Holding

The Jammu and Kashmir General Sales Tax Act, 1962, sections 8(1), 8(2) and 8(3) are constitutionally valid, but the State may recover interest on quarterly tax paid after the due date only at the graduated rates prescribed in section 8(2).

Summary

The petitioners, registered dealers under the Jammu and Kashmir General Sales Tax Act, 1962, filed quarterly returns but failed to pay the tax on time, leading the Assessing Authority to levy interest under section 8 of the Act. They challenged the constitutional validity of sections 8(1), 8(2) and 8(3) on grounds of violation of Articles 265 and 14 of the Constitution of India, arguing that the State lacked power to impose interest, that the rates were discriminatory, and that interest could not be charged without a demand notice or when tax was paid after the prescribed date. The Supreme Court held that the State Legislature had the competence to levy tax, assess liability, and prescribe interest as a recovery mechanism, and that the interest provisions were not violative of Article 14. However, the Court restrained the State from charging interest on quarterly tax paid after the due date at rates other than the graduated scale prescribed in section 8(2). The Court partially allowed the appeals and writ petitions, modifying the interest recovery to the statutory graduated rates.

Issues considered

The State's legislative competence to provide for interest on delayed payment of sales tax under Article 265 of the Constitution of India.
Whether sub‑section (2) of section 8 of the Jammu and Kashmir General Sales Tax Act, 1962 violates Article 14 by being discriminatory, arbitrary or unreasonable.
Whether a dealer is liable to pay sales tax irrespective of receipt of the sale price from customers.
Whether interest can be levied without a prior notice of demand.
Whether the rate of interest charged on quarterly tax must follow the graduated scale of section 8(2).

Legislation cited

Constitution (Application to Jammu and Kashmir) Order, 1954
Constitution of Indias. Article 14, s. Article 246, s. Article 265, s. Article 370
Constitution of Jammu and Kashmirs. Section 114
Jammu and Kashmir General Sales Tax Act, 1962s. 8(1), s. 8(2), s. 8(3)
Sale of Goods Act, 1930s. Section 64-A

Subjects

sales taxinterest on taxconstitutional validityArticle 265Article 14Jammu and Kashmirtax assessmentinterest ratesstate taxing power

Judgment

A

KHAZAN CHAND ETC.
v.

B STATE OF JAMMU AND KASHMIR AND OTHERS
'
[P. N: BHAGWATi AND D. P. MADON, JJ.] +
'
Constitution of India 1950, Articles )4 and 265.

Jainmu and Kashmir General Sales Tax Act 1962 Sectlon 8 (1), (2) and
c (J)-Wherher valid and constitutional.

Taxing Power of State-What is-Cotnprehends power to provide for"
collectiati of tax and prescribe methods for recovery.
'
Jammu and Kashmir General Sales Tax Act 1962-Section 8 Sales Tax'
-Payment of-After prescribed perlod-Cha,.ging of interest on sales tax-
D Whether valid and legal.

Section 8 (2)-tax paid beyond prescribed period-Interest charged at ;I
graduated scale-Permissibility of-.Whether vfolatire of Article 14.

Section 8 (.3)-Goods sold on credit basis-Liability to payment of sal<'S
E tax by dealer-Whether arises.

The :;ippeltants and the petitioners were assessees registered as dealers
under the Jammu and Kashmir General Sales Tax Act, 1962. They filed
their quarterly rCturos within the time prescribed by the Act but without
paying the tax due according to su~h returns. Some or them also filed
revised f~turns thereafter. The 1ax d1Je was paid by the asscssees · after
several months and in some cases by instahnents. In a few cases. 1hc full
F amount of tax was not paid even by the date l he assessment orders came
to be made. In the case of most of the Assessees the Assessing Authority
levied penalty under sub-section ( 2) of section 8 of the Act before making
any a~sessment. lo other cases, orders requiring interest to be paid were
made along with the assessment orders.

The assessees who Were appellants in this_ Court, bad filed writ
G Petitions in the High Court challenging the validity of section 8 of the Act
under which interest was sought to be recovered aS also the demand for
payment of interest. The High Court dismissed the Writ Petitions.

In the Appeals and Writ Petitions to this Court the assessees were :

(a) dealers who bad filed their rel urns but ~had not deposited the full
amount of tax due according to such returns, and the Assessing
KHAZAN CHAND v. J, & K. STATE 859

Authority, having accepted the returns, had issu.ed a composite A
notice of demand calling up them ·to pay the amount of tax
along wiih interest due on it,

(b) dealers who had filed their returns but had paid the tax due
according -to such returns after the expiry of the prescribed time
and in whose cases the Assessing Authori! y had accepted the
B
returns and had isSued a notice of demand asking them ·to pay
interest on the amount of tax fof the period for which such pay-
ment was delayed, and '

(c) dealers who had filed their returns but had not paid the amount
of ta:ill due according to such returns by the prescribed time· but
bad paid it later and notices were issued against them calliOg c
upon them to pay interest for the p'C:riod of default before
making aay order of assessme.nt.

It was contended on their behalf that;

(1) The charging of interest from the assessees was violative of
Article 265 of the Constitution as there was no legislative power
in the State Legislature to make a law providing for· payment of D
interest if the amount .of tax was not paid by the prescribed
time, and, for this reason, the provisions of section 8 or the Act
in so far as they provide for payment of such interest are beyond
.the legislative competence of the State Legislature and, therefore
unconstitutional. '

E

..
(2) Sub-section (2) of section 8 of the Act was void as infringing
Article 14 of the Constitution becaUse its provisions are discri-
minatory, arbitrary and unreasonable •

(3) The Assessees carried on business on credit basis and as by the
dates when they filed their quarterly retuins their customers
had not pa id to them the price of goods sold to them, the
'~
Assessees were not bound to pay tax .along with their returns but F
,I ~
were bound_ to pay tax in respect of these transactions of sales
only when the amount of sale price was received by them from
' their customers.

(4) In some cases, the amount of interest claimed frQm the Assessees
exceeded the amount of tax paid by them and, therefore, the
< demand for such excess amount of interest was bad in Jaw. G
~
(5) The Assessees were not liable to pay interest on the amount of
tax not paid in time without a notice of demand for payment of
tax being first issued.

(6) Interest was levied by the Assessing Authority for the entire 11
Mo [1984] 2 s.c.R.

A period of default at the maximum rate prescribed by sub-section
(2) of section 8 which was contrary to the provisions of that sub-
section.

HELD: The constitutionality of sub.section (1), (2) and (3) of
section 8 of the Jammu and Kashmir General Sales Tax.Act 1962 upheld.
The State however restrained from recovering' from the Assessees. interest
B on the amount of quarterly tax paid after the expiry of the date prescribed
for payment by sub.section (3) of section 8 of the Act at a rate other than
the rate of one per cent per month for the. first three months of default
and at the rate of two per cent per month for the next three months of
default and at the rate of three per cent for the period of defau It exceeding ---~
six months. [881 G-H; 8821\]
c 1. Ci) The Constitution af India, does not apply in its entirety to the
State of Jammu and Kashmir because that State holds a special position in
the Constitutional set up of the country~ Article 3 70 makes special .Provi-
sions with respect to the State of Jammu and Kashmir. Under sub-clause
(c) of clause (I) of Article 370 the provisions of Articles I and 370 apply
in relation to the State of Jammu and Kashmir and under sub-clause (d) of ,
D clause (I) of Article 370 such of the other provisions of the Constitution J
apply in relation to that State subject to such exceptio11;s and modifications
as the President may specify by an order issued with the concurrence of the }
\
Government of the State. In exercise of the power conferred by clause (1)
of Article 370 the President of India, with the concurrence of the Govern-
ment of the State of Jammu and Kashmir, has made the Constitution (App 1 i-
cation to Jammu and Kashmir) Order, 1954 (C. 0. 48) which was amended
from time to time. The proviitions of the Constitution of India as in force
E on June 20. 1964. and as amended by the Constitution Amendment Acts
set out in clause (2) of that Order apply in relation to the -State of Jammu
and Kashmir subject to the exceptions and modific.itions set out in the said
clause. By sub-clause (6) (a) of clause (1) of the said Presidential Order,
...
Clause (I) of Article 246 of the Constitution of India was made applicable
to the State of Jammu and Kashmir with certain modifications, while clause
(3) of Article 246 was not made applicable to the State. Sub.clause (22)
F of clause 2 of the said Presidential Order applies List I in the Seventh Sche-.
dole to the State of Jammu and Kashmir with the omissions a"nd modifica-
tions mentioned in the said sub-clause. Entries 92 and 92A of List I apply
to the State of Jammu and Kashmir in an unmodified form. By the same
sub-clause, List II ill the Seventh Schedule, natllely, the State List, does not
apply to the State of Jammu and Kas.hmir. [870G-H; 871A·B]

(ii) Thus under section S of the Constitution of Jammu aod Kashmir
G the e1:ecutivc and legislative po~er of the State extends to al1 maters with
respect to which Parliament bas power_ to make laws for the State under the
provisions of the Constitution of India under the Constitutional provisions
applicable to the State of Jammu and Kashmir, the power of the State
Legislature to enact a law relating to taxes on intra-State sale or purchase
of goods is thC same as that of the Legislatures of other States in. India. By
sub-clause (7) of clause 2 of the said Order, Article 265 is made applicable
to tho State of Jammu and Kashmir. Section 114 of the Constitution of
H
KHAZAN CilAND v. 1. & IC, STATB 861

Jammu and Kashmir is in terms identical with Article 265 of the Constitu-
A
tion of India which provides. that ''No tax shall be levied or collected except
by authority of law." [871B·D)

' (iii) The power to make a law with r.espect to tax comprehends with·
in it the power to levy that tax and to determine the persons who are liable
to pay such tax, the rates at which such tax is to be paid and the event
which will attract liability in respect of such tax. This is done by the
charging sections of the particu.Jar tax law. The taxing power of the state
will also comprehend within it the power to provide for quantification of
the Jiability of persons made liable to pay the tax. This is done by the
provisions relating to assessment. The taxing power will also comprehend
within it the power to provide for col1ection of tax including prescribing the
methods of recovery of the amount of tax due if the person liable to pay c
the tax does not voluntarily pay it. The power to make a law with respect
to a tax includes not only what bas been set out above but also a power to
make provisions in the relevant statute with r<'spect to all matters ancillary
and incidental 'to the levy, assessment, collection and recovery of tax. Callee·
ion of tax by the State may be either after ~be "liability is quantified by
assessment or may be prior to actual assessment by requiring the assessee to
pay before any assessment -is made the amount of taX admitted to be dtie D
and payable by him. [872B-E]

Whitney v. Commissioners of Inland Revenue, L.R. 1926 A.C. 37, 51
H. L. 10 T. C. 79, 110; Chalturam and others v. Commissioner of Income Tax,
Bihar (1947) F.C.R. 116, 126; (1947) 15 I.T.R 302, 308; Messrs Chattu-
ram Hori/ram Lrd. v. Commissioner of Income TaX, Bthar and Orlssa, [1955]
2 s.c.R. 280, 297·8; (1955) 27 l.T.R. 708, 715·6 referred to. E

(iv) One of the methods of collection of revenue adopted by the Act,
is to require that tax due according to the quarterly returns should. be paid
before filing such returns and it was within the legislative competence of the
Legislature of the State of Jammu and Kashmir to provide for recovery of
the amount of tax due under quarterly returns if default ·is made in paying
such amount by tho prescribed time. [872H; 873A) F

(v) Payment of interest in case of default in payment of tax is a
means of compelling an assessee to pay the tax due by the·prescribed date.
It is a mode of recovery of taK and well within the legislative power of the
State. [873C]
G
2. (i) Inter~State trade and commerce is a matter which affects all
the States in _India and thus the whole country. It is for this reason that
in the Seventh Schedule to the Constitution the subject of taxes on the sale
Or purchase of goods taking place in the course ol inter-State trade or
commerce bas been put in List I and made a Unioa·subject. Taxes on the
sale or purchase of goods takin·g place within the State affect only those
who carry on the business of buying and selling goods within the State and,
therefore, this subject haS been pu_t in List II of Seventh Schedule, namely
tho State List. [874C-D] H
862 SUPREME COURT REPORTS (1984) 2 S.C.R.

A (ii) Sales tax is the biggest source of revenue for a State and it is for
the State to decide how and in what manner it will raise this revenue and to
determine which particular transactions of sale or purchase of goods taking
place within that Sta-te should be taxed and at what rates. and which parti-
cular transactions of sale or purchase of goods should be eiempted from. tax
or taxed at a lower rate having regarj to the subject-n1:i.tter of sale, as for
instance, Where particular goods constitute necessities for the poorer c!, 1sses
of people or·where the goods in question are of .such a nature as ·are re-
quired to be exempled from.tax or taxed at a lowerrate_in order to encou-
B rage a local industry. Consideration of these matters must, therefore,
differ from State to State. Similarly it is for the each State to detern1inc
the methods -it will adopt to collect its revenue from this source and to decide
which rr1ctbods would be most efficacious for this purpose. If the provisions
of tbc legislation of every State on a particular topic are to be identic,!l in
c every respect, there is no purpose in including that topic in the S'tate List
and it may as well be included in the Union List. Merely because the
provisions of :, State Jaw differ from the provisions of other State laws on
·the safi.1e subject cannot n1ake such provisions discriminatory. [874D·G]

(iii) Jnterest is payable under sub~section LZ) of section 8 on the
amount of lax paid artcr the expiry of the prescribed date of p ·Yment. The
D rate of two per cent per month and particul?rly the rate of three per cent
per 1nonth can be said to· be on the high side, but this would not reader
the provisions of that sub-section void or unconstitutional. Providing for
payment of interest in case of dela~ed payment of tax is a method usually
adopted in fiscal legislation to ensure that the amount of tax which is due
is paid by the prescribed time and provisions in that behalf form part of the
recovery machinery provided in a taxing statute. It is for the State to pro-
.E vide by what means payment of tax is to be enforced and a person who .
does not pay the amount of tax lawfully and admittedly due by him can
hardly complain of the measures adopted by the State to compel him to pay
such amount. [875A·C]

(iv) Under the Act, the same rates of interest apply both to the
dealer who has made default in payment of tax due by him and to the State
Government in case )f default made by it in making payment of the amount
F of tax or penalty which has become refundable as a result of an appellate or
rovisional :order. The graduated rate of interest· provided by sub-section (2)
of section 8 cannot, therefore, be characterised as arbitrary or unreasonable.
[875F-G]
3. (i) Under the Act, the liability to pay sales tax is cast upon the
dealer. This is made clear by sections 4,6, and clauses (G), (L) (1), (L) (II},
G and (n) of section 2·. It -is imn1aterial whether the price of goods has been
paid to the dealer or is payable to him. The fact that a dealer has sold
goods on credit is, therefore, wholly immaterial. Tbis liability is irrespec-
tive of tho fact whether the dealer has ffi[lde profit or loss in bis business
and Whether he has received the sale price or not. [876H; 877A-B]

(ii) Section 64·A of the Sale of Goods Act, 1930 does not deal with
the liability of the seller to pay sales tax to the Goveroment. [878E]
H
KHAZAN CHAND v. 1. & K. STATB 863

In tho instant caseJ the Assessees were bound to pay .the tax . due A
according to 1he quarterly returns filed by them before filing such returns
and the fact that their customers bad not paid to them the sale price did
not exempt them from their statutory liability. [8780)

4. The recovery prov_isions of the Act are meant for· speedy a_nd
prompt collection of revenue. These provisions are not meant for the
benefit of defaulting tax-paye1 sand Sltb defaulters cannot claim that the B
amoual of interest payable by them on delayed tax payment should be
scaled down as if they were .entitled to claim relief under a debt·relief law.
[879B-C]
S. Under sub~section 8 (1) the tax assessed o.r any other amount
demanded iS to be paid within the time specified in the notice ofdemarld.
Under sub-seceion ( 3), the quarterly tax is to be paid betore ftirnishing -the
quarterly return but not later than the date prescribed under sub-section (2)
c
of section 7. Accordingly, the requirement of sub-section (2) of section· 8
that int.!f6St will be chargeable from the date specified for paym_ent in the
notice of demand cannot be applied to the payment of quarterly tax and
necessary alterations as required by sub-section (8) ~o section 8 will, there-
fore have to be made in the provisions of sub--section (2) in their application
to a default made in _Qayment of quarterly tax and .sub-section (2) must be D
read as providing.that interest under sub-section (2) will become payable
fronl the date prescribed by sub-section (3) of section s'ror payment of
quarterly tax. [880B-F)

Messrs Royal Boot House etc. v. State of Jammu and -Kashmir and
others. C.M.P. Nos. 32413 and 32.414 of 1983 decided on January 6, 1984
by P. N. Bhagvati, A;g. C. J. and Venkataramiah and Varadarajaa; JJ. E
referred to.

6. Sub-section (2) of.section 8 of the Act provides for different rates
of interest depending upon the length of the period of default. [881D)

In the instant oases, int eresLon the amount of. quarterly tax not paid
, in time has been imposed at a uniform rate for the full period of default and
F
not according to the scale of rates prescribed by sub-section (2) of section 8.
[88 IB]
ORiGINAL JURISDICTION : Writ Petition Nos: 12695, 13478-82,
13352 of 1983, 99·100, 133-34, 231, 234-36 of 1984. ·

[Under article 32 of the Constitution of India]
G
Civil Appeals Nos. 322·351 of 1984

Appeals by Special leave from the Judgment and Order dated
the 24th June, 1983, 19th August, 1983, !st September, 1983, &
29th December, 1983 of the Jammu and Kashmir High Court in Writ
Petition Nos. 430 & 886/82, 364/81, 478/81, 132/82, 338/80; 525/80,
485/80, 67/83, 404/82, 681/82, 679/81, 688/82, 472/81, 678/82, H
S64 StJPRBMB CoURT REORTS (1984) 2 S.C.R.
A 230/81, 229/83,. 476/81, 228/83, 471/80, 287/83, 682/82, 344/82
621/82, 302/80, 624/80, 46/83, 912/83, 558/82 and 623/83.

K. K. Venugopal and Anll Dev Singh Salish Vig, S. P. Sharma,
L. K. Gupta, Vimal Dave, R. C. Kaushik and Subhash Sharma
for the Petitioners/ Appellants.
B

Altaf Ahmed for the Respondents.

The Judgment of the Court was delivered by
(

MADON, J. This group of Writ Petitions and Appeals by
c
Special Leave challenges the constitutional validity of sub-sections
(!), (2) and (3) of section 8 of the Jammu and Kashmir General
Sales Tax Act, 1962 (J & K Act XX of !962) and seeks to quash
the orders directing the Petitioners and Appellants before us (herein-
after for the sake of brevity referred to as "the Assessees") to pay
D interest on the amount of tax due according to the quarterly returns
filed by them but not paid within the prescribed time.

All the Assessees are registered as dealers under the Jammu
and Kashmir General Sales Tax Act, 1962 (hereinafter referred to
as "The Act"). Sub-section (1) of section 7 of the Act requirse
every. dealer liable to pay tax under the Act to furnish in the pres-
E cribed form a return of his turnover for a year within 120 days from
the expiry of that year. Sub-section (2) of section 7 provides as
follows :

"Without prejudice to the provisions of sub.section (1),
every dealer shall also furnish in the prescribed form
F
quarterly returns for each quarter of the year within thirty '
days from the expiry of that quarter. Every such return
shall be accompanied by a Treasury Receipt or any other
proof of having paid the tax due on that return."

Thus, the tax due according to a quarterly return is to be paid
G
by the dealer before filing suoh return and proof of payment of the
tax so due is to accompany such return. Sub-sections (I), (2), (3),
(7) and (8) of section ~. omitting what is not relevant for our pur-
pose, provide as follows:

"(!) The tax assessed, or any other amount demanded,
H under this Act shall be paid in such manner and within
KHAZAN CHAND f, 1. & K. STATE (Madon, J.) 865

such time not being less than fifteen days from the date of A
ll.-..'
.
the notice of demand. as may be specified in the notice. Jn
default of such payment the whole of the amount then
remaining due shall become recoverable in accordanc with
sections 16 and 16·A.

x x x x x x B
(2) If the tax or any o_ther amount due under this Act
is not paid by the dealer or any other person, by whom it
is payable, within the period specified in demand notice,
the dealer or such other person shall be liable to pay inte-
rest on the tax or other amount from the date it was pay-
.able to the date of actual payment at.the following rates-
c

(a) Ifthe·default is for a period of not exceeding three
months at 1% per month;

(b) If the default is for a period exceeding three months
but less than six months at 2 ~ per month; D
·.<c

(c) If the default is for a period exceeding six months at
3% per month:

Provided that where, as a result of :an order under
E
Sections I 1, 12, 24 or an order of the Conrt, the amount of
tax or other sum on which interest was payable under this
sub-section has been reduced, the interest shall be reduced
accordingly and excess interest paid, if any, shall be
refunded.
F
Explanation-Interest shall be charged. for full month
and not for a part of the month.

(3) Quarterly tax shall be paid before furnishing a
quarterly return but not later than the date prescribed under
sub-section (2) of Section 7. G
x x x x x
· (7) Where a dealer fnrnishes a revised return under
sub-section (4) of Section 7 and the tax payable is more
than the tax paid on the basis of original retJrn, he shall
pay the extra tax payable before· furnishing the revised
return: H
866 SUPREME COURT REP OR TS (1984] 2 S.C.R.

4. Provided that if the tax already paid is in excess of the
·tax payable, such excess am )Unt shall be treated to have
been paid towards the tax payable for the quarter next
following the date of fuanishing such revised return.

B (8)-Notwithstanding anything contained in this Act,
if a dealer fails to pay the tax payable under this Section,
the provisions of sub-section (2) of this Section, Section
16 and Section 16-A shall apply mutatis mutandis to the
recovery thereof. ( -· --
c Explanation (!)-Quarterly Tax means the tax .payable
on the basis of a quarterly return required to be furnished
by sub·section (2) of Section 7.

Explanation (2)-lnterest under sub· section (2) of this
Section on the extra tax payable on the basis of revised
D
return shall be payable from the date next following the
date on which the tax was payable on the basis of original
returri."

The Assessees filed their quarterly returns within the time
E prescrsbed by the Act but without payfog the tax due according to
such returns. Some of them also filed revised returns ther_eafter.
The tax due was p1id by the Assessees after several months and in
some cases by instalments. In a few cases, the full amount of tax
was not paid even by the date the assessment order in their cases
came to be made. In the case of most of the Assessees, the Asses-
sing Authority levied penalty under sub-section _(2) of section 8 of
F the Act before making, any assessment. In other cases, orders requir-
ing interest to be paid were made along with the assessment orders.
It may be mentioned that in cases where the assessment orders were
made, the returns filed by the Assessees were accepted as correct.
Those A1sessees who are Appellants. before us filed writ petitions in
the Jammu and Kashmir High Court challenging the validity of
G
section 8 of the Act under which interest was sought to be recovered
from them as also the demand fdr payment of interest. These writ
petitions were hea1d along with other writ petitions in which other
questions arose. The High Court dismissed all these writ petitions
but made no order as to tho costs thereof.
The petitioners before the High Court fell into four categories,
fl namely-
KHAZAN CHAND v. J. & K; STATE (Madon, J.) 867

(1) Dealers who had neither fried their returns ncr deposi· A
ted the tax due from them and the Assessing Authority
had determined the amount of tax payable by them
and issued a composite no.lice of demand calling upon
them to deposit the amount of tax along with interest
due ·on it.·
B
(2) Dealers who had filed their returns but had not depo-
sited the full amount of tax due according to such
~·· returns and the Assessing Authority, having accepted
the returns, had issued a composite notice of demand
calling upon them to pay the amount of tax along with
interest due on it.
c

(3) Dealers who had filed their returns but had paid the
tax due according to such returns after the expiry of
the prescribed time and in whose cases the A~sessing
Authority had accepted" the returns and had issued a
notice 'or demand asking them to pay interest on the D
amount of tax for the period for which such payment
was delayed.

- (4) Dealers who had filed their returns and had paid the
tax due according to such returns by the preacribed.

. time but the Assessing Authority had not accepted the
returns and had .enhanced the amount of tax payable
by these dealers and had issued· a composite notice of
demand calling upon them to pay the amount of tax so
E

enhanced along with interest on it.

F
We are concerned in these Petit10ns and Appeals only with
dealers who fall tinder categories (2) and ( l) above as also with those
dealers who had filed their returns but had not paid the. !!mount
of tax due according to such returns by the prescribed time but had
paid it later and notices were issued against them calling upon
them to pay interest for the period of default before making any
order of assessment, We are not concerned in these Petitions and G
Appeals with those dealers who fall under categories (I) and (4)
above.

At the hearing. of these Petitions and Appeals, no arguments
whatever were advanced before us in support of the contention that
sub·sec,tion (l) of section 8 was unconstitutional and the challen!le
868 SUPRBMB COURT REPORTS (1984] 2 s.c.R.

A to that sub-section must, therefore, fail. The only contentions
which were urged at the hearing were as follows:

(I) The charging of interest to the Asssssees is violative of
•
Article 265 of the Constitution of India as there was
no legislative power in the State Legislature to make a
.B law providing for payment of interest if the amount of
tax was not paid by the prescribed time and, for this
reason, the provisions of section 8 of the Act in so far
as they provide for payment of such interest are beyond
the legislative competence of the State Legislature and,
therefore, unconstitutional.
c
(2) Sub-section (2) of section 8 of the Act is void as infrin-
ging Article 14 of the Constitution b~cause its provi·
sions are discriminatory, arbitrary and unreasonable

(3) The Assessees carried on business on credit basis and
.D as by the dates when they filed their qnarterly returns
their customers had not paid. to them ·the price of
goods sold to them, the Assessees were not bound to
pay tax .along with their returns but were bonnd to pay
tax in respect of those transactions of sale only when
the amount of sale price was received by them from
E
their customers.

(4) Jn some cases, the amount of interest claimed from the
Assessees exceeded the amount of tax paid by them
and, therefore, the demand for sueh excess amount of
..
interest was bad in law.
F
(5) The Assessees were not liable to pay any interest on
· the amount of tax not paid in time without a notice of
• demand for payment of such amount of tax having
been first issued to them.

(6) Interest was levied by the Assessing Authority for the
G entire period of default at the maximum rate prescribed
by sub-section (2) of section 8 which was contrary to
the provisions of that sub-section.

We will first examine the correctness of the contention that the
impugned provisions of section 8 of the Act are violative of Article
p 265 of the Constitutio'l of India. Article 265 of the Cof\stitutjon
KHAZAN CHAND v. }, & K. STATE (Madon, J.) 369

provides that "No tax shall be levied or collected 'except by autho.
rity ·of law." ·Thus, Article 265 postulates that before any tax can
be. levied and collected there must be a valid law enacted by ·an
approp.riate legislature imposing such tax and providing for its
·collection. The submission on behalf of the Assessees ·was that
under the Constitution the Legislature ·of the State of Jammu and
B
Kashmir has no legislative power to provide for payment of interest
in case of late payment of tax. It was not the contention of the
Assessees, as indeed it could not be, that the Legislature of the
State of Jammu and Kashmir had no legislative power to enact a
law levying a tax on the sale or purchase of· good1 taking place
within the State and making provisions for the collection of such c
tax, because the constitutional position in this behalf is clear and
indisputabfo. Under claus' (I) of Article 246 of the Constitution
of India, Parliament has exclusive power to make laws with respect
to any of the matters enumerated in List I in the Seventh Schedule
to the Constitution referred to as the "Union List" and under clause
(3) of the same Article the Legislature of any State has exclusive
power to make laws for such Slate or any part thereof with respect D
to any of the matters enumerated in List II of the Seventh Schedule
to the Constitution referred to as the "State List". Taxes on the
sale or purchase of newspapers and on a1verti rements published
therein fall under Entry .92 of the Union List and taxes on the sale
or purchase of goods, other than newspapers, where such sale or
purchase takes place in the course of inter-State trade or commerce E
fall under Entry 92A of the Union List, while taxes on the sale or
purchase of goods, otherthan newspapers, subject to the provisions
of Entry 92A of List I, fall under Entry 54 of the State List. Thus,
so far as sales tax is concerned, the Constitution bifurcates the
legislative field of taxation between the Union and the States. As a
result of this bifurcation, the subject of taxes on intra·State sale F
or purchase of goods (other than newspapers) falls exclusively within
the State power of taxation. The Constitution of India, however,
dbes not apply in its entirety to the State of Jammu and Kashmir
because that State holds a special position i11 the constitutional set
up of our country. Article 370 of the Constitution of India makes
special provisions with respeci to the State of Jammu and T<ashmir. G
Under sub-clause (c) of clause (I) of Article 370 the provisions of
Articles I and 370 apply in relation to the State of Jammu and
Kashmir and under sub·clause (d) of clause (I) of Article 370 such
of the other provisions of the Constitution apply in relation to that
State subject to such exceptions and modifications as the President
may specify by an order iss11ed with the concurrence of the Govern-
"
870 SUPllEME COUilT REPORTS \ J984] 2 S.C.R.

A ment of that State.· Thus, by reason of the application of Article 1
t() the State of Jammu and Kashmir by sub-clause (c) of clause (I)
Qf Article 370 the State of Jammu and Kashmir is one of the States
which. form the Union of India and by virtue .of sub-clause (d) of
clause (I) of that Article so far as the provisions of the Constitution,
other than·those of Articles I and 370, are concerned, the President
B of India' has the power, with the concurrrnce of the Government of
the State of Jammu and Kashmir, to issue an order specifying which ....
of them. shall apply to that State and whether such provisions shall
apply in their entirety or subject to such exceptions and modifica-
tions as may be specified in that order. Article 370 also envisages
the convening of a Constituent Assembly for that State and the
c framing of a separate Constitution for it. In exercise <if the power
corife~red by clause (I) of Article 370 the President of India, with
the concurrence of the Government of the State of Jammu and
I
Kashmir', has made the Constitution (Application to Jammu. and
Kashmir) Order, 1954 (C. 0. 48). This order deals with the entire
D constitutional position of the State of Jammu and Kashmir within
the framework of the Constitution of India, except only the internal
Constitution of the State Government to be framed by the Consti-
tuent Assembly of that State. The Constituent Assembly of the
State· of Jammu and Kashmir framed its own Constitution repealing
and replacing its earlier Constitution. This new Constitution, called
E the •;constitution of Jammu and Kashmir", was adopted and
enacted by the Constituent Assembly of that State on November
17, 1965.

By the Constitution (Application to Jammu and Kashmir)
Order, 1954 CC. 0. 48), as amended from time to time, the provisions
of the Constitution of India as in force on June 20, 1954, and as
F amended by the Constitution Amendment Acts set out in clause (2)
of that Order apply in relation to the State of Jammu and Kashmir'
subject to the exceptions and modifications set out in the said clause.
By sub-clause (6) (a) of clause (2) of the said Presidential Order,
clause (1) of Article 246 of the Constitution of India is made appli-
cable to the State of Jammu and Kashmir with certain modifications
G
with which we are not concerned, while clause (3J of Article 246 is
not made applicable to that State. Sub-clause (22J of clause 2 of
the sa;d Presidential Order applies Lisi I in the Seventh Schedule to
the State of Jammu ·and Kashmir with the omissions and modi-
fications mentioned in the said sub-clause. These omissions. and ·
modifications are, however, irrelevant for our purpose inasmuch as
H Entries 95 and 92A of List I apply to tbe State of Jammu and
KHAZAN CHAND v. ], & K. STATE (Madon, J.) 871

Kashmir in an unmodified form. By the same sub-clause, .List II
in the Seventh Schedule, namely, the State List, does not apply to
the State of Jammu and K.ashmir: Section 5 of the Constitution of
Jammu anc!· Kashmir, however, provides as follows:·
l .
"5, Extent of executive and legisiative. power of the
State.-The executive and legislative power of the State B
extends to all matters except those with respect to which
Parliament has power to make laws for the State under the
provisions of the Constitution of India."

Thus, under the constitutional provisions applicable to the
State of Jammu and Kashmir, the 'power of the State Legislature to
c
enact a law relating to taxes on intra-State sale or purchase of goods
is the .same as that of the Legislatures of other States ·in India. By
sub·clausc (7) of clause 2 of the _said Order, Article 265 is made
applicable to the State of Jammu and Kashmir. Furthe1, section·
114 of the Constitution of Jammu and Kashmir is in terms identical D
with Article 165 of the Constitution of India and equally provides
that "No tax shall b_e levied· o:- collected except by authority of
law."

The question which-we, therefore, have to consider is "Whe·
ther in the exercise of its power to make a Ia.w with respect to taxes E
on the sale or purchase of goods ·taking place within the State, the
Legislature of that State has the legislative competenee to provide
for payment of interest on the amonnt of tax due according to the
return filed by an assessee. but not paid within the prescribed time?"

As was pointed out by Lord Dunedin in Whitney v. Commissio- F
ner of Inland Revenue(1 ); a passage cited with approval by the Fede·
ral Court in Chatturam and others v. Commissioner of Income Tax,
Bihar,(2 ) and by this Court in Messrs Chatturam Hori/ram Ltd. v.
Commissioner of Income Tax, Bihar and Orissa<' J:

"Now, there are three stages in the imposition of a
tax: there is the declaration of liability, that is the part o( G
the statute which determines what persons in respect of
what property are liable. Next, there is the assessment.

,, (I) L. R. (t926] A. C. 37, 51.H. L; 10 T. C. 79, 110.
H
(2) [1947] F.'c. R. 116; 126; (1947) IS I. T. R. 302, 308.
(3) [1955)2 S. C.R. 290,-297·8; (1955) 27 I; T. R. 708 1 715·6.
872 SUPRBMB COURT REPORTS (1984) 2 .S.C.R.

Liability does not depend on assessment. That, ex hypo-
thesi, has already been fixed. But assessment particularises
the exact snm which a person liable has to pay. Lastly,
come the methods of recovery, if the person 1axed does not
voluntarily pay."
8
It would follow from the above decisions that the power to
make a law with respect to a tax comprehends within it the power
to levy thlt tax and to determine the persons who are liable to pay
such tax, the rates at which such tax is to be paid and the even __,.....__
which will attract liability in respect of such tax. This is done by r
c the charging sections of the particular tax law. The taxing power. r
of the State will also comprehend within it the power to provide
for quantification of the liability of persons made liable to pay the
tax. This is done by the provisioas relating to assessment. The
taxing power will also comprehend within it the power to provide
for collection of tax including prescribing the methods of recovery
D of the amount of tax due if the person liable to pay the tax does
not. voluntarily pay ·it. The power to make a law with respect to a
tax includes not only what has been set out above but also a power
to make provisions in the relevant st1tute with respect to all matters
ancillary and incidental to the levy, assessment; collection and reco·
very of tax. 'Collection of tax by the State may be either after the >
liability is quantified. by assessment or may be prior to '4ctual assess-
E ment by requiring the assessee to pay before any assessment is made
the amount of tax admitted to be due and payable by him. This is
done 'by making proviaions such as those for advance payment of
tax and for self-assessment contained in the Income Tax Act, 1961.
This is also what sub-section (3) of section 8 of the Act does by
requiring that the quarterly tax payable .on the basis of a quarterly
F
return. required to. be furnished by sub-section (2) of section 7 _shall
be paid before furnishing such return. This is a mode of collction
of revenue in advance before quantification of the actual tax liabi-
lity and the Legislature would be well within its right and would be
competent to provide for recovery of such amount if it is not paid
by the prescribed time. The Act, as its long title shows is "An Act
G to provide for the levy of a general tax on the sale or purchase of
goods in the State and for other matters connected therewith" and ~·-

one of the methods of collection of revenue adopted by it is to
require that tax due according to the quarterly returns should be .
paid before filing such returns and it was within the legislative com-
petence of the Legislature of the State of Jam mu and Kashmir to
H provide for recovery of the amount of tax dµe under quarterly
KllAZAN CHAND v. 1. & K. STATE (Madon, J.) 873

return• if default is made in paying such amount by the prescribed A
time. This has been done by the State. Legislature by enacting sub-
section (8) of section 8 under which the provisions of sub-section
(2) of section 8 and of sections 16 and 16-A are made applicabie
mutatis mutandis to the recovery of tax payable by a dealer if he
fails to pay it. Sub-section (2) of section 8 provides for payment
of interest, section 16 provides for recovery of tax as arrears of land B
revenue, and section 16-A provides for issue of a garnishee notice
to a person from whom money is due, or may become due, to the
~·~- assessee or to a person who holds, or may subsequently hold, money
...._ 'for or on account of the assessee to pay to the Assessing Authority
as much of the money as is sufficient to pay the amount due by the
assessee by way of tax. Thu•, payment of interest in case of default
c
in payment of tax is a means of compelling an assessee to pay the
tax due by the prescribed date. It is a mode of recovery of tax
and well within the legislative power of the State. · ·

The challenge to sub-section (2) of section 8 on the ground o·
that the provisions of that sub-section infringe Article 14 of the
Constitution is a twofold one, namely:

(I) tha,t the said sub-section is discriminatory, and

(2) that it is arbitrary and unreasonable. E

. Sub-clause (4) of clause 2 of the Constitution (Application to
Jammu and Kashmir) Order, 1954, makes Article 14 of the Consti-
tution oflndia applicable ·to the State of Jammu and Kashmir.
With respect to the charge of discrimination, it was submitted that
such high rates of interest for nori'payment of ta)\ are not to be found F
in the. sales tax law of any other State and, therefore, by enacting
. , the said sub· section (2) of section 8 and providing for payment of
interest at the rate of two por cent per month when the period of
default exceeded three months.but did not exceed six months and
for interest at the rate of three per cent per month if the default
was for a period exceeding six months, dealers in the State of
Jammu and Kashmir were hostilely discriminated against as G
compared with· dealers in other .States. This argument wholly
overlooks the very basis of the scheme of distribution of legislative
power contained in our Constitution. Our Constitution is federal
in its structute and a salient feature of a federal polity is distribution
of legislative and administrative powers between the federated unit
and the federating units, that is, between the federal government ll
874 sVPRllMB COURT REPORTS tl984] :l. s.c.R.
A
and the State governments. Thus, matters in respect of which our
Constitution-makers felt that there should be uniformity of law
throughout the country have been placed by them in the Union List
(List I in the Seventh Schedule to the Constitution) conferring
exclusive power upon Parliament to make laws with respect thereto,
B while matters which they foll were of local concern and may require
laws to be made having regard to the particular needs and peculiar
problems of each State have been assigned to the State Legislatures
by placing them in List II of the Seventh Schedule, that is, the State
List. Inter-State trade and commerce is a matter which affects all
the States in India and thus the whole country. It is for this reason
c that in the Seventh Schedule to the Constitution the subject of taxes
on the sale or purchase of goods taking place in the course of inter-
State trade or comme.rcc bas been put in List I and made a Union
subject. Taxes on the sale or purchase of goods taking place within
the State affect only those who carry on the business of buying and
selling goods within the State and, therefore, this subject has been
D put in List II of the Seventh Schedule, namely, the State Lbt. Sales
tax .is the biggest source of revenue for ·a State and it is for the State
to decide how and in what manner it will raise this revenue and to
determine which particular transactions of sale or purchase of goods
taking place within that State should be taxed ,and at what rates, and
which. particular transactions of sale or purchase of goods should be
E exempted from tax or taxed at a lower rate having regard to the
subject-matter of sale, as for instance, where particular goods consti-
tute necessities for the poorer classes of people or where the goods
in question are of such a nature as are required to ·be exempted from
tax or: taxed at a lower rate in order to encourage a local industry.
Consideration of these matters must, from the nature of thmgs,
F differ from State to State. Similariy, it is for each State to deter-
mine the methods it will adopt to collect its revenue from this source
and to decide which methods would be most .efficacious for this
purpose. The provisions of the sales tax Jaw of each State must,
therefore,· necessarily differ in various respects from the provisions
of sales tax laws of otner States. If the provisions of the legislation
G of every State on a particular topic are to be identical in every
respect, there is no purpose in including that topic in the State List
and it may as wrll be included in the Union List. Merely because
the provisions of a State law differ from the provisions of other
State laws on the same subject caionot make such provisions discri-
minatory.

H The second part of the challenge under Article 14 was with
!(HAZAN CHAND v. 1. & x:. STATE (Madon, J.)

respect to the rates at which interest is payable under sub-section (2) A
of section 8 on the amount of tax paid after the expiry of the
prescribed date of payment It is true that the rate of two per cent
per month and plfticuforly the rate of three per cent per month can
be said to be on the high side, but we fail to see how this would
render th'e provisions of that sub-section void or unconstitutional.
Providing for payment of interest in case of delayed payment of tax B
is a method usually adopted in fiscal legislation to ensure that the·
amount of ta< which is due is paid by the prescribed time and
provisions in that behalf form part of the recovery machinery
provided in a taxing statute. It is for the State to provide by what
means payment of tax is to be ·enforced and a person who noes not
pay the amount of tax lawfully and admittedly due by him can
c
hardly complain of the measures adopted.by the State to· compel
him to pay such amount. It neither lies in the defaulter's mouth
to protest against the rate of interest charged to him nor is it open
to him to dictate to the State the methods which it should adopt for
recovering the amount of tax due by him. In this connectic>n, it is
pertinent to note that under section IO·B of the Act, where as a D
result of an order mad' in appeal or revision, a refund has become
due to t_he dealer or any other person on account of tax or penalty
found to have been paid in excess, the State Government is requited ·
to pay to such dealer or person simple interest at the rate of ·12-pet,
cent per annum on the amount of such refund from the date such .
payment was made upto the date on which such refund was granted , E
and in case of delay in refunding the excess amount; interest at the
rate of 24 percent per _annum if the refund is granted beyond a
period of three months out before the expiry of six mdhths from the ·
date of the appellate or revisional order and at the rate of 36 per ·
cent per annum if it is granted· thereafter. Thus,'.under the Act,
the same rates of interest apply both to the dealer whd has made F
default in payment ·of tax due by him and to the State Government ·
in case of default made by it in making payment of the amount of·
tax or penalty which has become refundable as a result df an appel' ·
late or revisional order. The graduated rates of interest provided·_
by sub-section (2) of section 8 cannot, therefore; be characterized as
arbitrary or unreasonable. · G
The rcmairiing contentions are directed not against the cons·
· titutionality of the impugned statutory provisions but against the.;
legality of the impugned orders. The first of these contentions is
that the assessees, having sold goods on credit basis, are not liable-
to pay the quarterly tax until they have received from their CJ!StO- IJ-
876 sUPRBMI! COURT REPORts !1984) 2 S.C.R.
A
mers the price of goods sold to them. This contention is founded
upon an ·assumption that the liability to pay the tax under the Act
is contigent upon receipt of the sale price-an assumption not
warranted by the ·provisions of the Act. Under the Act, the liability
to pay sales tax is cast upon a dealer. This is made clear by section
B
4 of the Act which is headed "Liability to tax under this Act."
The relevant provisions of sub-section (I) of section 4 .are as
follows:

"Subject to the provJSJons of this Act, every dealer,·
except the one dealing exclusively in gods declared tax free
c under Section 5, shall pay for each year tax on his taxable"
turnover at a rate not exceeding twenty-fiye per cent of
such turnover as may be determined by the Government
and notified by the Government in the Government Gazette
and such tax shall be charged on the sale of goods once
D · only.
x x x x x ,,
Under section 6, a dealer who has become liable to pay under
section 4 is prohibited from carrying on business as a dealer until he
has been registered in accordance with the provisions of the Act.
E Clause (g) of section 2 inter alia defines a 'dealer' as meaning "any
person who carries on (whether regularly or otherwise) the business

-
of selling, purchasing or distributing goods, directly or indirectly,
for cash or for deferred payment, or for commission, re·muneration,
or other valuable consideration".. Clause (L) (1) defines the expres-
sion "sale" with all its grammatical variations and cogna,e expres-
sions a.s meaning "any transfer of proporty in goods, otherwise than
F by mortgage, hypothecation, charge or pledge, by any person for
\

cash or deferred payment or for any other valuable consideration ... ".
Clause (L) (II) defines "sale price" ·as meaning inter a/ia "the
amount of >aluable consideration paid or payable to a dealer for any
sale made including any sum paid or payable for anything done by
the dealer in respect of the goods at the time of or before delivery
G thereof other than the actual cost of outward freight or delivery or
the cost of installation when such cost is separately charged." Under
clause '(n) of section 2, "turnover" includes the aggregate of the
amounts of sale and purchase and parts of sale and purchase made
by any dealer whether as principal, agent or in any other capacity.
It is clear from the above statutory provisions that the liability to
pa 1 sales tax is that of the dealer and not of the peraon who
n purchases goods from him and for the purposes of sales tax, it is
KHAZAN CHAND v. 1. & K. STATE (Madon, J.) 871

immaterial whether the prico of goods has been paid to the. dealer or
is payable to him The fact that a dealer has sold goods on credit
is, therefore, wholly immaterial. The Act imposes the liability to
pay sales tax on dealers. This liability is irrespective of the fact
whether he has made profit or loss in' his business and whether he
has received the sale price or not. When the liability to pay sales
tax is cast by the statute on the dealer, he may pass on to his Lt
customer the amount of tax payable by him but he can only do so
as a term of the contract of sale. Unless and until the purchaser
agrees to pay to his vendor the amount of sales tax payable by the
-....__~. venrlor, he is not bound to pay it to the vendor. Where, however,
the purchaser agrees to pay such amount, it forms part of the sale
price on which sales tax would be payaple to the State. Under the c
sales tax laws of some States, a dealer is permitted to recover or
collect from the purchaser the amount of sales tax payable by him.
Even then the dealer can recover or collect such amount only if
the purchaser agrees to· pay it. In such cases, under those sales
tax laws the amount so recovered or collected is nol treated,
D
either in whole or in part, as part of the sale price and not taxed,
provided the amount not taxed 1s paid over to the State or tax on
the full amount, that is, including the amount of tax so recovered or
collected, is required to be paid along with the quarterly or monthly
return, as the case may be, and then at the time of assessment refund
of the whole or oart of the tax on the amount so collected is given
to the dealer.

In this connectien, a reference was made to section 64-A of the
Sale of Goods Act, 1930, (sustituted for the original section 64-A by
the Sale of Goods (Amendnient) Act, 1963, under which unless a.
different intention appears from the terms of the contract, in the
event of any duty of customs or excise on goods or any tax on the sale ·F
or purc4ase of goods being imosed, increased, decreased or remitted in
respect of any goods after the making of any contract for the sale or
purchase of such goo'ds, without stipulation as to the payment of
such duty or tax where duty or tax was not chargeable at the time or
the making of the contract, or for the sale or purchase of such goods
duty paid or tax paid where duty or tax was chargeable at that time,
if such imposition .or increase so takes effect that the duty or. tax or G
increased duty or tax, as the case may be, or any part of such duty
or tax is paid or is payable, the seller may add so much to the
contract price as will be equivalant to the amouut paid or payable
in respect of such duty or tax or increase of duty or tax, and is to be
entitled to be paid and to sue for and recover such addition, and if
878 SUPREME COURT REl'ORTS [1984} 2 S.C.R
A such decrease or remission so takes effect that the decreased duty or
tax only, or no duty or tax, as the case may be, is paid or is payable,
the buyer may deduct so much from the contract price as will be ,
equivalent to the decrease of duty or tax or remitted duty or tax, and
is not to be liable to pay or be sued for in respect of such deduction·.
We do not find Section 64-A of the Sale of Goods Act tu have any
B relevance to the point before us. That section is subject to a
different intention appearing from the terms of the contract and
gives a right to· the seller to odd the amount of customs or
excise duty or sales tax or purchase tax to the price of goods where
such duty or tax is imp.osed for the first time after the contract of sale
is made, where the contract does not contain any stipulation as to·
c payment of duty or tax, or in case the goods are sold duty paid or
tax paid, where ihe rate of snch duty or tax is increased, to add the
extra duty or tax to the contract price. Tho! section also gives a
corresponding right to the buyer to deduct so much from the contract
price as will be· equivalent to the decrease of duty or tax or remitted
D duty .or tax where any decrease or remittance in duty or tax takes
place after the making of the contract of sale. Section 64-A thus
provides for the rights and liabilities inter se of a seller and buyer of
goods, where any customs or excise duty or any sales tax or purchase
tax is imposed or its rate increased or decreased, or such duty or tax
remitted in whole or in part after the making of the contract of sale.
This section does not deal with the l;ab!ity of the seller to pay
E
, sales tax to the Government.

Under section 8-B of the Act, where a registered dealer realizes
, any amount by way of tax from the purchaser, he is required to
deposit it in the Government Treasury or in the office of the Deputy ·
Sales Tax Comissioner within one month of its realization. Where
F a dealer so deposits the te\x, he would get credit for it against the
amount of tax payable by him, but from this it, does not follow that
where he has not been able to recover the amount of tax or sale
price from his customers, he is not bound to comply with the statu-
tory requirements of sub-section (3) of section 8 under which he has
, to pay tax according to the quarterly return furnished by him before
G the date prescribed for filing such return. The Assessees were, there.
fore, bo~nd to pay the tax due according to the quarterly returns
filed by them before filing such returns and the fact that their custo·
. mers had not paid.to them the sale price did not exempt them from
their statutory liability in this behalf.

The next contention, namely, that the. Assessing Authority was
H
KHAZAN CHAND v. J. & K. STATE (Madon, J.)

not entitled to impose interest, the amount of which exceedc~ the A
amount of tax in respect of which default had been made in paying
it by the prescribod date, is equally without any substance. No
reason was advanced in support of this contention and we .fail to see
on what prmciple the Hindu Law rule of damdupat can be made
applicable to a sales tax legislation. The recovery provisions of the
Act are meant for speedy and prompt collection of revenue. These n
provisions are not meant for the benefit of defaul,ting tax-payers and
such defaulters cannot claim that the amount of interest payable by
them on delayed tax payment should be scaled down as if they were
entitled to claim relief under a debt relief law. In taking up such a
· contention, the concerned Assessees have overlooked the fact that the
amount of interest payable by them would not have exceeded the
c
amount of tax not paid by them by the prescribed date had they
paid the tax due earlier as also the fact that they would not have
been liable to pay any amount at all by way of intere.st had they paid ·
the tax due oy the prescribed d~te. ·
D'
We now turn to tho contention that the Assesses were not liable
to pay interest unless a notice of demand was .first issued to them
calling upon them to pay the. amount of quarterly tax due from
them. In support of this submission reliance placed upon sub-
sections(!) and (2) of section 8 of the Act. In our opinion, reliance
placed upon those sub-sections is misconceived for in doing sot.he E
Assessees have overlooked the other relevant provisions of section 8.
Sub-setion (I) of section 8 requires that the tax assessed, or any
other amount demand, under the Act is. to be paid in such manner
and within such time, not being less than fifteen days from the date
of the notice of demand, as may be specified in the notice and it is.·
when default is made in making such payment that the who!" of the F
amount then remaining due becomes recoverable in accordance with
sections 16 and 16-A of the Act. Sub-section (2) of section 8 lays
down that if the tax or any other amount due under the Act j, not
. paid within the period specified in the notice of demand, the
defaulter will become liable to pay interest on the tax or other
amount from the date it was payable to the date of actual payment· G
at the rates mentioned in the said sub-section. Under sub-section
(3) of section 8, quarterly tax is to be paid before furnishing the
quarterly return but not later than the date prescribed under sub-
. section (2) of section 7. As we have seen, under sub-section (2) of
section 7 quarterly returns are to be fun1ished within thirty day;
from the expiry of the quarter and such return is to be accompanied
by a: Treasury Receipt or any other proof of payment of tax due H
880 SUPRBMB COURT RliPORts [1984) 2 S.C.R.

A according to that return. This requirement implies that the tax due
according to a quarterly return has to be paid before the filing of
that return by the prescribed date therefor. Under sub-section <8) of
section 8, if a dealer fails to pay the tax payable under that section,
the provision• of sub-section (2) of section 8 and of sections 16 and
16-A are to apply mutatis mutandis to the recovery thereof. Thus,
B provisions of sub-section (2J of section 8 apply when quarterly tax is
not paid before furnishing a quarterly retern under sub-section (3) of
section 8 but by the express terms of sub-section {8) of section 8,
the provisions of sub-section (2) of that section will apply to the
recovery of quarterly tax not in their entirety but "mutatis
mutiwdis". Under sub-section 0) the tax assessed or any other
c amount demanded is to be paid within the time specified in the
notice of demand. Under sub-section (3 ), the quarterly tax is to be
paid before furnishing the quarterly return but not later than the date
prescribed under sub-section (2) of section 7. Thus, by sub-section
(3) the time for payment of quarterly tax is not made dependent upon
the issuance of a notice of demand and the date for payment to be
D
specified in it but it is statutarily fixed and, as under sub-section (8)
of section 8 the proviaions of sub-section (2) are to apply muratis
mutandis to the recovery of quarterly tax, necessary cbanges must
be made in the provisions of sub-section (2) in their application to
the recovery of quarterly tax payable under snb-section (3). Accord-
ingly, the requirement of sub-section (2) that interest will be chargeble
E from the date specified for payment in the notice of demand cannot
be applied to the payment of quarterly tax and . necessary alterations
as required by sub-section (8) will, therefore, have to be made in the l
provisions of sub-section (2) in their application to a default made in
payment of quarterly tax 'and sub-section (2) must be read as provid-
ing that interest under sub-section (2) will become payable from the
F date prescribed by sub-section (3) of section 8 for payment of quar-
terly tax. There is thus no substance in this contention. We may also
mention that in the case of certain other orders made under the Act
demanding interest on default being made in payment of quarterly
tax, the challenge thereto on the ground that no interest can be
charged unless a notice has been issued demanding payment of
G quarterly tax was negatived· by this Court in Messrs Royal Booi
House etc. v. State of Jammu and Kashmir and others.(1)

(1) C- M. P. Nos. 32413 and 32414 of 1983 decided oo January 6
1983, by P. N. Bbagwati, Ac. C. J., a Venkataramiah arid
.H Varadarajan,' JJ.
•

KI!AZAN CHAND v. J. & K. STATE (Madon, J.) 881

We now turn to the last contention raised before us, namely, A
that the Assessing Authority was not entitled to charge interest at
the maximum rate ·but could only charge interest at the graduated
rate specified.in sub-section (2) of section 8.

It appears that in most, if not in all, orders which .have been
B
impugned in these Petitions .and Appeals, interest on the amount of
quarterly tax not paid in time has been imposed at a uniform
rate for the full period of default and not according to the scale of
rates prescribed by sub-section (2) of section 8. Thus, where the
default was for a period exceeding three months but not
exceeding six months, interest bas been levied for the full c
period of default at the rate of two per cent per month and
where the ddault was for a period exceeding six months, interest at
the rate of three per cent per month has been levied for the entire
>
period of default. Jn our opinion, this is not warranted by the
terms of sub-section, (2) of section 8 of the Act. Sub-section (2)
provides for different rates of interest depending upon the length
of the period of default. If the default was for a period not D
exceeding three months, then the · interest could only be charged
at the rate of one per cent per month and where the default was for
, a period exceeding three months but not exceeding six months, then
the interest which could be charged can only be one per cent month
for the first three months of default and two per cent per month
for the remaining period In the same way, if the default was for a E
period exceeding six months, interest could be cha~ged only at the
rate of one per cent per month for the firs.! three months of default,
at the rate of two per cent per month for the next three months of
default and at the rate of three per cent per month for the remaining
period of default. The grievance made by the A ssessees is justified
and their challenge to the impugned orders on. this ground must, F
therefore, succeed.

· . In the result, though we uphold the constitutionality of sub-
secttons (!), (2) and (3) of section 8 of the Jammn and Kashmir
General Sales Tax Act, I 962, we make the rule issued in each of the G
Wdt Petitions before us absolute only to the extent that we restrain.
the Stale and Jammu and Kashmir from recovering from the Asses-
sees who are Petitioners before us interest on the amount of
quarterly tax paid after the expiry of the date prescribed for payment
thereof by sub-section (3) of section 8 of the Act at a rate other
than the rate of one per cent per month for the first three months of
<lefa11lt and at the rate of two per cent per mont)l for the next tllree lJ
882 SUPREME COURT RllPORTS [1984) 2 s.c.R.

A months of default and at the rate of three per cent per month for
the period of default exceeding six months. We also allow the Appeals
filed by the Assessees who are Appellants before us to the same
limited extent by setting aside the .order of dismissal of their writ
petitions passed by the Jammu and Kashmir High Court and making
B the rule issued in each of those writ petitions absolute only to the
limited exter.t specified above.

On an application made to us in that behalf, we grant to the
Petitfoners and Appellants before us three months' time from today
to make payment of the amount of interest due and payable by
c them according to this Judgment and the State of Jammu and
Kashmir will not until the expiry of the said period of three months
take any· steps to recover such amount of interest from any of the
Petitioners and Appellants.

·As the Petitioners and Appellants before us have partly succee-
ded in the Writ Petitions and Appeals filed by them, we make no
D
order as to the costs of these Writ Petitions and Appeals.

N.V.K Appeals & Petitions partly allowed.

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