penalty for default in making payment in accordance with sub-section (1) of the section - the payment required under sub-section (1) is of 'the tax under this Act' - the mandate of the sect .....

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the State Government to waive or reduce the amount of penalty, but that power is not vested in any authority constituted under the Act. Our view is also supported by the decision of this Court in Sha Jayantilal v. Additional Commercial Tax Officer (1966) 2 Mys LJ 614. There the contention on behalf of the assessee was that the default, if any, was not a wilful default and, therefore, the assessee had not incurred any liability to pay penalty. Hegde, J., (as he then was), who delivered the judgment of this Court stated : 'What section 13(2) of the Act provides is that whenever an assessee makes default in making payment in accordance with sub-section (1), he is statutorily liable to pay the penalty prescribed therein. In a case like the one before us, the question whether the assessee had defaulted wilfully or not does not arise for consideration. What is relevant is the factum of the default and not the reason for the same.'" In Volkart's case (printed at page 411 supra), a Division Bench of this Court consisting of Venkatachaliah and Rama Jois, JJ., following the earlier cases of this Court in particular in Sterling's case [1973] 32 STC 235 and the ruling of .....

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payment of interest has also been explained by this Court referring to the principles expounded by Cooley in his classic treatise on "Taxation" in Sterling's case [1973] 32 STC 235. The income tax laws in India and United States of America also provide for the same [vide World Tax Series - Taxation in India by Harvard Law School, Chapter 13, para 13/7.1 and 7.2 at pages 391 and 392 and Taxation in the United States published by Harvard Law School, Chapter 13, para 13/7.1 at page 1262]. The object is to deter a dilatory assessee, as the very petitioner, to make prompt payment of taxes found due to the State to meet the ever growing and almost insatiable demands and in default to make compensation for delayed payments. When one examines the same in that context, as that should be, applying the progressive rule of construction of statutes that has now come to stay, which has been very felicitously expressed by Lord Denning in Seaford Court Estates Limited v. Asher [1949] 2 All ER 155 at page 164 approved by our Supreme Court in State of Karnataka v. Hansa Corporation [1981]1SCR823 and K. P. Varghese v. Income-tax Officer, Ernakulam [1981]131ITR597(SC) and a Full Bench o .....

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ivasan in our opinion rightly did not pursue this challenge of the petitioner, which is without even a discussion calls for rejection. 24. Article 19(1)(f) of the Constitution that guaranteed citizens the right to acquire, hold and dispose of property has been deleted by the 44th Constitution Amendment Act with effect from 1st August, 1979. With the deletion of that article the petitioner cannot sustain his challenge to section 13(2) with reference to this article. Even assuming that that article should be treated as part of our Constitution, for purposes of this case, then also that article did not guarantee immunity from taxes, levy of penalties or interests for non-payment of taxes. We are, therefore, of the view that the challenge of the petitioner based on article 19(1)(f) of the Constitution has no merit. We, therefore, reject this challenge of the petitioner. 25. In Mutha Manickchand's case [W.P. Nos. 504 and 505 of 1966 decided on 13th March, 1967 (Mys)] the Division Bench dealing with the very challenge noticing the ruling of the Supreme Court in Kunnathat Thathunni Moopil Nair v. State of Kerala [1961]3SCR77 on which Sri Srinivasan has again placed strong reliance, ha .....

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as could be and was actually postulated in the Travancore-Cochin Land Tax Act dealt with by the Supreme Court in Moopil Nair's case [1961]3SCR77 mentioned above." We are of the view that on these very principles the challenge to section 13(2) of the Act based on article 14 of the Constitution is liable to be rejected. 26. An assessee that does not make payment of taxes due by him under the Act on or before the date specified in the notice of demand indisputably becomes a defaulter of the moneys legitimately due to the State. In order to deter him not to commit such default and compensate the State for the deprivation of such moneys by such defaulter, the Act can undoubtedly make a suitable provision to meet both the situations. Section 13(2) uniformly provides for a lower rate of interest for the first period of three months and for a higher rate of interest thereafter till payment is made by the defaulting assessee. Section 13(2) that treats the defaulting assessee uniformly cannot, therefore, be condemned as violative of article 14 of the Constitution. 27. What should be the rates of interest to be paid during the first period of three months and thereafter is essential .....

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the period of default exceeded three months but did not exceed six months and for interest at the rate of three per cent per month if the default was for a period exceeding six months, dealers in the State of Jammu and Kashmir were hostilely discriminated against as compared with dealers in other States. This argument wholly overlooks the very basis of the scheme of distribution of legislative power contained in our Constitution. Our Constitution. Our Constitution is federal in its structure and a salient feature of a federal policy is distribution of legislative and administrative powers between the federated unit and the federating units, that is, between the Federal Government and the State Governments. Thus, matters in respect of which our Constitution-makers felt that there should be uniformity of law throughout the country have been placed by them in the Union List (List I in the Seventh Schedule to the Constitution) conferring exclusive power upon Parliament to make laws with respect thereto, while matters which they felt were of local concern and may require laws to be made having regard to the particular needs and peculiar problems of each State have been assigned to the S .....

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the prescribed date of payment. It is true that the rate of two per cent per month and particularly the rate of three per cent per month can be said to be on the high side, but we fail to see how this would render the provisions of that sub-section void or unconstitutional. 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. It is for the State to provide by what means payment of tax is to be enforced and a person who does not pay the amount of tax lawfully and admittedly due by him can hardly complain of the measures adopted by the State to compel him to pay such amount. It neither lies in the defaulter's mouth to protest against the rate of interest charged to him nor is it open to him to dictate to the State the methods which it should adopt for recovering the amount of tax due by him. In this connection, it is pertinent to note that under section 10-B of the Act, where as a result of an order made in appeal or revision, a refund has becom .....

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h was vehemently opposed by Sri Babu. On hearing both sides on this aspect, we orally overruled the objections of Sri Babu, permitted Sri Srinivasan to challenge the same and then heard both sides on the same in full. We now proceed to examine its validity on merits. 33. Sri Srinivasan has urged that section 13(2A) of the Act conferring power on Government to remit the whole or any part of penalty/interest without any guidance and control suffers from the vice of excessive delegation and was violative of article 14 of the Constitution. In support of his contention Sri Srinivasan has strongly relied on a Division Bench ruling of this Court in P. Bhuvaneswariah v. State of Mysore (1964) 2 Mys LJ 470 : AIR 1965 Mys 170. 34. Sri Babu has urged that section 13(2A) that confers discretionary power on the executive Government, the highest executive authority, under the Constitution, subject to the rules to be made and to be laid before the legislature does not suffer from the vice of excessive delegation. In support of his contention Sri Babu has strongly relied on the ruling of the Supreme Court in Chinta Lingam v. Government of India [1971]2SCR871 . 35. In Mutha Manickchand's case ( .....

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t is necessary in public interest so to do, by notification in the official gazette, exempt from payment of buildings tax any class of buildings" suffered from the vice of excessive delegation and was violative of article 14 of the Constitution (vide para 26). We have earlier reached the conclusion that the provision does not suffer from the vice and excessive delegation in the light of the principles enunciated by the Supreme Court. When that is so, we consider it unnecessary to examine the correctness of this decision and express our opinion on the same. In any event these principles do not really bear on the validity of section 13(2A) of the Act that is not in pari materia with section 3(2) of the Mysore Buildings Tax Act, 1962. 40. On the above discussion, we hold that section 13(2A) of the Act does not suffer from the vice of excessive delegation and is not violative of Article 14 of the Constitution. Re : Point No. IV 41. Sri Srinivasan has urged that if this Court were to strike down section 13(2A) of the Act on the ground it suffers from the vice of excessive delegation, then this Court has no choice except to strike down section 13(2) of the Act, which is inextricably .....

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and unconstitutional provisions may even been contained in the same section, and yet be perfectly distinct and separable, so that the first may stand though the last fall. The point is not whether they are contained in the same section; for the distribution into sections is purely artificial; but whether they are essentially and inseparably connected in substance. If, when the unconstitutional portion is stricken out, that which remains is complete in itself, and capable of being executed in accordance with the apparent legislative intent, wholly independent of that which was rejected, it must be sustained.'" Bearing these principles it is necessary to examine point No. IV. 44. We have reproduced section 13(2A) of the Act earlier in its entirety. A close examination of section 13(2A) of the Act shows that it is an independent and separate provision conferring power on Government and is not woven into or bound with section 13(2) of the Act. Section 13(2A) of the Act is not inextricably woven into section 13(2) of the Act. Even assuming that we strike down section 13(2A) of the Act, then also section 13(2) of the Act without any doubt can remain on the statute book and enfor .....

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