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

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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

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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

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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

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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

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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

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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

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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

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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.”

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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

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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.”

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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

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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

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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

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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

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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

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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

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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

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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

23

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

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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

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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

56

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.

57

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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