CASE NOTE – INDIA CARBON LTD.

v STATE OF ASSAM [AIR 1997 SC 3054]

FACTS
1. Appeals impugn a judgment and order of Hon’ble Guwahati High Court.
2. Appellants manufacture and sell coke. (Declared goods under Section 14 of the Central
Sales Tax Act) Liable to pay Central Sales Tax on the Petroleum Coke which is subject
of inter-state sales of petroleum coke which was delayed.
3. For the assessment years 1974-1980, Appellants were liable to pay interest at the rate of
24% p.a to the respondents, under Section 35A of the Assam Sales Tax Act, 1947.
4. Writ petition was filed challenging the imposition of such interest before the High Court.

ISSUES
1. Section 9(2) of the Central Act did not visualize any payment of interest.

SECTION 9(2)

Authority empowered to assess, collect and enforce payment of tax under a State Act shall on
behalf of Government of India, collect and enforce such payment of tax payable by a dealer
under Central Act as if the tax or penalty payable by a dealer under the Central Act is a tax or
penalty payable under the State Act.

Authority for this purpose can exercise all or any of the powers they have under the State Act
and provisions of law (such as returns, provisional assessment, advance payment of tax etc) shall
apply accordingly.

CONTENTIONS RAISED

1. No mention of interest in the first part of Section 9(2) of the Central Act. Appellants not
liable to pay interest. Reliance placed on the judgment in Khemka & Company v State of
Maharastra [1975 (3) SCR 753].
2. Third judge took the view of the initial two judges and held that interest was payable by
appellants on account of delay in payment of Central Sales Tax thought no specific
provision had been made in the Central Act in this regard.

PRECEDENTS REFERRED TO

1. JK Synthetics v Commercial Taxes Officer, [1994 (4) SCC 276]: Provision relating to
the charging and levying of interest in a statute are provisions of substantive law. When a
statute levies tax it does so by inserting a charging section by which liability is created
 and also provides the machinery. It provides the machinery for the assessment of the
liability already fixed by the charging section and then provides the mode of recovery and
collection of tax (including penal provisions for defaulters). Provision is also made for
charging of interest on delayed payments.

Charging provision is strictly construed but that rule of strict construction is not extended
to the machinery provisions. The machinery provisions must be so construed as would
effectuate the object and purpose of the statute and not defeat the same.

But it must also be realized that provisions by which the authority is empowered to levy
and collect interest, even if construed as a part of forming the machinery provisions, is
substantive law as 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.

CIT v M. Chandra Sekhar – Provisions for charging interest was introduced in order to
compensate for the loss occasioned to the Revenue due to delay. But then interest was
charged in the strength of a statutory provision. Regardless of the reason, Court must give
the meaning to it as conveyed by the language used and purpose. Therefore, any
provision made in a statute for charging or levying interest on delayed payment of tax
must be construed as substantive law and not adjectival law.

It may be derived 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.

2. Khemka & Company v State of Maharastra [1975 (3) SCR 753]: Provision of Section
9(2) of the Central Sales Tax were analysed. Section 9(2) provides that the authorities
empowered to collect and enforce tax under State Act shall on behalf of GOI collect and
enforce payment of tax including any penalty payable by a dealer under the Central Act.

Second part of Section 9(2): State authorities shall assess, collect and enforce payment of
tax including any penalty payable by a dealer under the Central Act as if it were payable
under the State Act. This part sets out the scope of the work of State agencies. Tax as
well as penalty is payable only under the Central Act.
 It is only the tax or penalty under the Central Act which can be assessed, collected and
enforced in regard to payment. The words “as if the tax or penalty payable by such a
dealer under the Central Act is a tax or penalty payable under the general sales tax
law of the State” have origin and root in the words “payment of tax including penalty
payable by dealer under the Central Act.” Tax under State Act cannot be payable and
collected and enforced, penalty under state act cannot be assessed, collected and
enforced.

The words “For this purpose”: assess, re-assess, collect and enforce payment of tax under Central
Tax. Provisions of State Act are applicable for the purpose of collection and enforcement of
payment of tax including penalty payable under Central Act. Applying the doctrine of ejusdem
generis, it is apparent that the extent of liability of tax as well as penalty is not attracted in the
application of the State Act in regard to the assessment etc. of Central Act.

Held, provision of State tax imposing penalty for non-payment of sales tax was not
applicable to dealers under the Central Act in respect of tax and penalty payable under the
Central Act. Sec 9(2) creates State authorities as agents to carry out assessment of dealer
under Central Act.

JUDGMENT

1. There is no substantive provision in the Central Act requiring the payment of interest on
Central sales tax. Assessee not obliged to pay interest under Central Act.
2. The requirement of the sales tax authorities that the appellants should pay interest at the
rate of 24% p.a. on delayed payments of Central sales tax under the provisions of Section
35(A) of the State Act must, therefore, be held to be bad in law.