Case Note & Summary
The Supreme Court heard two appeals by special leave against a judgment of the Rajasthan High Court that had quashed penalty orders imposed by sales tax authorities on the respondent assessee for delay in payment of tax under the Rajasthan Sales Tax Act, 1955. The assessee had initially challenged the validity of the Rajasthan Sales Tax Rules by filing a writ petition in the High Court, where an interim order directed him to keep proper accounts and file prescribed returns but restrained assessment. While the petition was pending, an ordinance and later a validating Act validated the rules, and the assessee withdrew the petition. The Sales Tax Officer then issued a show cause notice demanding deposit of tax due, and the assessee filed returns and deposited tax for the relevant periods. The officer thereafter assessed tax and imposed penalties under Section 16(1)(b) of the Act, contending that the stay order did not permit withholding of tax and that under Section 7(2) treasury challans should have accompanied returns filed in time. The assessee's appeals to the Deputy Commissioner were dismissed. The assessee then filed two writ petitions in the High Court, which were allowed on the ground that penalties violated Article 20(1) of the Constitution. In the Supreme Court, the State argued that tax became due under charging sections Sections 3 and 5, that the show cause notice made tax due, and that the stay order required filing returns implying deposit of tax. The respondent argued that no tax was due until returns were filed or assessment made, and that Section 7(2) could not be violated before a return was filed. The Court accepted the respondent's contention on statutory grounds, holding that under Section 16(1)(b) there must be tax due and failure to pay within time allowed. It held that while charging sections create liability to pay tax, no tax can be said to be due until the tax payable is ascertained by the assessing authority under Section 10 or by the assessee under Section 7(2). The Court also held that Section 7(2) could not be attracted until returns were filed, and Rule 31 applies only after assessment is completed. Therefore, there was no breach of Section 16(1)(b), and the penalty orders could not be sustained. The appeals were dismissed, and the High Court's quashing of penalties was upheld on this narrower statutory construction, without deciding the Article 20(1) issue.
Headnote
A) Tax Law - Determination of 'Tax Due' - Sections 3, 5, 10 and 16(1)(b) of Rajasthan Sales Tax Act, 1955 - Tax becomes due only when ascertained by assessing authority under Section 10 or by assessee under Section 7(2); charging sections create liability but not ascertainable amount - Court held no tax was due within Section 16(1)(b) before assessment and penalty could not be imposed.
B) Tax Law - Self-Assessment and Return Filing - Section 7(2) of Rajasthan Sales Tax Act, 1955 - Section 7(2) requires deposit of full tax due on basis of return and cannot be violated until return is filed - Court held no violation of Section 7(2) because assessee had not filed returns earlier and section could not be attracted.
C) Tax Law - Penalty Provisions - Section 16(1)(b) of Rajasthan Sales Tax Act, 1955 - Penalty requires tax due and failure to pay within time allowed; no penalty if no tax due - Court held orders imposing penalties could not be sustained.
D) Tax Law - Show Cause Notice - Rule 31 of Rajasthan Sales Tax Rules, 1955 - Show cause notice not issued under any provision; Rule 31 applies only after assessment completed - Court held notice of December 4, 1959 could not make tax due.
E) Constitutional Law - Article 20(1) of Constitution of India - Not decided because penalties invalid under statutory provisions - Court declined to rule on Article 20(1) question.
Issue of Consideration
Whether penalties imposed under Section 16(1)(b) of the Rajasthan Sales Tax Act, 1955 were valid when no tax was due because assessment had not been made and no returns had been filed; whether tax became due under charging sections before assessment
Final Decision
Supreme Court dismissed the appeals and upheld the High Court's quashing of penalties, holding no breach of Section 16(1)(b) because no tax was due before assessment under Section 10 or self-assessment under Section 7(2). The penalty orders imposed by the Sales Tax Officer were not sustainable.
Law Points
- Tax becomes due only when ascertained by assessing authority under Section 10 or by assessee under Section 7(2)
- charging section creates liability but not due amount
- Section 7(2) requires deposit of tax due on basis of return and cannot be violated before return filed
- Rule 31 applies only after assessment completed
- Section 16(1)(b) requires tax due and failure to pay within time allowed
Case Details
Civil Appeals Nos. 408-409 of 1964
S.M. Sikri, K.N. Wanchoo, M. Hidayatullah, J.C. Shah, J.R. Mudholkar
1965 AIR 1454, 1965 SCR (2) 805
G. C. Kosliwal, K. K. Jain, R. N. Sachthey, R. K. Garg, S. C. Agarwala, D. P. Singh, M. K. Ramamurthi
State of Rajasthan and Others
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Nature of Litigation
Writ petitions challenging penalties imposed under Section 16(1)(b) of Rajasthan Sales Tax Act, 1955 for delay in payment of tax.
Remedy Sought
Respondent sought quashing of two penalty orders imposed by Sales Tax Officer for accounting periods November 3, 1956 to October 22, 1957 and October 23, 1957 to November 10, 1958.
Filing Reason
Sales Tax Officer imposed penalties for alleged failure to deposit tax in time despite High Court stay order only staying assessment, not tax payment, and despite assessee having filed returns and deposited tax after show cause notice.
Previous Decisions
Assessee's appeals to Deputy Commissioner of Sales Tax (Appeals) were dismissed. High Court allowed writ petitions Nos. III and 172 of 1961 on February 5, 1963, quashing penalties on ground of violation of Article 20(1) of the Constitution. State appealed by special leave to Supreme Court.
Issues
Whether there was breach of Section 16(1)(b) of Rajasthan Sales Tax Act, 1955 when no tax was due because assessment had not been made and no returns filed
Whether tax became due under charging sections Sections 3 and 5 before assessment
Whether show cause notice dated December 4, 1959 made tax due
Whether High Court stay order obliged assessee to deposit tax under Section 7(2)
Submissions/Arguments
Respondent's counsel argued no tax was due till returns filed under Section 7(1) and Section 7(2) complied when returns filed; no violation if no return filed earlier; no tax due till assessment under Section 10.
Appellant argued tax becomes due because of charging sections Sections 3 and 5; show cause notice given December 4, 1959 and delay in complying was breach; stay order required filing returns implying deposit of tax under Section 7(2).
Ratio Decidendi
No tax can be said to be due within Section 16(1)(b) of Rajasthan Sales Tax Act, 1955 until tax payable is ascertained by assessing authority under Section 10 or by assessee under Section 7(2); before that only liability to be assessed exists. Section 7(2) cannot be attracted until returns are filed. Rule 31 applies only after assessment completed. Therefore, penalty for failure to pay tax due cannot be imposed when no tax was due.
Judgment Excerpts
No tax was due within the terms of s. 16(1)(b) of the Act. Section 3, the charging section, read with s. 5, makes tax payable, i.e., creates a liability to pay the tax. But till the tax payable is ascertained by the assessing authority under S. 10, or by the assessee under s. 7(2), no tax can be said to be due within s. 16(1)(b) of the Act, for till then there is only a liability to be assessed to tax.
Rule 31 comes into the picture only when an assessment has been completed.
Section 7(2) could not be attracted till the assessee filed the returns.
Procedural History
Assessee filed Civil Writ Petition No. 11 of 1958 in Rajasthan High Court challenging validity of Rajasthan Sales Tax Rules; High Court passed interim order on January 9, 1958 directing assessee to keep proper accounts and file prescribed returns but not to be assessed. Ordinance No. 5 of 1959 promulgated on November 6, 1959 validating Rules; assessee withdrew writ petition. Rajasthan Sales Tax Validation Act (Act 43 of 1959) replaced ordinance on December 17, 1959. On December 4, 1959, Sales Tax Officer sent show cause notice to assessee to deposit tax due. Assessee filed return for 4th quarter ending October 22, 1957 and deposited Rs. 11,898.31 as tax on December 18, 1959, and deposited Rs. 28,607 in installments on January 8, 1960, March 5, 1960, and March 19, 1960 for four quarters of accounting period October 23, 1957 to November 10, 1958. On April 25, 1960, Sales Tax Officer made assessment for accounting period November 3, 1956 to October 22, 1957 and imposed penalty of Rs. 400 under Section 16(1)(b). Assessee's appeal to Deputy Commissioner of Sales Tax (Appeals) was dismissed. On December 6, 1960, Sales Tax Officer assessed accounting period October 23, 1957 to November 10, 1958 and imposed penalty of Rs. 1,000. Assessee filed writ petition No. III of 1961 on April 3, 1961 and writ petition No. 172 of 1961 on April 4, 1961 in Rajasthan High Court challenging penalties. High Court allowed both petitions on February 5, 1963, quashing penalties on ground of violation of Article 20(1) of Constitution. State of Rajasthan appealed by special leave in Civil Appeals Nos. 408-409 of 1964. Supreme Court dismissed appeals on January 21, 1965, holding penalties invalid under statutory provisions without deciding Article 20(1) issue.
Acts & Sections
- Rajasthan Sales Tax Act, 1955: Section 3, Section 5, Section 7(1), Section 7(2), Section 10, Section 16(1)(b)
- Rajasthan Sales Tax Rules, 1955: Rule 31
- Rajasthan Sales Tax Validation Act, 1959:
- Constitution of India: Article 20(1), Article 226
