M/S INDIAN OIL CORPORATION LIMITED Vs THE STATE OF UTTAR PRADESH
Bench: HON'BLE MR. JUSTICE ASHOK BHUSHAN, HON'BLE MR. JUSTICE K.M. JOSEPH
Judgment by: HON'BLE MR. JUSTICE ASHOK BHUSHAN
Case number: C.A. No.-003257-003268 / 2019
Diary number: 44664 / 2018
Advocates: Nishit Agrawal Vs
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 3257-3268 OF 2019
(arising out of SLP (C) Nos.31748-31759 of 2018)
INDIAN OIL CORPORATION LIMITED ...APPELLANT
Vs.
STATE OF U.P. & ORS. ...RESPONDENTS
J U D G M E N T
ASHOK BHUSHAN, J.
These appeals have been filed against the
Division Bench judgment of Allahabad High Court dated
22.11.2018 dismissing the writ petitions filed by the
appellant questioning the demand notices issued by
1
the respondent demanding interest on Entry Tax from
the appellant.
2. These appeals centres round the issue regarding
liability to pay interest on the Entry Tax on the
appellant under The U.P. Tax on Entry of Goods into
Local Areas Act, 2007 (hereinafter referred to as
“Act, 2007”) The demanded Entry Tax having been paid
by the appellant, the issue to be considered is with
regard to liability to pay interest on the Entry Tax
alone.
3. The Entry Tax Legislations in the State of U.P.
as well as in other States of the country have a long
history of litigation. The Entry Tax Legislations
enacted by different States including the State of
U.P. were challenged in the High Courts questioning
the very legislative competence of State Legislature
to enact Entry Tax Legislations, which according to
writ petitioners violated freedom of trade, commerce
and intercourse guaranteed under Article 301 and
other Articles of Part XIII of the Constitution of
India. Some of the High courts including Allahabad
2
High Court have struck down the initial Entry Tax
Legislations on the ground that it violates rights
guaranteed under Part XIII of the Constitution of
India.
4. For deciding the issues, which have arisen in
these appeals, it is necessary to notice the history
of litigation in so far as State of U.P. is
concerned. Levy of tax on entry of any goods into a
local area was introduced by the U.P. Tax on Entry of
Goods Ordinance, 2000, w.e.f. 01.11.1999, which
Ordinance was replaced by the U.P. Tax on Entry of
Goods Act, 2000, which Act was deemed to have come
into force on 01.11.1999. The Entry Tax was also
imposed on crude oil. The appellant filed a Writ
Petition No. 251 of 2003 before the Allahabad High
Court challenging the validity of levy of Entry Tax
on crude oil. The Allahabad High Court vide its
judgment and order dated 27.01.2004 declared Act No.
1 of 2000 as violative of Articles 301 and 304 of the
Constitution of India and, thus, was held to be ultra
vires. The State of U.P. filed a Special Leave
Petition against the judgment dated 27.01.2004, which
3
was later re-numbered as Civil Appeal Nos. 997-998 of
2004. This Court on 09.02.2004 passed following
interim order:-
“Issue notice on the application for impleadment.
Leave granted.
The operation of the impugned judgment is stayed subject to the appellant’s depositing all taxes that may be realized by the appellant from the respondents after 27.1.2004 in a separate interest bearing account. This amount and the interest accrued thereon shall be held subject to the further orders of this Court.
SLP (C) No.3033/3004 Delink this matter.”
5. The Constitution Bench of this Court in Jindal
Stainless Ltd. (2) and Another Vs. State of Haryana
and Others, (2006) 7 SCC 241 laid down the yardsticks
to determine whether tax was compensatory or not.
Constitution Bench reiterated that the doctrine of
“direct and immediate effect” on the trade and
commerce under Article 301 as propounded in Atiabari
Tea Co. Ltd. Vs. State of Assam, AIR 1961 SC 232 and
the working test enunciated in Automobile Transport
(Rajasthan) Ltd. Vs. State of Rajasthan, AIR 1962 SC
4
1406 for deciding whether a tax is compensatory or
not was to continue to apply. Constitution Bench
held that accordingly, the constitutional validity of
various local enactments which are the subject
matters of pending appeals, special leave petitions
and writ petitions will now be listed for being
disposed of in the light of this judgment.
6. Pursuant to Constitution Bench judgment, the
matters were listed on 14.07.2006, when this Court
permitted the parties to place the relevant materials
in the concerned writ petitions within two months
before the respective High Courts, which were to deal
with the basic issue as to whether the impugned levy
was compensatory in nature. The High Courts were
requested to decide the issues within five months
from the date of receipt of the order. After the
above orders of this Court, the Allahabad High Court
was pleased to decide the questions raised on
08.01.2007 holding that Entry Tax levied on crude oil
and other goods does not fulfil the requirements of
compensatory tax as laid down by this Court. On
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17.04.2007, this Court in C.A. Nos. 997-998 of 2004 –
State of U.P. & Ors. Vs. M/s. Indian Oil Corporation
Ltd. & Etc., passed an order in the following terms:-
“……………………….The High Court’s orders, wherever it has been passed in favour of the tax payers, shall operate so far as the writ petitioners are concerned………………..”
7. The effect in view of the above interim order was
that the levy of Entry Tax in the State of U.P.,
thus, was held to be unsustainable. The State of
U.P. promulgated the U.P. Tax on Entry of Goods into
Local Areas Ordinance on 24.09.2007 (U.P. Ordinance
No. 35 of 2007) with retrospective effect from
01.11.1999 repealing the earlier Act No.1 of 2000 and
re-enacting the same w.e.f. 01.11.1999. The
Statement of Objects and Reasons, which necessitated
the issuance of the aforesaid Ordinance was as
follows:-
“STATEMENT OF OBJECTS AND REASONS
The Uttar Pradesh Tax on Entry of Goods Act, 2000 (U.P. Act No. 12 of 2000) was enacted to provide for the levy and collection of tax on entry of goods into a local area for consumption, use or sale therein. The said act was declared ultra vires by the Hon’ble High Court of
6
Judicature at Allahabad in writ petition No. 251/2003 M/s Indian Oil Corporation Limited Versus State Government in its Judgment dated January 27, 2004. The State Government filed the special leave petition No. 2757-2758/2004 against the said Judgement. The Hon'ble Supreme Court in the said special leave petition stayed the operation of the said Judgement of the High Court on February 9, 2004 with the condition that the amount realised as entry tax shall be deposited in the separate interest bearing account. Thereafter in the case of Jindal Steel Limited Versus State Government and others, the Hon’ble Supreme Court required the High Court to submit its report regarding whether the entry tax under the said act falls in the category of compensatory tax or not. The High Court in its judgment dated January 8, 2007 held that the entry tax under the said act does not fall in the category of compensatory tax. The same Judgement had been delivered by the High Court in the case of the Indian Oil Corporation Limited and other similar cases. A special leave petition was filed in the Supreme Court by the State Government against the Judgement of the High Court dated January 8, 2007. Since M/s Indian Oil Corporation Limited was demanding for the refund of Rs. 3022-58 crore on the basis of the interim order dated April 17, 2007 of the Apex Court, the State Government was considering to enact afresh the said Act retrospectively after the Judgement of the constitution Bench of the Supreme Court. In the meantime the Bihar Entry Tax Act was held to be valid by the Patna High Court. It was therefore decided to make a Law with retrospective effect by removing the short-comings pointed out in the Judgement of the High Court of Judicature at Allahabad and in the light of observations with respect to the
7
compensatory tax made by the Constitutional Bench of the Supreme Court and on the basis of the provisions of the Bihar Entry Tax Act, which had been held valid by the Patna High Court.
Since the State Legislature was not in session and immediate legislative action was necessary to implement the aforesaid decision, the Uttar Pradesh Tax on Entry of Goods in to Local Areas Ordinance, 2007 (U.P. Ordinance No. 35 of 2007) was promulgated by the Governor on September 24, 2007.
This Bill is introduced to replace the aforesaid Ordinance.”
8. The Ordinance No.35 of 2007 was replaced by the
U.P. Tax on Entry of goods into Local Areas Act,
2007. The appellant after enforcement of the
Ordinance had filed a Writ Petition No. 1483 of 2007
in the Allahabad High Court challenging the Ordinance
No. 35 of 2007. After enactment of the Act, writ
petition was sought to be amended by replacing the
word “Ordinance” with “Act”. On 18.12.2008, a Two-
Judge Bench of this Court in Jaiprakash Associates
Limited Vs. State of Madhya Pradesh & Ors. (2009) 7
SCC 339 referred the issue of levy of Entry Tax in
various States enactments including U.P. for
determination of a Larger Bench of Nine Judges in
8
terms of Article 145(3) of the Constitution of India.
On 23.12.2011, a Division Bench of the Allahabad High
Court decided the Writ Petition No. 1483 of 2007
alongwith bunch of writ petitions, leading writ
petition being Writ Tax No. 1484 of 2007 – ITC
Limited Vs. State of U.P. and Others. The Division
Bench of the Allahabad High Court held that the State
of U.P. did not lack legislative competence in
enacting the U.P. Tax on Entry of Goods into Local
Areas Act, 2007, imposing Entry Tax on the entry of
scheduled goods into the local areas for consumption,
use or sale thereunder. Concluding part of the
judgment in Paragraph Nos. 151, 152 and 153 are as
follows:-
“151. For the reasons given as above, we hold that the State of U.P. did not lack legislative competence in enacting U.P. Tax on Entry of Goods into Local Areas Act, 2007, imposing entry tax on the entry of scheduled goods into the local areas for consumption, use or sale thereunder. The provisions of the Act patently and facially indicate and that there are sufficient guidelines and guarantees under the Act for ensuring that the entire amount of entry tax collected and credited to the U.P. State Development Fund is utilised only for the purposes of its reimbursement to facilitate the trade, commerce and industry. The State Government has also
9
established that the entire amount of entry tax is by way of reimbursement / recompense to the trade, commerce and industry, in the local areas of the State of U.P. provides quantifiable/ measurable benefits to its payers. The levy under the Act, 2007 is also not discriminatory, unreasonable or against public interest. The levy of entry tax under the Act, therefore, does not violate the freedom of trade, commerce and intercourse guaranteed under Article 301 of the Constitution of India. Section 17 of the Act validating the amount of entry tax levied, assessed, realized and collected under the U.P. Tax on Entry of Goods Act, 2000, is also valid and authorises the State to keep the entire amount, for the purposes of its utilisation for facilitating trade, commerce and intercourse in the local areas of the State.
152. We may observe by way of clarification that in these writ petitions we have confined our enquiry to the constitutional validity of the U.P. Tax on Entry of Goods into Local Areas Act, 2007, and whether the entry tax is compensatory in nature, which does not violate the freedom of trade, commerce and intercourse under Article 301 of the Constitution of India. We have not examined the other issues namely the validity of the notices, assessments, rebates, exemption and the liability of the traders, and manufacturers of the scheduled goods to pay entry tax. All other questions, will remain open to be considered by the competent authorities under the Act in accordance with law.
153. All the writ petitions are consequently dismissed. The interim orders are discharged.”
10
9. Against the judgment of Allahabad High Court
dated 23.12.2011, decision in the writ petition of
the appellant, SLP (C) No. 327 of 2012 was filed by
the appellant. On 10.01.2012, this Court passed an
interim order in several special leave petitions
filed against the judgment dated 23.12.2011 staying
the operation of the impugned judgment of the High
Court dated 23.12.2011 subject to the appellants in
each case depositing 50% of the accrued tax
liability/arrears under the Act, 2007 and furnish
bank guarantee for the balance amount within four
weeks. In SLP (C) No. 327 of 2012, following order
was passed:-
“Shri R.F. Nariman, learned Solicitor General, appearing for the petitioner in this matter, would contend that the respondents have issued demand notices, inter alia, demanding the payment of Entry Tax under the provisions of U.P. Tax on Entry of Goods into Local Areas Act, 2007 for the assessment periods 2007-2008, 2008- 2009, 2009-2010 and 2010-2011, without there being any quantification by way assessments for all these years. Faced with this situation, learned senior counsel, Shri K.K. Venugopal, appearing for the respondent-State would submit that he will file an appropriate affidavit indicating whether the petitioners herein have filed the monthly or annual returns for the assessment years in question and
11
whether the department has completed assessments or the basis on which the demand notices are issued. To facilitate them to file the said affidavit, we adjourn this matter to Thursday, i.e. 12.01.2012.”
10. The orders dated 17.01.2012 and 16.02.2012 were
further passed by this Court in the SLP (C) No. 327
of 2012 of the appellant. Appellant in the interim
order has been directed to pay 50% of the Entry Tax.
On 06.12.2013, prayer for further modification of the
interim order made on behalf of the appellant was
accepted, which is to the following effect:-
“In I.A. No. 7 in Civil Appeal No. 3413 of 2012, Shri R.F. Nariman, learned senior counsel for the applicant(s) requests us to modify our orders passed on 17.01.2012, by observing that in the event of appellant(s) failing in this appeal, the appellant(s) will be liable to pay the arrears of tax along with interest, as may be determined by this Court under the provisions of the Uttar Pradesh Entry Tax Act, 2007, at the time of final disposal of the appeal.
The request of the learned senior counsel appears to be reasonable and if it is granted it would not prejudice the case of the respondents in any manner whatsoever.
In view of the above, we accept the prayer so made by Shri Nariman, learned senior counsel.”
12
11. This Court, thus, left the determination of
interest, which was to be payable by the appellant to
be determined subsequently. On 11.11.2016, the Nine
Judges Constitution Bench decided the reference in
Jindal Stainless Limited & Anr. Vs. State of Haryana
& Ors., (2017) 12 SCC 1. The reference was answered
by the Court in following manner:-
“1159. By majority the Court answers the reference in the following terms:
1159.1. Taxes simpliciter are not within the contemplation of Part XIII of the Constitution of India. The word “free” used in Article 301 does not mean “free from taxation”.
1159.2. Only such taxes as are discriminatory in nature are prohibited by Article 304(a). It follows that levy of a non- discriminatory tax would not constitute an infraction of Article 301.
1159.3. Clauses (a) and (b) of Article 304 have to be read disjunctively.
1159.4. A levy that violates Article 304(a) cannot be saved even if the procedure under Article 304(b) or the proviso thereunder is satisfied.
1159.5. The Compensatory Tax Theory evolved in Automobile Transport case, AIR 1962 SC 1406 and
13
subsequently modified in Jindal case, (2006) 7 SCC 241 has no juristic basis and is therefore rejected.
1159.6. The decisions of this Court in Atiabari, AIR 1961 SC 232, Automobile Transport, AIR 1962 SC 1406 and Jindal, (2006) 7 SCC 241 cases and all other judgments that follow these pronouncements are to the extent of such reliance overruled.
1159.7. A tax on entry of goods into a local area for use, sale or consumption therein is permissible although similar goods are not produced within the taxing State.
1159.8. Article 304(a) frowns upon discrimination (of a hostile nature in the protectionist sense) and not on mere differentiation. Therefore, incentives, set-offs, etc. granted to a specified class of dealers for a limited period of time in a non- hostile fashion with a view to developing economically backward areas would not violate Article 304(a). The question whether the levies in the present case indeed satisfy this test is left to be determined by the regular Benches hearing the matters.
1160. States are well within their right to design their fiscal legislations to ensure that the tax burden on goods imported from other States and goods produced within the State fall equally. Such measures if taken would not contravene Article 304(a) of the Constitution. The question whether the
14
levies in the present case indeed satisfy this test is left to be determined by the regular Benches hearing the matters.
1161. The questions whether the entire State can be notified as a local area and whether entry tax can be levied on goods entering the landmass of India from another country are left open to be determined in appropriate proceedings.”
12. After the judgment of Nine Judges Bench dated
11.11.2016, the matter was taken by the Regular Bench
and by judgment and order dated 21.03.2017, this
Court granted liberty to the appellant to question
the levy of Entry Tax under Act, 2007 on the issues,
which are left open in the order of the Nine Judges
Bench before High Court by way of a fresh writ
petition. The appellant filed a Writ Petition
No.25730 of 2017 before the High Court, where
assessment orders were also assailed as the
consequential relief in (Prayer iii). There were
other writ petitions also. The appellant’s Writ
Petition No. 25730 of 2017 was heard alongwith the
bunch of writ petitions on 09.11.2017 and on
09.11.2017 judgment was reserved. There were few
other writ petitions, which were heard alongwith the
15
bunch, one being Writ Tax No. 474 of 2017 – M/s.
Birla Corporation Limited Vs. State of U.P., where
the validity of the demand of interest was separately
challenged. While reserving the judgment on
09.11.2017, High Court de-linked all such writ
petitions where validity of demand of interest was
separately challenged. On 04.05.2018, the High Court
delivered the judgment in Writ Petition No. 25730 of
2017 and other connected matters dismissing the writ
petitions upholding the validity of the Act, 2007.
Immediately after the decision of the High Court on
04.05.2018, demand notices were issued for the
assessment years 2008-2009 to 2011-2012 and demand
notices dated 05.05.2018 for the assessment years
2000-2001 to 2007-2008 requiring the appellant to
deposit Entry Tax together with interest thereupon.
The appellant paid a sum to the tune of Rs. 3,361.55
crores towards Entry Tax for the years 1999-2000 to
2011-2012. The appellant filed a writ petition
challenging the demand notices dated 04.05.2018 and
05.05.2018 in so far as demand towards interest was
concerned. In one of the writ petitions, Writ
16
Petition No.757 of 2018 filed by the appellant,
following prayers were made:-
“(i) Issue a suitable writ, order or direction in the nature of certiorari calling for the records and quashing the impugned notice dated 04.05.2018 (ANNEXURE-1) issued by the Respondent No.3 demanding interest on entry tax from the petitioner.
(ii) Issue a suitable writ, order or direction in the nature of Prohibition restraining the Respondents, their servants, agents or representative from in any manner realizing any interest on the entry tax from petitioner pursuant to the Act No. 30 of 2007, assessment order and the impugned notice dated 04.05.2018;
(iii)Issue a suitable writ, order or direction in the nature of mandamus commanding the respondents to adjust the interest payable by the Respondents on the amounts paid by the Petitioner upto 23.09.2007 towards the entry tax together with interest;
(iv) Issue any other suitable writ, order or direction as this Hon’ble Court may deem fit and proper in the circumstances of the case in the facts and circumstances of the case.
(v) Award the costs of the petition to the petitioners.”
13. On 10.05.2018, when the writ petitions were taken
up for hearing by the High Court, learned counsel for
17
the appellant made submission before the High Court
that appellant proposes to make an application before
this Court to adjudicate upon the liability to pay
interest under the Act, 2007, since the issue was
left to be decided at the time of final disposal of
the appeal. High Court by order dated 10.05.2018,
adjourned the proceedings considering the facts and
prayers made by the learned counsel for the
appellant. An application for direction was filed by
the appellant being Application No.1716 of 2018,
which was permitted to be withdrawn on submission of
the learned counsel for the applicant that the issue
of levy of interest shall be pressed before the High
Court.
14. After the above order dated 20.07.2018, the
hearing in writ petition proceeded. Another demand
notice dated 18.05.2018 was issued by the respondent
asking for depositing arrears of interest amount. The
respondents before the High Court raised a
preliminary objection on 25.07.2018 on the ground
that writ petition is a second writ petition against
18
the same assessment order on the same and
consequential cause of action. It was stated in the
preliminary objection that for the same relief Writ
Petition No.25730 of 2017 has already been dismissed
by the High Court on 04.05.2018, wherein assessment
orders were also challenged, hence the writ petition
being second writ petition be dismissed as not
maintainable. Reply to preliminary objection was
filed by the appellant. High Court after hearing all
the parties by the impugned order dated 22.11.2018
upheld the preliminary objection about the
maintainability of the writ petitions and the writ
petitions have been dismissed as not maintainable.
While dismissing the writ petitions, certain
observations have also been made by the High Court.
Appellant, aggrieved by the judgment dated 22.11.2018
has come up in this appeal.
15. We have heard Shri Dhruv Agrawal, learned senior
counsel for the appellant. Shri Dinesh Dwivedi,
learned senior counsel has appeared for the
respondents. We have also heard Shri Guru Krishan
19
Kumar, learned senior counsel, who has appeared for
appellant in S.L.P. No. 2691 of 2018 – VST Industries
Limited Vs. The State of Uttar Pradesh & Ors., which
is being separately decided.
16. Learned counsel for the appellant submits that
under the Act, 2007 there are no substantive
provisions for realisation of interest on Entry Tax.
In absence of a substantive provision providing for
payment of interest, no interest can be demanded from
the appellant. It is submitted that in Act, 2007,
wherever it provided for payment of interest, it has
been so provided. Reference is made to sub-section
(3) of Section 12 of Act, 2007 where liability to tax
alongwith interest is created. It is submitted that
Section 13 of the Act, 2007, which makes the
provisions of U.P. Value Added Tax Act, 2008 mutatis
mutandis, applicable adopts only machinery provisions
for the purposes of Act, 2007 and Section 33 of Value
Added Tax Act, 2008, which deals with demand and
recovery of tax is only machinery provision, which
does not entitle the respondent to claim any interest
from the appellant. Apart from Section 12, there is
20
no other substantive provision for payment of
interest under the Act, 2007. No charge is created
by interpretation of machinery provisions by virtue
of Section 13 of Act, 2007. It is further submitted
that bonafide dispute pertaining to liability of a
dealer to make payment of Entry Tax was going on in
the High Court and this Court, which could be finally
decided on 04.05.2018, when writ petition filed by
the appellant challenging the vires of the Act, 2007
was finally dismissed. There being bonafide dispute
regarding liability to pay the Entry Tax itself, the
respondents are not entitled to charge any interest
on the Entry Tax. It is submitted that till
23.09.2007, there was no power with the State to
recover any Entry Tax, since the Act, 2007 was
declared ultra vires by the High Court. Levy of
Entry Tax was validated by virtue of Act, 2007, hence
there is no liability to pay any interest for the
period prior to 24.09.2007, on which date, the Act
was passed. The interest is being demanded from the
appellant from the year 1999, which is wholly illegal
and without jurisdiction. As per the interim order
21
passed by this Court including the order dated
06.12.2013 passed in S.L.P. No. 327 of 2012 filed by
the appellant, where this Court had passed an order
on 06.12.2013 directing that the appellant will be
liable to pay arrears of tax alongwith interest as
may be determined by this Court under the provisions
of Act, 2007 at the time of final disposal of the
appeal. It is submitted that neither the Nine Judges
Constitution Bench in its judgment dated 11.11.2016
nor the Regular Bench deciding the appeals on
21.03.2017, entered into or decide the question of
liability of interest. The judgment of the High
Court dated 04.05.2018 did not consider the question
of liability of interest of the appellant and the
High Court confined to only three issues, which have
been noted in the judgment. The writ petitions where
challenge to demand of interest was separately made,
were de-tagged, which make the intention of the High
Court clear that it neither intended or actually
decided the issue of interest in the batch of writ
petitions decided on 04.05.2018. In judgment dated
04.05.2018, the liability of interest under Act, 2007
22
having not been decided nor argued, the High Court in
the impugned judgment has erroneously accepted the
preliminary objection of the respondent holding that
the judgment dated 04.05.2018 will operate as res
judicata in subsequent writ petition filed by the
appellant, where demand notices praying for payment
of interest has been challenged.
17. Shri Agarwal further submits that Act, 2000
having been declared unconstitutional, there is no
liability to pay any interest before 24.09.2007 on
which date Act, 2007 was enacted. It is further
submitted that Act, 2007 was immediately challenged
by the appellant which Act was upheld by Division
Bench of the High Court only on 23.12.2011. Before
the aforesaid date, this Court has already referred
various issues pertaining to Entry Tax legislation to
a Larger Bench. A Larger Bench, i.e., Nine-Judges
Bench decided the reference only on 11.11.2016. The
larger Bench had reversed the law which was in
operation for more than last fifty years. In wake of
such uncertainty of legal position, the appellant
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cannot be saddled with any liability to pay interest.
It is submitted that ultimately the Division Bench
after liberty by this Court declared the Act valid on
04.05.2018. It is submitted that appellant be
relieved from paying of any interest during the
aforesaid period. It is submitted that appellant had
promptly made the payment of entire Entry Tax
immediately after dismissal of writ petition on
04.05.2018. It is submitted that appellant is a
Public Corporation which may not be saddled with huge
liability of interest which shall adversely affect
the functioning of the Public Corporation.
18. Shri Dinesh Dwivedi, learned senior counsel
appearing for the respondents supporting the impugned
judgment submits that High Court has rightly
dismissed the writ petition of the appellant as not
maintainable. It is submitted that in the Writ
Petition No.25730 of 2017 filed by the appellant, one
of the prayers was also to quash the assessment
orders passed determining Entry Tax and interest and
even though the issue of question of liability of
24
interest having not been determined by the Division
Bench of the High Court on 04.05.2018, the principle
of constructive res judicata shall be applicable
debarring the appellant to challenge the demand of
interest by a subsequent writ petition. It is
submitted that High Court has rightly accepted the
preliminary objection of the respondents and held
that writ petition is not maintainable. Shri Dwivedi
further addressed submissions on the merits of the
claim of the appellant. It is submitted that Act,
2007 contains substantive provisions regarding
charging of interest. He submits that by virtue of
Section 13 of Act, 2007, the provisions of U.P. Trade
Tax Act, 1948 and U.P. Value Added Tax Act, 2008 have
been adopted, which contains the substantive
provisions for payment of interest. Section 8 of the
U.P. Trade Tax Act, 1948 and Section 33 of the U.P.
Value Added Tax Act, 2008 provides for charging of
interest when dealer fails to pay the tax, which is
liable to be paid under the Act. Thus, the
submission of the appellant that there are no
substantive provisions for charging of the interest
25
under the Act is unfounded. It is further submitted
that the appellant has enjoyed the benefit of the
interim order passed by this Court in special leave
petitions filed by the appellant challenging the
judgment of the High Court dated 23.12.2011 and now
they are estopped from challenging the pay-ability of
the interest. By Section 17 of the Act, 2007, the
levy of the Entry Tax as per Act, 2007 has been
validated. The Act, 2007 has been given
retrospective effect w.e.f. 01.11.1999, hence the
appellant was liable to pay both the Entry Tax as
well as the interest. The liability to pay Entry Tax
arises as per the provisions of Act, 2007 and the
U.P. Entry Tax Rules, 2007 framed thereunder. The
concept of interest evolves on default in payment of
Entry Tax. Shri Dwivedi also placed reliance on the
Principle of Restitution. Liability accrued under
Act, 2000 is deemed to be one arising under the Act,
2007. On dismissal of the Writ Petition on
04.05.2018, the issue of interest has also been
closed finally. After the interim order of this
Court on 10.01.2012 and 17.01.2012 Entry Tax was
26
partly paid and remaining was paid only after the
judgment of the High Court on 04.05.2018. Despite
the valid levy being there the Tax was withheld by
the appellant. The appellant took a chance with
litigation and retained and used the amount withheld.
The levy whose validity is upheld is deemed valid
from date it was due and not from the date of the
judgment of the High Court. The appellant is liable
for payment of interest not only as per law but also
on equitable grounds. Liability to pay interest for
a Stay period is valid as interest does not cease
running with passing of interim order. Interest is
to be awarded on equitable grounds. Liability to pay
interest on a tax is an accretion of tax and
enlargement of tax liability. In the present case,
interest liability on delayed payment is prescribed
by law.
19. We have considered the submissions of the learned
counsel on behalf of the parties and have perused the
records.
20. From the submissions of the learned counsel for
the parties and pleadings on the record, following
27
are the questions, which arise for consideration in
these appeals:-
(1) Whether the Writ Petition No.757 of 2018 and
other Writ Petitions filed by the appellant
challenging the demand notices dated
04.05.2018 and 05.05.2018 issued after
judgment dated 04.05.2018 of the High Court
in Writ Petition No.25730 of 2017 is barred
by Principle of Res-judicata, in view of the
dismissal of Writ Petition No.25730 of 2017
on 04.05.2018?
(2) Whether Act, 2007 does contain any
substantive provision for charging interest?
(3) Whether the appellant had liability to pay
interest on the Entry Tax levied between the
period from 01.11.1999 to 23.09.2007, i.e.,
during the operation of Act, 2000, which had
been struck down by the High Court?
(4) What can be the liability of payment of
interest with which the appellant can be
saddled after the period w.e.f. 24.09.2007?
(5) Relief, if any, to which the appellant may be
entitled?
Question No.1
21. The preliminary objection raised by the
respondents on the ground of res judicata has been
28
allowed relying on the judgment of the High Court
dated 04.05.2018 in Writ Petition No.25730 of 2017.
We may first notice the prayers made in Writ Petition
No.25730 of 2017. Following are the prayers made in
the writ petition:
“(i) that a suitable writ, order or direction be issued declaring the “Uttar Pradesh Tax on Entry of Goods into Local Area Act, 2007’ as invalid, void and unconstitutional in so far as purports to levy entry tax on crude oil imported into India for Mathura Refinery.
(ii) that a suitable writ, order or direction in the nature of mandamus be issued restraining the Respondents, their servants, agents or representative from in any manner collecting any entry tax from petitioner pursuant to the Act;
(iii)that a suitable writ, of certiorari, order or direction in the nature of certiorari be issued calling for the records and quashing the assessment orders enclosed as Annexure 3 to 11;
(iv) that a suitable writ, order or direction in the nature of mandamus or prohibition be issued restraining/ prohibiting the Respondents from taking any further steps or action pursuant to the impugned assessment orders;
(v) issue a suitable writ, order or direction for refund of the entry tax hitherto paid by the Petitioner to the
29
Respondent pursuant to the impugned Act;
(vi) that a suitable writ, order or direction be issued as this Hon’ble Court may deem fit and proper in the circumstances of the case in the facts and circumstances of the case.
(vii)award the costs of the petition to the petitioner.”
22. As noted above the liberty was granted by this
Court to the appellant by its order dated 21.03.2017.
The liberty granted to the appellant was on the
issues which were left open by the Nine-Judges
Constitution Bench judgment dated 21.03.2017 and
noticed. Following are certain other aspects which
were argued before the Constitution Bench but left
open:
“(1) Whether the entire State can be treated as 'local area' for the purposes of entry tax?
(2) Whether entry tax can be levied on the goods which are directly imported from other countries and brought in a particular State?
(3) In some statutes enacted by certain States, there was a provision for giving adjustment of other 20 C. A. Nos. 997-998/2004 etc. taxes like VAT, incentives etc. paid by the indigenous manufacturers and it was contended by the assesses that whether the benefits
30
given to certain categories of manufacturers would amount to discrimination under Section 304.”
23. Ultimately, this Court on 21.03.2017 referring to
the aforesaid issues gave following liberty:
“According to us, in the aforesaid scenario, appropriate course of action would be to permit the appellants to file fresh petitions by May 31, 2017, raising the aforesaid issues with necessary factual background or any other constitutional/ statutory issue which arises for consideration.”
24. Writ Petition No.25730 of 2017 was filed by the
appellant in pursuant to the liberty dated 21.03.2017
aforesaid. The main pleadings and the grounds raised
in the writ petition relate to challenge to vires of
Act, 2007. In the writ petition direction sought was
declaring the Act, 2007 as invalid, void and
unconstitutional in so far as purports to levy entry
tax on crude oil imported into India for Mathura
Refinery. Further reliefs were claimed in the writ
petition including prayer for quashing the assessment
orders enclosed as Annexure 3 to 11 to the writ
petition that is assessment orders 1999-2000 to 2011-
31
2012. It is also relevant to notice that in the writ
petition there was challenge to interest also.
Following was stated in paragraphs 33 and 34 of the
writ petition:
“33. That in view of the aforesaid, it is submitted that the judgment of Atiabari case and Automobile case having been overruled on 11.11.2016 by the Nine Judges Bench of the Apex Court, hence the interest and penalty could not be demanded from the petitioner for the period prior to 11.11.2016 as the petitioner has acted upon the law, as has been declared by the Constitutional Benches of Hon’ble Apex Court earlier, which was holding the field, as being the law of the land. Hence, when the law itself has been overruled subsequently and the petitioner being a bonafide dealer was acting as per the provisions of the law, as was existing during the period in dispute, cannot be made to suffer due to subsequent change in the law by the Hon’ble Apex Court.
34. That without prejudice to the above, it is submitted that even otherwise the interest, if any, could not be charged from the petitioner prior to the date of passing the assessment order.”
25. A perusal of the judgment of the High Court dated
04.05.2018 indicates that the Division Bench in
paragraph No.40 took the view that the Division Bench
is to deal with the challenge on the grounds as
32
reflected in the judgment of the Regular Bench dated
21.03.2017. It is useful to extract paragraph No.40
of the judgment, which is to the following effect:
“40. Thus, while overruling the objection to the maintainability of these petitions, we would like to confine ourselves within the forecorners of the judgment of the regular Bench dated 21 March, 2017. We further observe, once again at the cost of repetition, that the challenge to the validity of the Act, 2007 was considered by the Division Bench in ITC Limited on all grounds including the ground that the levy of tax under the Act is compensatory in nature. In view of the opinion expressed by the Nine Judges’ Bench, whereby compensatory theory has been completely wiped out, we would have to, therefore, consider the challenge limited to the grounds reflected in the questions framed by the regular Bench of the Supreme Court. In short and in substance, we observe that we would be dealing with the challenge only on the grounds as reflected in the judgment of the regular Bench dated 21.03.2017, in the light of the judgment of Nine Judges’ Bench in Jindal Stainless-II.”
26. The Division Bench, thus, confined the
consideration limited to the grounds reflected in the
questions framed by the regular Bench of the Supreme
Court. The Division Bench, thus, consciously confined
the consideration to only three questions as we have
extracted above from the judgment of this Court dated
33
21.03.2017. The Division Bench clearly did not permit
the consideration of any other questions including
the question of interest which is clear from the
judgment dated 04.05.2018. It has been specifically
submitted that when the judgment was reserved on
09.11.2017 in Bunch of writ petitions including
W.P.No.25730 of 2017, in the writ petitions where
challenge to levy of interest was separately made
were de-tagged. The order dated 09.11.2017 passed in
Writ Tax No.474 of 2017 (M/s. Birla Corporation
Limited Vs. State of U.P. and others) had been
brought on record as Annexure P-24 where the Division
Bench ordered: “This petition be de-linked from the
Bunch. Place it before the appropriate Bench.”
27. Specific ground No.L has also been taken which
reads as follows:
“L. Because even at the time of reserving its judgment in Writ-C No.25730 of 2017 and connected matters on 09.11.2017, the High Court had de-linked all such writ petitions in which the demand of interest on entry tax was assailed.”
34
28. It is admitted before us by the counsel for the
parties that Writ Tax No.474 of 2017, which de-tagged
with the Bunch of Writ Petition No.25730 of 2017 is
still pending for consideration before the High
Court. Present is a case where the Division Bench
while deciding Writ Petition No.25730 of 2017
consciously restricted the consideration to three
questions as noted in the judgment of this Court
dated 21.03.2017 and did not permit to raise any
submission other than three questions as noted above
or proceed to consider any other questions. The issue
which has not been expressly permitted to be decided
by judgment dated 04.05.2018 cannot operate as res
judicata in subsequent writ petition filed by the
appellant where the challenge to the leviability of
the interest has been raised. Section 11 Explanation
4 C.P.C. on which much reliance has been placed by
the counsel for the appellant provides:
“Section 11. Res judicata.- No Court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same
35
title, in a Court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such Court.
xxx xxx xxx xxx
Explanation IV.- Any matter which might and ought to have been made ground of defence or attack in such former suit shall be deemed to have been a matter directly and substantially in issue in such suit.
29. What Explanation IV provides is that a plea which
might and ought to have been taken in the earlier
suit, shall be deemed to have been taken and decided
against person raising the plea in the subsequent
suit. Present is a case where the plea of questioning
the leviability of the interest was specifically
raised by the appellant in the writ petition in
paragraphs 33-34 as noticed above. The Division
Bench of the High Court did not entertain such pleas
due to the Court having restricted the consideration
to the three questions as noted above. In the above
fact situation, we are of the view that subsequent
writ petition where plea of leviability of the
interest was raised could not have been thrown on the
36
ground of res judicata. The sequence of the events
and the fact of de-tagging the writ petition with the
main Bunch where challenge to interest was made
separately clearly indicate that the Division Bench
which reserved the judgment on 09.11.2017 clearly
intended not to entertain the question of liability
to pay interest in the Bunch which was reserved on
09.11.2017. When the High Court has expressly
restricted the consideration to three issues noted
above, the plea of constructive res judicata cannot
be pressed in service against the appellant to
preclude him from raising the question which was not
expressly permitted to be argued in Writ Petition
No.25730 of 2017.
30. There is one more reason due to which we are not
to shut the consideration of question of liability of
the appellant to pay interest on the Entry Tax. From
the facts of the case, as noticed above, it is
apparent that in the order of this Court passed on
06.12.2013 while modifying the interim order passed
in C.A. No. 3413 of 2012 (arising out of
37
SLP(C)No.2757-2758 of 2004), this Court observed “in
the event of appellant failing in this appeal, the
appellant will be liable to pay the arrears of tax
along with interest, as may be determined by this
Court under the provisions of the Uttar Pradesh Entry
Tax Act, 2007, at the time of final disposal of the
appeal.” When Appeal No.3413 of 2012 was ultimately
decided on 21.03.2017 by this Court, this Court
granted liberty to the appellant to file fresh writ
petition raising the issues mentioned therein for
consideration of the High Court. In the order dated
21.03.2017 there was no determination by this Court
regarding interest to be paid by the appellant under
the provisions of the Entry Tax Act, 2007. However,
when the liberty was granted by this Court to the
appellant to raise above noted three issues on the
necessary factual background or any other
constitutional/statutory issues, which arise for
consideration, the High Court was free to consider
the question of liability of interest to be satisfied
by the appellant under Act, 2007.
38
31. Further, what is the scheme of payment of
interest under Act, 2007 is a question which depends
on the interpretation of the Act, 2007 and the Rules
framed thereunder. The issue needs determination for
proper working of the Act and the Rules. In this
context, we may refer to judgment of this Court in
Shree Bhagwati Steel Rolling Mills Vs. Commissioner
of Central Excise and another, (2016) 3 SCC 643,
where question of levying interest under the
provisions of Central Excise Act, 1944 under Rule 96-
ZO, 96-ZP and 96-ZQ of Central Excise Rules, 1944 was
held question of jurisdiction to levy interest and
the said question was allowed to be raised. This
Court laid down following in paragraph 29:
“29……………We also feel that since this is a question of the very jurisdiction to levy interest and is otherwise covered by a Constitution Bench decision of this Court, it would be a travesty of justice if we would not allow Shri Aggarwal to make this submission.”
32. We are, thus, of the view that the question
relating to nature and extent of liability to pay
interest on Entry Tax under the scheme of Act, 2007
need to be examined by this Court in these appeals.
39
In view of the above discussion, we are of the view
that the High Court in the impugned judgment
committed error in upholding the preliminary
objection of the respondent. We are of the view that
the question relating to nature and extent of
liability of interest on Entry Tax under the scheme
of Act, 2007 need to be examined and answered in
these appeals. The question is answered accordingly.
Question No.2
33. The submission of the appellant is that interest
on the Entry Tax is not payable by the appellant
under the Act, 2007, inasmuch as there is no
substantive provision under the Act, 2007 providing
for levy of interest on the outstanding Entry Tax.
Referring to provision under Act, 2007 it is
submitted that interest on Entry Tax is contemplated
only under Section 12 (3) where tax along with
interest and penalty is contemplated where any
manufacturer fails to deposit the tax under Section
12. He submitted that there is no other substantive
provision of levy of interest. Referring to Section
40
13, contention is that Section 13 applies only
machinery provisions of U.P. Value Added Tax Act,
2008 which provision can at best be stated to be
applicability of machinery provisions and
applicability of those provisions cannot be said to
be applicability of any substantive provision
regarding interest. For considering the above
submission, we need to first notice the provisions of
Act, 2007 which are relevant for the present
controversy. Section 4 of the Act provides for levy
of tax. Section 4(1) provides that for the purpose of
development of trade, commerce and industry in the
State, there shall be levied and collected a tax on
entry of goods specified in the Schedule into a local
area for consumption, use or sale therein, from any
place outside that local area, at such rate not
exceeding five per cent of the value of the goods as
may be specified by the State Government by
notification.
34. Section 9 deals with submission of returns and
assessment of tax. Section 10 deals with provisional
41
assessment of tax. Section 12 deals with realisation
of tax through manufacturer. Section 12(1), (2) and
(3) are as follows:
“12. Realization of tax through manufacturer (1) Notwithstanding anything contained in any other provision of this act, any person who intends to bring into a local area from any manufacturer within the State, such goods specified in the Schedule as may be notified by the State Government, shall, at the time of taking delivery of the goods from the manufacturer, pay to the manufacturer the tax payable on entry of such goods into the local area and the manufacturer shall receive the tax so paid. The manufacturer 1[shall not deliver such goods] to the purchaser unless the amount of such tax has been paid by the purchaser.
(2) The manufacture receiving the tax under sub-section (1) shall submit to the Assessing Authority a return in respect of the goods supplied, and the tax received, by him under subsection (1) and deposit the tax so received in such manner and within such time as may be prescribed.
(3) Where any manufacturer fails to deposit, the tax under this section he shall be liable to pay the tax along with the interest and penalty, if any, payable thereon which shall be recoverable as arrears of land revenue.
xxxx xxxx xxxx xxxx”
35. The next provision we notice is Section 13 which
provides for applicability of certain provisions of
42
U.P. Value Added Tax Act, 2008. Section 13 as far as
relevant is as follows:
“13. Applicability of certain provisions of the Uttar Pradesh Trade Tax Act, 1948 - The following provisions of the Uttar Pradesh Value Added Tax Act, 2008, shall mutatis mutandis apply to all dealers and proceedings under this Act:-
(i) Section 9 - Liability of firm, association of persons and Hindu Undivided Family;
(ii) Section 10 - Tax due from deceased person payable by his representatives;
(iii) Section 11 - Tax liability in case of minor or incapacitated person;
(iv) Section 12 - Liability in case of Court of wards;
(v) Section 16 - Burden of proof;
(vi) Section 19 - Security in the interest of revenue;
(vii) Section 21 - Account and documents to be maintained by dealers;
(viii) Section 29 - Assessment of tax of turnover escaped from assessment;
(ix) Section 30 - Rounding off of turnover and tax;
(x) Section 31 - Rectification of mistakes;
(xi) Section 32 - Power to set aside ex parte order of assessment or
43
penalty;
(xii) Section 33 - Payment and recovery of tax;
Xxxxxxxxx xxxxxxxxx”
36. Now coming back to the submission of the learned
counsel for the appellant that only substantive
provision in Act, 2007 pertaining to payment of
interest is Section 12. Section 12 deals with only
one incident of realisation of Entry Tax, i.e.,
through manufacturer. Section 12(1) makes it clear
that any person who intends to bring into a local
area from any manufacturer within the State, such
goods specified in the Schedule as may be notified by
the State Government, shall, at the time of taking
delivery of the goods from the manufacturer, pay to
the manufacturer the tax payable on entry of such
goods into the local area and the manufacturer shall
receive the tax so paid. Section 12(2) creates
liability on person who intends to bring into a local
area from any manufacturer any goods specified in the
Schedule and the time of payment is statutorily laid
down that is at the time of taking goods. Section
44
12(3) contemplates a situation where although
manufacturer received the tax under Section 12(1) but
failed to pay tax as required by Section 12(2) then
he shall be liable to pay tax along with the
interest. Thus, liability of the interest under
Section 12(3) is confined to one particular situation
and does not provide for any universal application
for payment of interest. Requirement of payment of
interest under Section 12 (3), thus, is for a
particular situation and has no application with
regard to any other instance of liability to pay tax.
Present is a case where appellant is not receiving
any goods from any manufacturer, hence, in the
present case Section 12 has no applicability.
37. Learned counsel for the appellant has placed
reliance on the Constitution Bench judgment of this
in J.K. Synthetics Limited Vs. Commercial Taxes
Officers, (1994) 4 SCC 276. In paragraph 16 of the
judgment the Constitution Bench laid down following:
“16. 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
45
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 payments, etc. Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same. (See Whitney v. IRC, CIT v. Mahaliram Ramjidas, India United Mills Ltd. v. Commissioner of Excess Profits Tax, Bombay and Gursahai Saigal v. CIT, Punjab). But it must also be realised that provision by which the authority is empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount……”
38. What is relevant to be noticed in the aforesaid
pronouncement is that what the Court has held that
provision by which the authority is empowered to levy
and collect interest, even if construed as forming
part of the machinery provisions, is substantive law.
46
There is no quarrel to the proposition that liability
to pay a tax or interest on it has to be provided by
a substantive law.
39. Section 13 mutatis mutandis applies Section 33
of U.P. Value Added Tax Act, 2008. Section 33 of the
VAT Act, 2008 is as follows:
“33. Payment and recovery of tax- (1) Any amount of tax or fee or penalty or any other amount, which a dealer or other person is liable to pay under this Act, shall be deposited by the dealer or such other person in the prescribed manner.
(2) Subject to provisions of section 42, the tax admittedly payable, shall be deposited within the time prescribed, failing which simple interest at the rate of one and quarter percent per mensum shall become due and be payable on unpaid amount with effect from the day immediately following the last date prescribed till the date of payment of such amount and nothing contained in section 24 shall prevent or have the effect of postponing liability to pay such interest.
Explanation-For the purposes of this sub-section, the tax admittedly payable for a tax period or an assessment year, as the case may be, shall be computed in accordance with provisions of section 15.
xxx xxx xxx
(4) If the tax {other than the tax admittedly payable to which sub-section (2) applies} assessed, re-assessed or enhanced
47
by any authority or court remains unpaid after expiration of the period specified in the notice of assessment and demand, simple interest at the rate of one percent per mensum on the unpaid amount calculated from the date of such expiration shall become due and be payable.
xxx xxx xxx
40. Further the Constitution Bench of this Court in
V.V.S Sugars Vs. Govt. of A.P. and others, (1999) 4
SCC 192, again reiterated the same principle in
paragraph No.6, which is to the following effect:
“6. This Court in India Carbon Ltd. v. State of Assam has held, after analysing the Constitution Bench judgment in J.K. Synthetics Ltd. v. CTO that interest can be levied and charged on delayed payment of tax only if the statute that levies and charges the tax makes a substantive provision in this behalf. There being no substantive provision in the Act for the levy of interest on arrears of tax that applied to purchases of sugarcane made subsequent to the date of commencement of the amending Act, no interest thereon could be so levied, based on the application of the said Rule 45 or otherwise.”
41. What is the nature of the provision of Section
33 of the VAT Act, 2008 which has been made
applicable by virtue of Section 13 of Act, 2007 is
48
the question to be answered? Section 13 “mutatis
mutandis” applies certain provisions of VAT Act, 2008
as mentioned in Section 13. Words “mutatis mutandis”
came to be considered in M/s. Ashok Service Centre
and others Vs. State of Orissa, (1983) 2 SCC 82. In
the aforesaid case this Court had occasion to
consider the provisions of Orissa Additional Sales
Tax Act, 1975. Section 2(2) of which provision
mutatis mutandis applies the provisions of Orissa
Sales Tax Act, 1947. In the above reference, this
Court explained the expression “mutatis mutandis” in
paragraph No.17, which is to the following effect:
“17. Section 3(2) of the Act which makes the provisions of the principal Act mutatis mutandis applicable to the levy of additional tax is a part of the charging provision of the Act and it does not say that only those provisions of the principal Act which relate to assessment and collection of tax will be applicable to the proceedings under the Act. Before considering what provisions of the principal Act should be read as part of the Act, we have to understand the meaning of the expression ‘mutatis mutandis’. Earl Jowitt’s The Dictionary of English Law (1959) defines ‘mutatis mutandis’ as ‘with the necessary changes in points of detail’. Black’s Law Dictionary (Revised 4th Edn., 1968) defines ‘mutatis mutandis’ as “with the necessary changes in points of detail,
49
meaning that matters or things are generally the same, but to be altered when necessary, as to names, offices, and the like. Housman v. Waterhouse. In Bouvier’s Law Dictionary (3rd Revision, Vol. II), the expression ‘mutatis mutandis’ is defined as “[T]he necessary changes. This is a phrase of frequent practical occurrence, meaning that matters or things are generally the same, but to be altered when necessary, as to names, offices, and the like”. Extension of an earlier Act ‘mutatis mutandis’ to a later Act brings in the idea of adaptation, but so far only as it is necessary for the purpose, making a change without altering the essential nature of the thing changed, subject of course to express provisions made in the later Act. Section 3(2) of the Act shows that the State legislature intended not to depart substantially from the principal Act except with regard to matters in respect of which express provision had been made in the Act. The assumption made by the High Court that the Act was an independent Act having nothing to do with the principal Act is not correct. The Act only levied some extra sales tax in addition to what had been levied by the principal Act. The nature of the taxes levied under the Act and under the principal Act was the same and the legislature expressly made the provisions of the principal Act mutatis mutandis applicable to the levy under the Act. The additional sales tax was in the nature of a surcharge over and above what was due and payable by an assessee under the principal Act. The Act, though it had a long title, a short title and other usual features of every statute, could not be considered as an independent statute. It
50
had to be read together with the principal Act to be effective. In the circumstances the conclusion reached by the High Court that the two Acts were independent of each other was wrong. We are of the view that it is necessary to read and to construe the two Acts together as if the two Acts are one, and while doing so to give effect to the provisions of the Act which is a later one in preference to the provisions of the principal Act wherever the Act has manifested an intention to modify the principal Act. The following observations of Lord Simonds in Fendoch Investment Trust Co. v. Inland Revenue Commissioners made in connection with the construction of certain fiscal statutes are relevant here. He said at p. 144:
“My Lords, I do not doubt that in construing the latest of a series of Acts dealing with a specific subject- matter, particularly where all such Acts are to be read as one, great weight should be attached to any scheme which can be seen in clear outline and amendments in later Acts should if possible be construed consistently with that scheme.”
42. Further, again the same proposition was
reiterated in Rajasthan State Industrial Development
and Investment Corporation and another Vs. Diamond &
Gem Development Corporation Limited and another, 2013
(5) SCC 470. In paragraph No.18 following has been
laid down:
51
"18. Thus, the phrase “mutatis mutandis” implies that a provision contained in other part of the statute or other statutes would have application as it is with certain changes in points of detail.”
43. Thus, application of provisions of VAT Act, 2008
is provided by Section 13 of Act, 2007 with certain
changes in points of details. Section 33 of the VAT
Act, 2008 which has been mentioned to apply under
Section 13 has to be applied with respect to payment
and recovery of tax. Thus, the payment of interest
which is contemplated under Section 33 on the amount
of tax has to be applied with regard to the payment
of Entry Tax and the interest thereon. Even if
provision of Section 33 of VAT Act, 2008 to be
treated as machinery provision which is to be applied
by virtue of Section 13 of Act, 2007, the machinery
provision has to be interpreted in a manner so as to
make the liability effective and treated to be
substantive law.
44. In this context, we may also notice the judgment
of this Court in India Carbon Ltd. and others Vs.
State of Assam, (1997) 6 SCC 479. In the above case
52
the payment of Central Sales Tax on inter-State sales
of petroleum coke were delayed and the appellants
were required by the respondents to pay interest in
purported exercise of their powers under Section 35A
of the Assam Sales Tax Act. The writ petition was
filed challenging the exemption of tax. One of the
questions noted for consideration is as to whether
Section 9(2) of the Central Sales Tax Act did not
visualise any payment of interest. Section 9(2) has
been extracted in the judgment in paragraph 4 which
is to the following effect:
“4. Section 9(2) of the Central Act, as it stood at the relevant time, read thus:
“9. (2) Subject to the other provisions of this Act and the rules made thereunder, the authorities for the time being empowered to assess, reassess, collect and enforce payment of any tax under the general sales tax law of the appropriate State shall, on behalf of the Government of India, assess, reassess, collect and enforce payment of tax, including any penalty, payable by a dealer under this Act as if the tax or penalty payable by such a dealer under this Act is a tax or penalty payable under the general sales tax law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax
53
law of the State; and the provisions of such law, including provisions relating to returns, provisional assessment, advance payment of tax, registration of the transferee of any business, imposition of the tax liability of a person carrying on business on the transferee of, or successor to, such business, transfer of liability of any firm or Hindu undivided family to pay tax in the event of the dissolution of such firm or partition of such family, recovery of tax from third parties, appeals, reviews, revisions, references, refunds, rebates, penalties charging or payment of interest, compounding of offences and treatment of documents furnished by a dealer as confidential, shall apply accordingly.”
45. The Constitution Bench judgment of this Court in
J.K. Synthetics (supra) was noticed and referring to
the ratio of the Constitution Bench following was
observed in paragraph 7:
“7. This proposition may be derived from the above: interest can be levied and charged on delayed payment of tax only if the statute that levies and charges the tax makes a substantive provision in this behalf.”
54
46. This Court in India Carbon Ltd. (supra) held
that the provision relating to interest in the latter
part of Section 9(2) can be employed by the States’
sales tax authorities only if the Central Act makes a
substantive provision for the levy and charge of
interest on Central sales tax and only to that
extent. In paragraph 13 following has been laid down:
“13. Now, the words “charging or payment of interest” in Section 9(2) occur in what may be called the latter part thereof. Section 9(2) authorises the sales tax authorities of a State to assess, reassess, collect and enforce payment of the Central sales tax payable by a dealer as if it was payable under the State Act; this is the first part of Section 9(2). By the second part thereof, these authorities are empowered to exercise the powers they have under the State Act and the provisions of the State Act, including provisions relating to charging and payment of interest, apply accordingly. Having regard to what has been said in the case of Khemka & Co. it must be held that the substantive law that the States’ sales tax authorities must apply is the Central Act. In such application, for procedural purposes alone, the provisions of the State Act are available. The provision relating to interest in the latter part of Section 9(2) can be employed by the States’ sales tax authorities only if the Central Act makes a substantive provision for the levy and charge of interest on Central sales tax and only to that extent. There being no substantive
55
provision in the Central Act requiring the payment of interest on Central sales tax the States’ sales tax authorities cannot, for the purpose of collecting and enforcing payment of Central sales tax, charge interest thereon.”
47. Section 9(2) was considered in two parts. This
Court treated the first as substantive provision
whereas second part only for procedural purpose
alone, due to the above reason, this Court held that
any claim of interest was unfounded. In the case
before us, Section 33 has been made applicable by
virtue of Section 13 mutatis mutandis. There is no
such dichotomy in Section 13 as was noticed in India
Carbon Ltd. in Section 9(2) of the Central Sales Tax
Act.
48. As noticed above the Constitution Bench of this
Court in J.K. Synthetics Ltd. has laid down “………But
it must also be realised that provision by which the
authority is empowered to levy and collect interest,
even if construed as forming part of the machinery
provisions, is substantive law………” We have, thus, no
hesitation in rejecting the submission of the learned
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counsel for the appellant that Act, 2007 does not
contain any substantive law for levy of the interest.
Question No.2 is answered accordingly.
49. We having answered jurisdictional question no.1 and
question no.2, other questions and issues need to be
remitted to the High Court for consideration. The
questions for determining the liability of interest and
various aspects including factual aspects need to be
examined and considered by the High Court. For instance,
what shall be the effect of deposit of Entry Tax in
separate interest-bearing account in pursuance of the
interim order of this Court dated 09.02.2004 in Civil
Appeal Nos.997-998 of 2004 as noted above needs to be
considered. There may be few other issues, questions of
facts which need to be decided by the High Court for
determining the liability of interest of the appellant.
It shall also be open for the High Court to frame any
other question or issue which may be required to be
considered and answered.
50. In result, the appeals are allowed. The impugned
judgment of the High Court dated 22.11.2018 is set aside.
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The Writs are revived before the High Court to be
considered and decided on merits.
51. The parties shall bear their own costs.
......................J. ( ASHOK BHUSHAN )
......................J. New Delhi, ( K.M. JOSEPH ) April 22, 2019.
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