HILL PRODUCE CORPORATION v. STATE OF KERALA — 1992 DIGILAW 97 (KER)

JUDGMENT M. JAGANNADHA RAO, C.J. - This case has been referred to a Full Bench on the basis that the point arising herein is connected with the points arising before the Full Bench in W.A. No. 16 of 1988 in regard to interpretation of section 23(3) of the Kerala General Sales Tax Act, 1963. In so far as W.A. No. 16 of 1988 is concerned, we are delivering a separate judgment therein. This case before us can be disposed of without reference to the other questions which arise in W.A. No. 16 of 1988. 2. This appeal is preferred under section 40 of the Kerala General Sales Tax Act, 1963 hereinafter called "the K.G.S.T. Act", read with rule 41(1) of the Kerala General Sales Tax Rules, 1963 against the order No. F4 55303/81/TX dated October 14, 1982 of the Board of Revenue. The appellant before us is a dealer and the assessment year with which we are concerned is 1977-78. The subject-matter of appeal is a sum of Rs. 77,956.12 which is levied as penal interest under section 23(3) of the K.G.S.T. Act, and another sum. In this reference, we are concerned with the award of penal interest in the aforesaid sum of Rs. 77,956.12. 3. The facts of the case are as follows : The appellant is a partnership firm dealing in produce like pepper and ginger and is paying tax under rule 21 of the K.G.S.T. Rules, 1963. For the year 1977-78, the appellant filed a return in from 8 as per rule 21(11) of the Rules on April 30, 1978. The tax due as per the return had already been paid provisionally along with the monthly returns in form 9. The final assessment for the year 1977-78 was taken up on July 25, 1979. Pepper and ginger are liable to tax on the last purchase in the State. The appellant was selling goods through agents in other States. The purchase turnover became taxable only after sales by the agents when the goods acquired the quality of last purchase in the State. Subsequent to the filing of form 8 return on April 30, 1978, some more sales were effected by the agents from the despatches made in the year 1977-78, and account sales were rendered to the appellant. The purchase turnover became taxable only after sales by the agents when the goods acquired the quality of last purchase in the State. Subsequent to the filing of form 8 return on April 30, 1978, some more sales were effected by the agents from the despatches made in the year 1977-78, and account sales were rendered to the appellant. It appears that at the time of scrutiny of the accounts, the assessing authority suggested to the appellant to file a "revised return" incorporating the turnover which had acquired the quality of last purchase as on July 25, 1979. Accordingly, a revised return in form 8 was filed. A balance of tax including surcharge of Rs. 1,93,838 became payable as per the revised return. The final assessment order was passed by the Assistant Commissioner on August 29, 1979, and was served on the appellant on February 23, 1980. The balance of tax of Rs. 1,68,825.50 and surcharge of Rs. 14,901.52 were paid on March 25, 1980 within the time specified in the demand notice. The assessing authority, however, issued a demand notice on August 8, 1980 under section 23(3) of the K.G.S.T. Act calling upon the appellant to pay penal interest of Rs. 77,956.12, which appears to have been calculated on Rs. 1,93,838 for the period from May 1, 1978 to March 22, 1980. Aggrieved by the said demand, the appellant filed a revision before the Deputy Commissioner, Sales Tax, Kozhikode. After giving a hearing to the appellant, the said authority passed an order directing recomputation of interest by limiting the period of default from July 25, 1979 to March 22, 1980, that is from the date of filing of the revised return to the date of payment of additional tax. Thus the revision to the Deputy Commissioner ended in favour of the appellant. However, the Board of Revenue proposed to revise the order of the Deputy Commissioner suo motu and issued a notice on May 21, 1982. The Board considered that the order of the Deputy Commissioner restricting the payment of penal interest to the period starting from the date of filing of the revised return to the date of actual payment of additional tax was not correct. The appellant objected to the said notice and contended that penal interest could not be charged for the period prior to the filing of the revised return. The appellant objected to the said notice and contended that penal interest could not be charged for the period prior to the filing of the revised return. The said contention was rejected by the Board of Revenue. The order of the assessing authority demanding penal interest was restored. Questioning the said order of the Board of Revenue, the present appeal has been filed under section 40 of the K.G.S.T. Act. 4. Two points raised in the memorandum of appeal are : (1) whether, on the facts and in the circumstances of the case, the Board of Revenue was justified in imposing penal interest under section 23(3) of the Act on the appellant when the tax for the year had not been assessed, but had only become due by virtue of the provision in rule 21(11) of the Rules; and, (2) whether, on the facts and in the circumstances of the case, the Board of Revenue was justified in imposing penal interest from May 1, 1978 by reversing the decision of the Deputy Commissioner to impose interest only from July 25, 1979. Though two other points were raised in the memorandum of appeal, they were not argued before us. 5. It will be necessary to refer to the relevant provisions of the K.G.S.T. Act and the K.G.S.T. Rules. Section 23 as it stood at the relevant time (for the assessment year 1977-78) read as follows : "23. Payment and recovery of tax. - (1) The tax assessed or any other amount demanded under this Act shall be paid in such manner and in such instalments, if any, and within such time, as may be specified in the notice of demand, not being less than twenty-one days from the date of service of the notice. If default is made in paying according to the notice of demand, the whole of the amount outstanding on the date of the default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or other amount under this Act : Provided that the time-limit of twenty-one days for a notice under this sub-section shall not apply to casual traders. 2. ..................... 3. 2. ..................... 3. If the tax assessed or any other amount due under this Act or any instalment thereof is not paid by any dealer or other person within the time specified therefor in the notice of demand or in the order permitting payment in instalments or within the time allowed for its payment by the appellate or revising authority, or within the time specified therefore in this Act or in any rule made thereunder, the dealer or other person shall pay, by way of penal interest, in the manner prescribed, in addition to the amount due, a sum equal to - (a) one per cent of such amount for each month or part thereof for the first three months after the date specified for its payment; (b) two per cent of such amount for each month or part thereof subsequent to the first three months aforesaid." Rule 21 of the K.G.S.T. Rules, deals with submission of monthly return. At the relevant time, for the assessment year 1977-78, sub-rules (1) to (6) of rule 21 were in existence, and they were omitted only in 1983 by G.O. Ms. No. 9/83/TD dated February 9, 1983. Sub-rules (1) to (6) of rule 21 deal with filing of an application by an assessee for permission to adopt the system of monthly returns. It will not be necessary to refer to sub-rule (7) of rule 21 as it stood at the relevant time inasmuch as no question of levy of penal interest from the date of filing of provisional returns, arises in this case. Sub-rule (11) of rule 21, as it stood at the relevant time, read as follows : "21(11). After the close of the year in which the provisional assessment as laid down in sub-rule (8) or sub-rule (9) has been made, the dealer shall, on or before the 1st day of May of the succeeding year submit to the assessing authority a return in form 8 showing the total turnover and the taxable turnover for the preceding year, the amounts by way of tax or taxes actually collected during that year and the amounts by way of tax or taxes due on the taxable turnover during that year. The tax due, if any, as per the said return shall be paid in the manner prescribed in sub-rule (7)." Sub-rule (13) of rule 21 provides for making of final assessment order by the assessing authority, and sub-rule (14) of rule 21 provides for the issuance of a demand notice in form 14B. 6. In the present case, the position was that the appellant filed the monthly returns and was paying tax during the assessment year 1977-78, and that after the close of the assessment year. he filed a return in form 8 on April 30, 1978, as per rule 21(11), and the tax due as per the return had already been paid provisionally along with the monthly returns in form 9. When the final assessment for the year 1977-78 was taken up on July 25, 1979, under rule 21(13), the appellant filed a revised return, incorporating certain additional turnover. This revised return was filed on July 25, 1979 itself in form 8, and the balance of tax, including surcharge, of Rs. 1,93,838 became payable as per the revised return. The final assessment order was passed by the Assistant Commissioner on August 29, 1979, and was served on the appellant on February 23, 1980. The balance of tax of Rs. 1,68,825.50 and the surcharge of Rs. 14,901.52 were paid on March 25, 1980, within the time specified in the demand notice. However, the assessing authority issued a demand notice on August 8, 1980 under section 23(3) of the Act calling upon the appellant to pay penal interest of Rs. 77,956.12. 7. The question, therefore, would be whether under section 23(3) of the Act, penal interest became payable by the assessee from April 30, 1978, the date on which the original return was filed in form 8, or whether it became due only from July 25, 1979, when the revised return was filed. 8. For the purpose of considering whether penal interest was payable with effect from April 30, 1978, we must examine the relevant statutory provision, namely, section 23(3) as it stood on April 30, 1978. We have already extracted the provisions of the said sub-section as they stood during the assessment year 1977-78. 8. For the purpose of considering whether penal interest was payable with effect from April 30, 1978, we must examine the relevant statutory provision, namely, section 23(3) as it stood on April 30, 1978. We have already extracted the provisions of the said sub-section as they stood during the assessment year 1977-78. It is important to note that section 23(3) was amended with effect from April 1, 1978 by section 10 of Act 21 of 1978, by insertion of the words "or within the time specified therefor in this Act or in any rule made thereunder". After the insertion of those words, section 23(3), with effect from April 1, 1978, reads as follows : "Section 23(3) : If the tax assessed or any other amount due under this Act or any instalment thereof is not paid by any dealer or other person within the time specified therefore in the notice of demand or in the order permitting payment in instalments or within the time allowed for its payment by the appellate or revising authority or within the time specified therefor in this Act or in any rule made thereunder, the dealer or other person shall pay, by way of penal interest, in the manner prescribed, in addition to the amount due, a sum equal to ...." From the aforesaid provisions, which were on the statute book on April 30, 1978, i.e., the date on which the original return was filed in form 8, the position was that if the tax assessed is not paid within the time specified therefor in any rule made under the Act, penal interest became payable. Therefore, it was permissible to levy penal interest if any tax was not paid within the time provided in any rule. Rule 21(11), as already noticed, directed that the assessee should file a return in form 8 and also pay the necessary tax due as per the said return failing which the assessing authority should serve a demand notice in form 14-B. In our view, it was not necessary that the demand notice should have been served in form 14B for attracting the liability of penal interest under section 23(3) of the K.G.S.T. Act, inasmuch as the said liability arose by force of the provisions of section 23(3), read with the first part of rule 21(11). The liability arose, the moment the tax remained unpaid along with form 8 return. The liability arose, the moment the tax remained unpaid along with form 8 return. The liability was not dependent upon the issuance of a demand notice in form 14B. It would be convenient to refer to the relevant portion of section 23(3) which was in force from April 1, 1978. It read as follows : "Section 23(3) : If the tax assessed ...... is not paid ..... within the time specified therefor ..... in any rule made thereunder, the dealer ..... shall pay by way of penal interest ......." In the present case, as already noticed, the tax due as per the original return dated April 30, 1978 was paid in time, but the tax due as per the revised return dated July 25, 1978 was paid much later and was not paid on April 30, 1978. According to the State, penal interest became payable from May 1, 1978, but according to the appellant, penal interest became payable only from July 25, 1979 and not from May 1, 1978. 9. The question then arises what is the effect of filing of the "revised return", in so far as sales tax law is concerned. The effect of filing of a revised return under the sales tax law arose before the Supreme Court in Associated Cement Co. Ltd. v. Commercial Tax Officer, Kota [1981] 48 STC 466; AIR 1981 SC 1887 . The Supreme Court pointed out that there was a difference between payment of penalty and payment of penal interest. While the question of bona fide belief was relevant for the purpose of paying penalty, subject to the provisions of the relevant statute, the position in so far as the payment of "penal interest" was concerned, was that it became payable by force of the statute or the concerned rule, from the date on which the assessee ought to have filed the return "which ought to have been properly filed". Either by delaying the filing of the return or by not filing it at all or by filing a return wrongly claiming that a certain part of the turnover was not taxable or by not disclosing a part of the taxable turnover in the return, an assessee could not escape the liability to pay interest. Either by delaying the filing of the return or by not filing it at all or by filing a return wrongly claiming that a certain part of the turnover was not taxable or by not disclosing a part of the taxable turnover in the return, an assessee could not escape the liability to pay interest. Further, the assessee could not contend that interest did not accrue on the tax payable by him even if the time to file the return had elapsed, until the assessee actually filed a return admitting to pay such tax or until assessment is made. The statutory liability to pay interest arose wherever there was default in payment of the tax within the period allowed by law, irrespective of any doubt which an assessee might be entertaining about the liability to pay the tax. The Supreme Court further held that the words "on the basis of return" occurring in section 7(2) of the Rajasthan Sales Tax Act could not be construed to mean the return actually filed. On the contrary, if the words "on the basis of return" occurring in section 7(2) were to be construed as referring to the true and proper return which ought to have been filed under section 7(1) then all the classes of persons, viz., (i) those who had not filed any return at all and who were later on found to be liable to be assessed; (ii) those who had filed a true return but had not deposited the full amount of tax which they were liable to pay, and (iii) those who had filed a return making a wrong claim that either the whole or any part of the turnover was not taxable and then who were subsequently found to have made a wrong claim, would be placed in the same position and they would all be liable to pay interest on the amount of tax which they were liable to pay, but had not paid as required by sub-section (2) of section 7. In other words, penal interest would become payable from the date on which the proper return should have been filed and not from the date on which the "revised return" was filed. The liability to pay penalty may, however, be different from that of liability to pay penal interest. 10. In other words, penal interest would become payable from the date on which the proper return should have been filed and not from the date on which the "revised return" was filed. The liability to pay penalty may, however, be different from that of liability to pay penal interest. 10. In the light of the above decision of the Supreme Court, it must be held that the appellant is liable to pay penal interest from May 1, 1978 and not merely from July 25, 1979, when the revised return was filed. The words in rule 21(11) which provide for filing of the return in form 8 must be construed as a return ought to be filed under that provision, and the default has to be construed in terms of section 23(3) of the K.G.S.T. Act as a default occurring for non-payment of the tax payable in terms of the return which ought to have been filed. 11. For the aforesaid reasons, we are of the view that the Board of Revenue was right in holding that the appellant was liable for the payment of interest in regard to tax payable on the excess turnover with effect from May 1, 1978. We answer the reference in favour of the Revenue. The appeal fails, and is dismissed. Appeal dismissed.