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Hajilal Mohammad Bidi Works, Allahabad Vs. the State of U.P. and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtAllahabad High Court
Decided On
Case NumberCivil Misc. Writ Petn. Nos. 955, 1369 and 1621 of 1968
Judge
Reported inAIR1970All330; [1970]25STC383(All)
ActsUttar Pradesh Sales Tax Act, 1948 - Sections 8(1A)
AppellantHajilal Mohammad Bidi Works, Allahabad
RespondentThe State of U.P. and ors.
Appellant AdvocateS.N. Kacker, ;Dhar and ;A.S. Kapoor, Advs.
Respondent AdvocateStanding Counsel
Excerpt:
sales tax - recovery of interest - section 8 of u.p. sales tax act, 1948 - interest on tax is recovered as arrears of land revenue - no fresh assessment is required - notice of demand required to be served on assessee - for non-compliance - recovery certificate be issued to collector, therein specifying amount of interest sought to be recovered. - - it is contended that clearly the legislature could not have intended that even though it creates a legal fiction that interest was a part of the tax and tax itself can be recovered as arrears of land revenue under certain circumstances, interest cannot be so recovered. at best it can be said that there would be some overlapping between section 8 (8) of the act and the words 'be deemed for all purposes to be a part of the tax' if these.....jagdish sahai, j.1. the following question of law has been referred for the opinion of this full bench by a division bench of this court:--'whether, in order to recover interest under section 8 (1-a) of the u. p. sales tax act, it is necessary for the sales tax officer to make an assessment order in respect of the interest and to issue a notice of demand in respect of such interest.'2. in 1963 the sales tax (second amendment) act was enforced. section 2 of this act added sub-section (1-a) to section 8 of the principal act. that provision reads:--'if the tax payable under sub-section (1) remains unpaid for six months after the expiry of the time specified in the notice of assessment and demand, or the commencement of the uttar pradesh bikri kar (dwitiya sanshodhan), adhiniyam, 1963,.....
Judgment:

Jagdish Sahai, J.

1. The following question of law has been referred for the opinion of this Full Bench by a Division Bench of this Court:--

'Whether, in order to recover interest under Section 8 (1-A) of the U. P. Sales Tax Act, it is necessary for the Sales Tax Officer to make an assessment order in respect of the interest and to issue a notice of demand in respect of such interest.'

2. In 1963 the Sales Tax (Second Amendment) Act was enforced. Section 2 of this Act added Sub-section (1-A) to Section 8 of the principal Act. That provision reads:--

'If the tax payable under Sub-section (1) remains unpaid for six months after the expiry of the time specified in the notice of assessment and demand, or the commencement of the Uttar Pradesh Bikri Kar (Dwitiya Sanshodhan), Adhiniyam, 1963, whichever is later, then without prejudice to any other liability or penalty which the defaulter may in consequence of such non-payment, incur under this Act, simple interest at the rate of eighteen per cent per annum 'shall run on the amount then remaining due from the date of expiry of the time specified in the said notice, or from, the commencement of the said Adhiniyam, as the case may be and shall be added to the amount of tax and be deemed for all purposes to be part of the tax:'

Provided that where as a result of appeal, revision or reference, or of any other order of a competent Court or authority, the amount of tax is varied, the interest shall be 'recalculated accordingly':

Provided further that the interest on the excess amount of tax payable under an order of enhancement shall run from the date of such order if such excess remains unpaid for six months after the order'.

(Underlined (here into ' ') by me)

Section 3 of the amending Act introduced Section 33 in the principal Act. It provides that in respect of a sum recoverable under the Act as arrears of land revenue the assessing authority could forward to the Collector a certificate of recovery specifying the sum due. This provision further provides that the certificate would be conclusive evidence of the existence of the liability, the amount of liability and the person so liable. The Collector is required to recover the amount mentioned in the certificate as if it were arrears of land revenue.

3. The controversy between the parties relates to the interpretation of Section 8 (1-A) and the question for consideration is whether in the absence of notices of demand having been issued by the Sales Tax Officer requiring the petitioners to pay interest, the recovery proceedings in that behalf are competent

4. To decide the question of law referred to us it is necessary to mention in brief certain facts relating to the cases before us. The dispute between the parties relates to the assessment years 1957-58 and 1958-59. Assessment orders on the petitioners in respect of these years were passed by the Sales Tax Officer on June 10, 1959 and February 12, 1963 respectively.

5. Recovery certificates were issued under Section 8 of the Act by the Sales Tax Officer to the Collector in respect of the assessments mentioned above as the amount assessed was not paid. The petitioners' case is that the entire amount of tax assessed by means of the two orders mentioned above has been paid and now the objection is confined only to the recovery of interest.

6. It has been contended on behalf of the assessee petitioners that Section 8 (1-A) creates a legal fiction that the amount of interest which is added to the tax is a part of the tax and for that reason the procedure for the demand of the tax should be followed also in respect of the recovery of the amount of interest.

7. What is provided in Section 8 (1-A) Ss:--

(1) That if the tax payable under subsection (1) remains unpaid for six months after the expiry of the time specified in the notice of assessment and demand, or the commencement of the Uttar Pradesh Bikri Kar (Dwitiya Sanshodhan) Adhiniyam, 1963, whichever is later, interest at the rate of eighteen per cent per annum shall run on the amount then remaining due from the date of expiry of the time specified in the said notice, or from the commencement of the said Adhiniyam, as the case may be.

(2) That the amount of interest shall be deemed for all purposes to be part of the tax.

(3) That if as a result of appeal, revision or reference, the amount of tax is varied, the interest shall be recalculated.

(4) That the interest on the excess amount of tax payable under an order of enhancement shall run from the date of such order if such excess remains unpaid for six months after the order.

8. The entire argument of Mr. Kacker is based upon the words 'and be deemed for all purposes to be part of the tax'. He contends that inasmuch as the law makes the interest a part of the tax, the formalities required for the enforcement of the tax liability must be followed in the case of the enforcement of Interest liability also and that inasmuch as in the case of the enforcement of liability of tax simpliciter, a notice of assessment and demand should issue. In the case of Interest also a notice of assessment and demand should issue. In support of this contention it has been contended that the language of the statute is clear and that Inasmuch as it declares that the Interest shall 'be deemed for all purposes to be part of the tax', it must be treated to be tax. Learned counsel has contended that there is no reason to whittle down the clear language of Section 8 (1-A) of the Act. It is contended that the words being clear, full effect should be given to them and the full benefit of the legal fiction should be extended to the petitioners. In this connection it has been contended that in case restricted meanings are given to these words, the result would be that if there is any dispute between the revenue and the assessee in respect of either the chargeability or the quantum of interest, the assessee would have no forum to go.

It is contended that that could not be the intention of the legislature. It is urged that on the other hand if the words mentioned above are given their full grammatical meaning, the interest liability can also be made subject matter of appeal under Section 9, of revision under Section 10 and of reference to this Court under Section 11 of the Act, Learned counsel contends that the legislature could not have intended to make an assessee remediless in respect of an appeal or a revision or a reference with regard to interest liability. It is also contended that if restricted meanings are given to the words 'and be deemed for all purposes to be part of the tax', the result would be that in a case where there has been default in the payment of tax, but the tax amount has been paid before recovery certificate is actually issued, the amount of interest would not be recoverable as arrears of land revenue. It is contended that clearly the legislature could not have intended that even though it creates a legal fiction that interest was a part of the tax and tax itself can be recovered as arrears of land revenue under certain circumstances, interest cannot be so recovered.

9. Having heard the learned counsel for the parties, I am of the opinion that the question referred to us should be answered in the negative, against the assessee petitioners and in favour of the Commissioner, Sales Tax.

10. My reasons are as follows:--

(1) Section 8 falls under Chapter IX, which is headed 'Payment and Recovery of Tax'. Section 8 itself is headed as 'Payment and recovery of tax' and deals with the manner in which the tax shall be realised. The legislature has added Sub-section (1-A) to Section 8 of the Act. The provision for interest has been introduced in the Act in order to facilitate recovery of the tax and to bring pressure on the assessee to pay it. Consequently the provisions of Section 8 (1-A) operate only in the field of recovery and the scope of the words 'be deemed for all purposes to be part of the tax' must necessarily be confined to interest being treated as a part of the tax for the limited purpose of recovering the tax. It appears to me that the sole purpose of creating this legal fiction was to make the recovery of interest as also as arrears of tax whether it be recovery from a living assessee or partners of a dissolved firm (Section 3-C) or executors, administrators and other legal representatives of a deceased assessee (Section 7-C) or it was the invocation of Section 14 of the Act, i.e. to launch prosecution with a view to realise or recover interest. It has been contended on the basis of Section 8 (8) of the Act that the amount of interest could be recovered as arrears of land revenue under that provision and for that reason the object of creating the legal fiction under Section 8 (1-A) could not be to recover the Interest as arrears of land revenue.

11. Section 8 (8) reads:--

'Any tax or 'other dues' payable to the State Government under this Act, or any amount of money which a person is required to pay to the assessing authority under Sub-section (3) or for which he is personally liable to the assessing authority under Sub-section (6) shall be recoverable as arrears of land revenue.'

(Underlined (here into ' ') by me). The argument is that interest would be comprehended in the expression 'other dues and for that reason it could be recovered as arrears of land revenue even though the legal fiction created by Section 8 (1-A) was not there.

12. It is submitted that inasmuch as there is already a provision in the Act making interest recoverable as arrears of land revenue, the legislature could not have provided for the same thing by introducing the legal fiction mentioned above. In the first place, the scope of the words 'be deemed for all purposes to be part of the tax' is not confined only to recovery of interest as arrears of land revenue, but extends to recovery of interest by all modes. Secondly, it may be pointed out that the liability to pay interest did not exist under the Act before the introduction of Section 8 (1-A) in It by Act No. 3 of 1964 even though Section 8 (8) existed there. Therefore, when Section 8 (8) was enacted, 'other dues' did not comprehend interest at least until Act 3 of 1964 was passed. I am therefore, not impressed with this submission of Mr. Kacker. Section 8 (1-A) is a special provision relating to interest. The legislature decided to provide for payment of interest by tax defaulters and for that reason enacted a self-contained provision for it in the shape of Section 8 (1-A) of the Act. It for the first time creates not only the liability to pay interest, but also provides the rate of interest chargeable and the mode of recovery. Section 8 (8) is a general section and may now for the sake of argument include interest in its scope, whereas Section 8 (1-A) is a self-contained special provision dealing with interest liability only. There can be a general provision as also a special provision and in such cases the special will exclude the general. At best it can be said that there would be some overlapping between Section 8 (8) of the Act and the words 'be deemed for all purposes to be a part of the tax' if these words are held to mean 'deemed to be a tax for recovery purposes'. Assuming it is so, the provisions of Section 8 (1-A) being self-contained in respect of interest and having been brought in by means of an amendment it would be inconsistent with the scheme of that provision to hold that it did not provide mode of recovery of interest and even though the words be deemed for all purposes to be part of the tax' clearly mean 'deemed to be part of the tax for recovery purposes', those meanings should not be given to it.

(2) Section 8 (1-A) uses the words 'simple interest at the rate of eighteen per cent per annum shall run on the amount then remaining due' in contradistinction to the words 'determine' the turnover and 'assess' the tax used in Section 7 of the Act which deals with assessments. The use of the word 'run' indicates that the liability to pay interest is automatic and a separate proceeding in respect of it is not required. This conclusion also follows from the words 'shall be added to the amount of tax'. The addition of interest to the amount of tax is also automatic. Therefore, it appears to me that no separate order for interest is required nor is it necessary to issue a demand notice. Default in payment of the tax would automatically attract the liability of interest being calculated on the amount under default and the liability to pay interest follows from the provisions of Section 8 (1-A) of the Act and is not dependent on any order passed or proceedings started for the assessment of the amount of interest.

(3) The first proviso to Section 8 (1-A) shows that the matter of interest is one of pure calculation, the word used being 'recalculated', and not one of assessment. That being the position, neither an assessment order nor a notice of demand is necessary.

(4) it would be noticed that no amendment has been made in Section 9 to provide for an appeal against interest liability. Whereas Section 9 allows an appeal against an order allowing or refusing an application for exemption certificate, an order imposing a penalty under Section 15-A or an order of assessment made under Sections 7. 7-A, 7-B, 7-C and 7-D, it has not been so amended as to provide for an appeal against the supposed order of interest.

13. Section 11 of the Act gives the revising authority the jurisdiction to call for the record and examine the legality or propriety of any order made by the assessing or the revising authority. Inasmuch as there has been no amendment in Section 9 of the Act, providing for an. appeal against the supposed order of interest, and inasmuch as the law does not require the assessing authority to pass an order imposing interest, the addition of interest cannot be revised in a revision application. The reference under Section 11 is confined to orders made under Section 10. It would appear that no reference can also be made in respect of interest matter. If interest were a part of the tax for all purposes and if assessment proceedings were required for its imposition, the provisions relating to appeal, revision and reference would have been suitably amended.

(5) By the very nature of things it is not possible to have proceedings started for the assessment of interest and for the issue of a notice of demand for the same. Clearly the notice of demand must mention the specific sum, otherwise it would not be a notice of demand at all. It is not possible to issue such a notice until the defaulting assessee has paid the tax and the Sales Tax Officer knows the date of payment. If what Mr. Kacker says is correct, then the assessing authority has not only to mention in the recovery certificate that a specific amount has to be recovered as unpaid tax, but a certain amount has also to be paid as interest. Obviously the amount of interest that the assessee has to pay cannot be mentioned in the notice of demand because that has to be calculated and one of the factors required in making the calculation would be the date of payment of tax.

(6) A notice of demand or a copy of the assessment order is served on the assessee in order to enable him to know what amount he has to pay. An assessment order is passed in order to determine the liability of the assessee in respect of the tax. In respect of interest, no such considerations exist. The law itself provides that the interest shall run on the unpaid tax at eighteen per cent and shall be added to it. There is thus only a question of calculation and not one of determination as is the case with the orders of assessment of tax.

(7) I find no merits in the submission that if the legal fiction created by Section 8 (1-A) is confined only to recovery proceedings, the assessee would be without a remedy in respect of interest. The assessee can always resort to remedy open to him in cases where tax is sought to be recovered in excess of the amount due. While making such objections, he can also say that the interest has been wrongly calculated or charged. The relief in respect of the interest would clearly be consequential and the Sales Tax Officer would have full jurisdiction to go into the matter. No analogy can be drawn from the Income-tax Act, the provisions of the Act and the Income-tax Act being different.

14. Mr. Kacker has placed reliance upon Beni Ram Mool Chand v. Sales Tax Officer, Fatebgarh, 1968 All LJ 970. This decision, no doubt, supports his contention, but with great respect to the learned Judges who decided it, I am unable to agree that the decision lays down correct law,

15. For the reasons mentioned above I answer the question referred to us by saying that it was not necessary for the Sales Tax Officer to make assessment order in respect of interest and to issue a notice of demand in respect of such interest.

Satish Chandra, J.

16. A Division Bench has referred the following question to a Full Bench:

'Whether, in order to recover interest under Section 8(1-A) of the U. P. Sales Tax Act, it is necessary for the Sales Tax Officer to make an assessment order in respect of the interest and to issue a notice of demand in respect of such interest.'

17. The petitioner firm carries on the business of manufacture and sale of Biris. For the year 1957-58, the Sales Tax Officer I, Allahabad, passed an assessment order on 10th June, 1959. For the year 1958-59, the petitioner firm was assessed to sales tax on 12th February, 1963. On 9th October. 1967, the Sales Tax Officer issued a recovery certificate for a sum of Rs, 1,65.684.43P., for the year 1957-58. On 25th October, 1967, another recovery certificate was issued by him for the year 1958-59 for a sum of Rupees 26,238.08 P. The recovery certificate for the year 1957-58 further stated that interest at the rate of 18 per cent per annum calculated on the amount of the tax with effect from 1st February, 1964, till the date of final payment shall also be recovered as an arrear of land revenue, in terms of the provisions of Section 8(1-A) of the U. P. Sales Tax Act. The recovery certificate for the year 1958-59 similarly mentioned that interest would run from 1st February, 1965. It has been stated that the tax has been paid and the amount of interest under the two recovery certificates comes to nearly Rs. 1,38.000. The petitioner challenged the validity of the imposition and recovery of the interest on several grounds, one of which was that without making an assessment order and issuing a notice of demand, the Sales Tax Officer had no jurisdiction to initiate proceedings for recovery of the Interest. In support, reliance was placed on the case of 1958 All LJ 970 where a Division Bench held that issuance of a notice of demand was a condition precedent to the recovery of penal interest.

18. The material and relevant provisions of the Act may first be noticed. Section 3 of the U. P. Sales Tax Act creates liability to sales-tax. Under it, every dealer is liable to pay the tax on his turnover of each assessment year which is to be determined in such manner as may be prescribed. Section 7 provides for determination of the turnover and assessment of tax. Section 8 deals with payment and recovery of tax. Under its subsection (1) the tax assessed under the Act is to be paid within such time, not being less than 15 days from the date of service of the notice of assessment and demand, as may be specified in the notice. In default of such payment, the whole of the amount remaining due becomes recoverable in accordance with Sub-section (8). Under Sub-section (8) any tax or other dues payable to the State Government under the Act is recoverable as arrears of land revenue. Section 14 provides for offences and penalties. If a person fails to pay the tax within the permitted time he is liable on conviction to a fine which may extend to Rs. 1,000. Under Sub-section (2) such a person is also liable to punishment with simple imprisonment which may extend to six months if he evades payment of tax. These provisions did not prove sufficiently deterrent to making defaults in prompt payment of the tax. The State Legislature with a view to lighten up the machinery for collection of sales tax added Clause (1-A) to Section 8 by the U. P. Sales Tax (Second Amendment) Act, 1963. It also added Section 33 to the Act. Section 8 fl-A) runs as follows:--

'(1-A) If the tax payable under subsection (1) remains unpaid for six months after the expiry of the time specified in the notice of assessment and demand, or the commencement of the Uttar Pradesh Bikrikar (Dwitiya Sanshodhan) Adhiniyam, 1963, whichever is later, then without prejudice to any other liability or penalty which the defaulter may, in consequence of such non-payment. Incur under this Act, simple interest at the rate of eighteen per cent per annum shall run on the amount then remaining due from the date of expiry of the time specified in the said notice, or from the commencement of the said Adhiniyam, as the case may be, and shall be added to the amount of tax and be deemed for all purposes to be part of the tax:

Provided that where as a result of appeal, revision or reference, or of any other order of a competent Court or authority, the amount of tax is varied, the Interest shall be recalculated accordingly:

Provided further that the interest on the excess amount of tax payable under an order of enhancement shall run from the date of such order if such excess remains unpaid for six months after the order'.

Section 33 provided that the assessing authority may forward to the Collector, a recovery certificate in respect of any sum recoverable under this Act as arrears of land revenue. The certificate has to specify the sum due and is to be conclusive evidence of the existence of the liability of the amount and of the person who is liable!

19. For the petitioner it was urged that Sub-section (1-A) of Section 8 was an independent provision authorising the levy of interest. The legal fiction that the interest shall be deemed to be part of the tax was for all purposes. It made the interest partake of all the characteristics of tax. So, lust like the tax, the interest could be levied by means of an assessment order followed by a notice of demand. If the ambit of the legal fiction is restricted to recovery proceedings only, then the provisions of appeal and revision shall be shut out to the assessee. Section 33 makes the recovery certificate conclusive, The assessee cannot dispute his liability before the Collector. The assessee would, therefore, be without any remedy. Cases may arise involving serious dispute i etween the revenue and the assessee as to the chargeability or the quantum of interest; but the assessee would have no forum for adjudication of his pleas. It was also submitted that the Legislature could not have contemplated the incorporation of the legal fiction only for the purposes of recovery, because under subsection (8) of Section 8, not only the tax but 'other dues' payable under the Act are also recoverable as arrears of land revenue. The interest would certainly be dues payable under the Act, it was hence unnecessary to provide for the same thing by creating a legal fiction.

20. in my opinion Sub-section (1-A) does not require the assessment of interest. Section 7 of the Act authorises the levy of tax. The subject matter of the tax is the turnover, which is required by Section 7 to be determined by the assessing authority on the basis of the return filed by the assessee. The tax is, even though its rate is fixed by the Act, required to be assessed on the turnover. The liability to pay the tax arises on service of the assessment order and the notice of demand. The assessee is not, and cannot possibly be required, to file a return for purposes of assessment of interest because its subject-matter, namely the unpaid tax has already been determined. Unlike Section 7 which requires the assessing authority to 'determine' the turnover and 'assess' the tax, Sub-section (1-A) of Section 8 states that interest shall 'run' on the amount of the tax remaining unpaid. This provision does not require any action or order by the assessing authority, before the liability to pay it arises. The liability accrues and becomes a debt payable instantaneously on the happening of the specified event, namely, the non-payment of the tax for six months. On the expiry of the period of six months, interest runs on the unpaid amount of the tax from the date of the expiry of the period mentioned in the notice of demand for the payment of the tax. The creation of the liability to Pay cannot hence be made to depend on service of another assessment order and notice of demand. So, it is, in my opinion, inappropriate to say that Sub-section (1-A) authorises the levy of interest so as to attract the procedure for the levy of tax.

21. The State Government's notification No. ST-949/X-900(34)-62 dated April 16, 1966, amended Form XI prescribed for the notice of assessment and demand for payment of tax. The amended paragraph. 5 of Form XI says:--

'If the tax payable in terms of this Demand Notice remains unpaid for six months after the expiry of the time specified as above, you shall, in consequence of such non-payment, be further liable to pay simple interest at the rate of 18 per cent per annum which shall run on the amount then remaining due from the date of expiry of the time specified in para 3 and shall be added to the amount of tax and be deemed for all purposes to be part of the tax.'

Service of notice in the amended form would mean service of a notice of demand for interest also. The intention appears to be that the assessing authority is not to pass any further or fresh orders to levy the interest. The recovery authority can straightway calculate the amount of interest and recover it, as if it was part of the unpaid tax.

22. It was submitted that the deeming is for all purposes. The legal fiction makes the interest part of the tax which has remained unpaid. It accrues as interest, but at once is deemed to merge into and swell the amount of the unpaid tax, for all purposes. The Idea appears to be to make the interest payable or recoverable along with the unpaid tax, at the same time, without any further ado. Separate recovery proceedings are not needed. This was one purpose to be subserved by the legal fiction.

23. The Act by Section 3-C fastens

liability of a dissolved firm to pay tax

and penalty, on its partners. It does not

apply to interest. In order to attract Section 3-C to interest, the legal fiction to make it part of the unpaid tax, became necessary. Under Section 7-C, the executor, administrator, or other legal representative of the deceased is liable to pay the tax due from the deceased. On its language, this provision also deals with tax alone. So, to fix the liability to pay interest on the executors etc., interest was made part of the tax. This was another purpose. Similarly the penalty and prosecution provisions of Section 14 will become applicable. In my opinion, the phrase 'for all purposes' was meant to attract the previsions which otherwise would not have applied to interest, as well as to facilitate recovery.

24. The other aspect emphasised by learned counsel for the petitioner was lack of any forum, where the assessee can obtain an adjudication of a dispute with the revenue as to his liability or the quantum of the interest. It is true that if the computation of interest is not treated as an order of assessment of the tax, the provision for appeal under Section 9 would not apply. But, in my opinion, a revision would lie under Section 10. Under it, the revising authority is entitled to call for and examine the record for satisfying itself as to the legality or propriety of any order made by the assessing authority under the Act. The Act or the Rules do not define the term 'order'. In my opinion an order would be a written direction, affecting the assessee made in virtue of the Act.

Section 33 requires the assessing authority to issue the certificate under his signatures specifying several particulars. He has, therefore, to specify the interest and to certify it as recoverable under his signatures. This written act fixes the liability of the assessee to recovery as an arrear of land revenue. It would, in my opinion, amount to the making of an order under the Act. So, the assessee can go up in revision.

25. The assessee would also have the remedy provided by Section 22 for rectification of any mistake apparent on the face of the record. A mistake apparent on the face of the record either on the question of chargeability or on the quantum of the tax or the interest would both be curable under Section 22. It is hence not quite right to say that all remedies are shut out to the assessee.

26. If it is held that the legal fiction makes the interest partake of all the characteristics of tax, the Interest would be tax, properly so called. Then, as tax, it would attract Section 8 (1-A). If the interest itself is not paid within six months, the assessee would incur the liability to interest all over again on the unpaid amount. That will be contrary to the purpose and the language of Sub-section (1-A). The assessee would virtually be liable to compound interest. But the provision expressly says that simple interest at 18 per cent shall run. The only way to avoid this anomalous situation is to confine the legal fiction to the language employed by the legislature, namely to treat the interest only as part of the already assessed tax, and not to treat it as tax independently.

27. The requirement of an assessment order for the interest followed by a fresh notice of demand would entail a deal of practical difficulties. Under Section 8 (1-A) interest runs from the mentioned date till the date of actual payment of the tax. Until the date of payment is known, the exact amount payable as interest cannot be found. Consequently a complete assessment order cannot be passed. Further, even if the original demand of tax has been paid, but the interest which may have accrued thereon till then, has not been paid, its non-payment would entail the accrual of interest under Sub-section (1-A). Before this further interest can be recovered, another assessment order would be required. Since the amount of interest has not been paid, an assessment order cannot be passed indicating any specific amount as the additional interest. In practice, it will be virtually impossible to conclude a particular case.

28. For all these reasons I am not inclined to accept the submission advanced on behalf of the petitioner that the making of an assessment order and the issuance of a notice of demand were conditions precedent to the recovery of penal interest.

29. The decision in Beni Ram Mool Chand's case, 1968 All LJ 970 proceeds on two grounds. It was observed that the opening words of Sub-section (1) of Section 8 are : 'The tax assessed under this Act'. The expression makes no mention of an assessment under Section 7 of the Act. Consequently, the expression must be understood in a broad sense. Section 8 (1) would apply to tax assessed under any other provision of the Act as well. That may be so. But, that will not by itself mean that Sub-section (1-A) of Section 8 requires the assessment of any tax. Sub-section (1-A) makes the interest part of the tax which has already been assessed. It will, therefore, be payable and recoverable as an integral part of the already assessed tax, and not because it is independently assessed as tax. In the second place, the Bench drew support from the Supreme Court decision in Income-tax Officer, Kolar Circle v. Seghu Buchiah Setty : [1964]52ITR538(SC) . In my opinion. this case is distinguishable. The Supreme Court held that the effect of an appellate order was to supersede and supplant the original assessment order. They applied this legal position to Section 29, Income Tax Act, which provided that if any tax, penalty or interest is due in consequence of any order passed under the Act, the Income-tax Officer shall serve upon the assessee a notice of demand specifying the sum so payable. The distinguishing feature is that Section 29 expressly required the service of a notice of demand for payment of interest as well. The Supreme Court only held that when, interest became due in consequence of the appellate order, it was a new liability requiring a fresh notice of demand under Section 29. Under the U. P. Sales Tax Act there is no specific provision requiring a notice of demand for interest.

30. I would, therefore, answer the referred question in the negative.

R.L. Gulati, J.

31. This and the connected writ petitions involve a common question with regard to the recovery of interest on the arrears of sales tax. In Writ Petitions Nos. 955 of 1968 and 1621 of 1968 the petitioners are manufacturers of biris while the petitioner in Writ Petition No. 1369 of 1968 is a dealer in cloth. In order to answer the question which has been referred to the Full Bench, I shall confine myself to the facts of Writ Petition No. 955 of 1968.

32. The petitioner is a partnership firm which was assessed to tax under the U.P, Sales Tax Act for the assessment years 1957-58 and 1958-59 under two separate assessment orders, dated June 10, 1959 and February 12, 1963 levying Rs. 362,725/- and Rs. 81,994/- as tax for the two years respectively. The petitioner had applied for composition of the sales tax under Section 7-F of the Act and the Commissioner of Sales Tax had stayed the recovery of the tax during the pendency of the petitioner's application for composition. According to the petitioner's allegation without deciding its application for composition and without any prior notice to it, the State Government by its order dated May 25, 1967 vacated the stay order. Consequent upon the cancellation of the stay order, the Sales Tax Officer, Allahabad issued to the Collector of Allahabad two recovery certificates-- one dated October 9, 1967 and the other dated October 25, 1967 requiring the Collector to recover from the petitioners as arrears of land revenue, the arrears of sales tax which at that time stood at Rs. 165,648/- and Rs. 26,238/- for the two years respectively. In the recovery certificates there is a direction that the Collector should realise, besides the arrears of sales tax mentioned therein, the interest at the rate of 18% per annum with effect from February 1, 1964 till the date of final payment of the sales tax. The amount of interest, however, is not mentioned in the recovery certificates.

33. The petitioner alleges that the arrears of tax have since been paid by it, but the Collector is still pursuing the recovery proceedings for the realisation of interest amounting to Rs. 1,38,000/-which is alleged to be due on the arrears of sales tax even for the period during which the demand of tax remained stayed.

34. On these allegations the petitioner moved the writ petition before this Court challenging the recovery proceedings on a large number of grounds. One of such grounds was that as no notice of demand had been served upon the petitioner in respect of the amount of interest, the recovery proceedings through the Collector were unauthorised. In support of this contention the petitioner relied upon a decision of this Court in 1968 All LJ 970. On behalf of the opposite parties, it was contended that that decision was incorrect and required reconsideration. It was in these circumstances that I and brother Pathak, J. referred the following question for the decision of the Full Bench:

'Whether in order to recover interest under Section 8(1-A) of the U.P. Sales Tax Act, it is necessary for the Sales Tax Officer to make an assessment order in respect of the interest and to issue a notice of demand in respect of such Interest.'

35. Previously there was no provision under the U.P. Sales Tax Act for the levy of interest. By the U.P. Sales Tax Act (Second Amendment) Act, 1963 (Act No. III of 1964), Sub-section (1-A) was added to Section 8 of the Act providing for the levy of interest on arrears of sales tax. The newly added Section 8(1-A) reads:

'8(1-A)-- If the tax payable under Sub-section (1) remains unpaid for six months after the expiry of the time specified in the notice of assessment and demand, or the commencement of the Uttar Pradesh Bikri Kar (Dwitiya Sanshodhan) Adhiniyam, 1963, whichever is later, then without prejudice to any other liability or penalty which the defaulter may in consequence of such non-pavment, incur under this Act, simple interest at the rate of eighteen per cent per annum shall run on the amount then remaining due from the date of expiry of the time specified in the said notice, or from the commencement of the said Adhiniyam as the case may be, and shall be added to the amount of tax and be 'deemed for all purposes to be part of the tax': (underlining (here in ' ') mine).

Provided that where as a result of appeal, revision or reference, or of any other order of a competent court or authority, the amount of tax is varied, the interest shall be recalculated accordingly:

Provided further that the interest on the excess amount of tax payable under an order of enhancement shall run from the date of such order if such excess remains unpaid for six months, after the order.'

36. The plain purpose of this amendment appears to be to levy interest at a rate which appears to be penal in character in order to exert pressure on the defaulters to pay up the arrears of tax. But while enacting this provision the Legislature has incorporated a legal fiction to the effect that the interest so imposed 'shall be deemed for all purposes to be the part of the tax.' The question arises as to what is the purpose, scope and the effect of this legal fiction. While this question came up before brother Pathak and myself, I expressed the opinion that one of the effects of the legal fiction would be that interest would partake of all the characteristics of the tax so far as its levy and collection was concerned. The levy of tax under the Act requires an assessment order after a prior notice to the assessee followed by a notice of demand in which is stated the time and place for payment of the tax. If the assessee defaults in making the payment in accordance with the terms of the notice of demand, he becomes a defaulter and the tax can be recovered from him as arrears of land revenue as provided in Sub-section (8) of Section 8. I, therefore, took the view that the same procedure should have been followed for the levy and collection of interest and as that admittedly had not been done, I expressed the opinion that the recovery proceedings pending against the petitioner were unauthorised. In other words, I expressed my respectful agreement with the view taken by this Court in the case of Beni Ram Mool Chand, 1968 All LJ 970 (supra).

37. As brother Pathak, J. did not agree with my view, the question set out above was referred to the Full Bench.

38. I have had the advantage of reading the judgments prepared by my brothers Jagdish Sahai and Satish Chandra, JJ. but I regret very much that I cannot persuade myself to change the view that I have already expressed.

39. The main question which was mooted before the Full Bench related to the purpose, scope and effect of the legal fiction which admittedly has been enacted by the Legislature in Section 8(1-A) equating the interest with the tax.

40. Before I deal with this aspect, it would be proper to examine briefly the scheme with regard to the levy and collection of the tax and other incidental dues, payable to the State under the U.P. Sales Tax Act. The tax is leviable under the charging Section 3. The amount of tax payable by an assessee is quantified by means of an assessment order under Section 7 read with the relevant rules and the tax so quantified is demanded from him by means of a notice of demand in Form XI under Rule 45, and the assessee has to pay tax so assessed within the time and in the manner specified in that notice. In case the assessee defaults in the payment of the tax in accordance with the terms of the notice of demand, then under Section 8 (1), the assessee is treated as a defaulter, and the amount of tax become recoverable from him under Sub-section (8) of Section 8. That section, reads:

'Any tax or other dues payable to the State Government under this Act, or any amount of money which a person is required to pay to the assessing authority under Sub-section (3) or for which he is personally liable to the assessing authority under Sub-section (3) shall be recoverable as arrears of land revenue.'

The 'other dues' mentioned in Sub-section (8) of Section 8 are obviously penalty, composition fee, exemption fee and interest.

41. Previously, there was no provision in the Act requiring the Sales Tax Officer to forward to the Collector a certificate of recovery authorising him to recover the amount due from the assessee as arrears of land revenue. Such a provision has, however, now to be found in Section 33 which has been added by U.P. Act No. III of 1964 which introduces the provisions relating to levy of interest viz. Sub-section (1-A) of Section 8. Section 33 provides:--

'Section 33: Further provisions regarding recovery-- in respect of any Bum recoverable under this Act as arrears of land revenue the assessing authority may forward to the Collector a certificate under his signature specifying the sum due. Such certificate shall be conclusive evidence of the existence of the liability, of its amount, and of the person who is liable and the Collector on receipt of the certificate shall proceed to recover from such person the amount specified therein as if it were an arrear of land revenue;

Provided that without prejudice to the powers conferred by this section the Collector, shall for the purposes of recovering the amount specified in the certificate, have also all the powers which--

(a) a Collector has under the Revenue Recovery Act, 1890; and

(b) a Civil Court has under the Code of Civil Procedure, 1908 for the purpose of recovery of an amount due under a decree.'

This newly added Section 33 requires the Sales Tax Officer, to specify in the recovery certificate among other things, the exact amount which is sought to be recovered by the Collector.

42-43. From a perusal of the foregoing provisions, it is clear that where an assessee commits a default in the payment of tax or any other dues, payable to the Government under the Act, the amount can be recovered from him in a summary manner provided under Section 8(8) through the Collector only if:

(i) a notice of demand is served upon him requiring him to pay the amount mentioned therein within the time and at the place mentioned in the notice;

(ii) the assessee commits a default of the terms of the notice of demand;

(iii) a recovery certificate is issued to the Collector by the Sales Tax Officer; and

(iv) the exact amount recoverable is mentioned in the recovery certificate. If any of the steps enumerated above are not taken by the Sales Tax Officer the recovery proceedings cannot be regarded to be valid.

44. In the instant case admittedly no notice of demand was served upon the assessee requiring him to pay the interest which is now being sought to be recovered by the Collector and the two recovery certificates forwarded to the Collector by the Sales Tax Officer do not mention the amount of the interest. This being the situation the recovery proceedings impugned by the assessee in the two writ petitions are plainly unauthorised.

45. Now I shall deal briefly with the contentions raised on behalf of the opposite parties. The first contention is that the legal fiction has been enacted only to enable the interest to be recoverable as arrears of land revenue. This contention is obviously not tenable. I have already pointed out above that Section 8(8) which deals with the recovery of Government dues as arrears of land revenue is not restricted to the sales tax only. But it comprehends 'other dues' payable to the Government. The term 'other dues' would obviously include interest also. That being the position, there was no necessity at all for the Legislature to have enacted the legal fiction for the purposes of realising interest as arrears of land revenue because that purpose could be achieved by the already existing provision in Section 8(8). The second contention is that the legal fiction would operate only at the time when the Sales Tax Officer commences proceedings for the recovery of sales tax as arrears of land revenue. This contention is again unsound and, if accepted, would lead to anomalous result. For instance, in a case where the tax has already been paid. there will be no occasion for the Sales Tax Officer to commence recovery proceeding and the legal fiction would become inoperative with the result that the interest which might have been payable by the assessee by reason of his having delayed the payment of the tax for more than six months, would not be recoverable as arrears of land revenue. That would defeat the very purpose for which the legal fiction is said to have been created.

46. The same anomalous position would arise in a case where the recovery certificate in respect of the tax has already been issued and the interest starts accruing afterwards. It must not be forgotten that liability to pay tax and interest is not co-extensive in point of time. The tax becomes payable as soon as the assessment is made and the notice of demand is served but interest becomes payable only if the tax remains in arrears for six months and more. In such a case also the legal fiction would not operate because the recovery proceedings would have been commenced by the Sales Tax Officer before the interest became payable by the assessee. In such a situation, it will have to be conceded that the Sales Tax Officer will have to issue a fresh recovery certificate in respect of the interest and in that case the argument that the legal fiction operates only when the proceedings for recovery of tax start, would fall to the ground.

47. It was next urged that although Interest could be recovered under Section 8(8) as arrears of land revenue without the legal fiction, yet the legal fiction had to be created in order to make the newly added provision relating to interest as self-sufficient. Now when one looks minutely at Section 8(1-A), one finds that there are no express words in that provision which talk of the interest being recoverable as arrears of land revenue so that the interest leviable under Section 8(1-A) would not be recoverable as arrears of land revenue as a result of anything contained in that section. The interest would still be recoverable as arrears of land revenue by virtue of Section 8(8). It follows, therefore, that Section 8(1-A) is not self-contained because for the recovery of interest as arrears of land revenue, aid has still to be taken of from the already existing provision contained in Section 8(8).

48. Now reverting to the main question as to the scope and effect of a legal fiction, the position is settled beyond doubt. In the first place, the word 'deem' is apt to include obvious, uncertain and impossible. Secondly, the legal fiction has to be carried to its logical conclusion but only within the field of the definite purpose for which the legal fiction, is created.

49. Now, Interest and tax are two different concepts. When the law declares that they should be deemed to be the same, the purpose of the legal fiction is that something which is unreal, is treated to be real and all facts necessary for the operation of such a legal fiction must be deemed to exist and the consequences which ensue as a result of such a fiction must also be given effect to. In this connection reference may be made to the following observations of Lord Asquith of Bishopstone in East End Dwellings Co., Ltd. v. Finsbury Borough Council, (1952) AC 109 at page 130:--

'If you are forbidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of those in this case is emancipation from 1939 level of rents. The statute says that you must imagine a certain state of affairs, it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.'

This observation of Lord Asquith of Bishopstone has become classical and has been cited with approval by the Supreme Court in cases which are a legion. To quote some of such cases under the Income Tax Act, reference may be made to the following where this passage of Lord Asquith of Bishopstone has been reproduced and approved:

(a) M.K. Venkatachalam v. Bombay Dyeing & . : [1958]34ITR143(SC) .

(b) Commr. of Income Tax, Delhi v. Teia Singh : [1959]35ITR408(SC) .

(c) Narayan Row v. Ishwarlal Bhagwan-das : [1965]57ITR149(SC) .

(d) Commr. of Income Tax v. Godawari Sugar Mills Ltd. : [1967]63ITR310(SC) . In the Commissioner of Income Tax v. Teja Singh (supra) the Supreme Court observed at page 413, 'it is a rule of interpretation well settled that in construing the scope of a legal fiction, it would be proper and even necessary to assume all those facts on which alone the fiction can operate.'

50. Now, the language in which the legal fiction in question is couched is indeed very wide. It says that interest shall be deemed to be tax for all purposes. The expression 'all purposes' obviously means more than one purpose. It would, therefore, be manifestly wrong to suggest that the legal fiction had only one purpose to achieve, namely, to enable the interest to be realised as arrears of land revenue. I have already shown that really that was not the purpose. One of the purposes, to my mind, was to apply to the imposition and collection of interest, the procedure prescribed for the levy of collection of tax. The tax is Imposed by means of an order quantifying the tax which is popularly known as assessment order. Such an order is to be followed by a notice of demand. Non-compliance with the term of the notice of demand brings into play coercive machinery contained in Section 8(8) and the arrears of tax become recoverable as arrears of land revenue. This attracts Section 33 of the Act under which the Sales Tax Officer issues to the Collector a recovery certificate specifying therein the amount due from the assessee which the Collector is to recover as arrears of land revenue. As a result of the legal fiction in question, this procedure becomes applicable to the levy and collection of Interest. This is one consequence that flows from the legal fiction.

51. The second consequence that flows from the legal fiction is that the statutory remedies available to an assessee, who is aggrieved with the levy or quantum of tax, by way of appeal, revision or a reference to the High Court as also the provision for rectification of an apparent error under Section 22, become available in respect of interest also. Yet another result which would ensue would be to attract the provisions contained in Sections 3-C and 7-C of the Act and the partners of a dissolved firm or the legal representative of a deceased assessee would be liable to interest also in the same manner as they would be liable for the payment of the tax. I cannot persuade myself to believe that it could have been the intention of the legislature to prevent these consequences ensuing from the legal fiction.

52. On behalf of the opposite parties it is contended that the levy of interest is automatic requiring no assessment or any other order inasmuch as the rate of interest being fixed and the arrears of sales tax being known, ascertainment of the quantum of interest would involve merely a simple arithmetical calculation.

53. I find no substance in this argument. The word 'assessment' is a comprehensive word, at least it is so understood under the Income-tax Act. It may mean either the entire process of determination of the income and the assessment of tax or it may mean only the calculation of tax. The fact that rate of interest is fixed is of no consequence, because even the rate of tax is also fixed. It is true that in some cases the levy of interest may not require an elaborate order, but the same can be the position with regard to the tax itself where the turnover is not disputed. There also the rate of tax being fixed, there would be no necessity of passing an elaborate order. But the fact remains that an order of assessment is necessary and cannot be dispensed with in order to quantify the assessee's liability. It is again true that an assessment order relating to tax is preceded by quarterly returns. No such returns are necessary in the case of interest. But that again makes no difference. The two types of orders, one levying tax and the other levying the interest are passed at different stages and under different circumstances. As a result of the legal fiction an order levying interest would be regarded as a supplementary or an additional order levying tax and would become a part of the order of assessment under Section 7. Be that as it may, some sort of order is contemplated by the Act under which the amount of interest payable by an assessee is determined. The only difference is that if such an order is not an order of assessment, the assessee may not be able to avail of the remedy of appeal under Section 9, but the remedies by way of revision under Section 10 and rectification under Section 22 would still be open to him.

54. In the instant case the petitioner disputes its liability to interest at least for the period during which the realisation of the tax remained stayed. Interest is admittedly payable by a defaulter and it is the petitioner's contention that so long as the payment of the tax remained stayed, it could not be regarded a defaulter and therefore no interest was payable by it. The interest might be payable from the date the stay order was discharged to the date of the final payment of the tax. Therefore in the present case the Sales Tax Officer had to determine as to whether the petitioner was liable to pay interest and, if so, from what date. Such a controversy cannot be disposed of by mere subjective and unilateral calculation of interest by the Sales Tax Officer or by the Collector. The controversy raised by the petitioner is of a substantial nature and certainly the petitioner must have some forum to have it decided. The legal fiction, in my opinion, makes available to him such a forum, as already discussed above.

55. In reply it was suggested that no forum was necessary because interest being directly linked with the amount of the tax, the assessee would automatically get relief, if the amount of tax is reduced in appeal or other proceedings. That argument, is plainly wrong. There might be cases where there may be no dispute about the tax at all and the dispute may relate only to levy of interest. The Instant case is an example of that type. The petitioner has not disputed the quantum of tax which in fact it has already paid up. It disputes the levy of interest only.

56. It was then suggested that a remedy under Section 22 may be open to an assessee in case there is a mistake in the calculation of interest. There is no substance in that contention either, Section 22 applies only where an order is sought to be rectified and if according to the contention of the opposite parties, no order levying interest is contemplated, Section 22 goes out of the picture. The same is true about the argument that a revision under Section 10 may lie. That section also applies where the revising authority has to satisfy itself as to the legality or propriety of any order passed by a subordinate sales tax authority (Section 10(3)). Like Section 22, Section 10 also applies only when there is any order to be revised.

57. Lastly it was suggested that the Collector may be approached by an aggrieved assessee. Section 33 provides in categorical terms that 'the certificate shall be conclusive evidence of the existence of the liability, of its amount, and of the person who is liable .........'. The Collector, therefore, has absolutely ho power to grant any relief to the assessee.

58. Such being the situation, it is difficult to believe that the legislature could have intended that an assessee should be left without any remedy even if there is a serious dispute between him and the revenue with regard to the liability and the quantum of interest,

59. It was then pointed out on behalf of the State that interest being a recurring liability, its amount cannot be specified in a notice of demand or in the recovery certificate. There are two answers to this argument. In the first place, such a difficulty which to my mind, is more imaginary than real, would arise where the default in making payment of the tax is continuing because the total amount of interest payable by an assessee would depend upon the date when the tax is paid. No such difficulty can, however, arise in the present case because the assessee has already paid up the tax. Nothing could have been simpler for the Sales Tax Officer than to have calculated the amount of interest and to have issued a fresh certificate specifying therein the amount of interest. Secondly, an argument of this nature is an argument of despair and cannot override the legal requirements. If the law requires the amount of interest to be specified in the recovery certificate, it is imperative that the same should be done. In the case of a continuing default of payment of tax, it is always open to the Sales Tax Officer to determine the amount of interest on a particular date and to forward to the Collector a certificate for that amount, in case the assessee does not pay that amount when called upon to do so. There is no bar in issuing successive certificates after regular intervals and the Sales Tax Officer can repeat that process as often as necessary until the entire amount of tax and interest is realised. At this stage, it would be appropriate to dispel a misunderstanding under which the learned counsel for the State appears to have been labouring throughout when he argued that as the interest runs from day-to-day, the Sales Tax Officer will be required to issue a notice of demand everyday in order to make the assessee liable for interest. That is not so. There is a distinction between the liability of an assessee to pay interest and the mode in which it is recovered. The liability to pay interest is imposed by the statute and it continues just as in the case of any other creditor, until the debt is paid. In order to create such a liability, it is not necessary to issue any notice of demand. But the necessity of issuing a notice of demand arises when the interest is sought to be recovered through the coercive machinery provided under the Act. There are several modes in which the interest may be realised from an assessee. Section 8(8) is not exhaustive but provides only one of such modes which is of a summary nature. The State may enforce the liability by means of a suit or by other means open to it under the general law. In such a case it would not be necessary for the State to issue any notice of demand, but if the State wishes to enforce the liability through the summary mode provided in Section 8(8), the procedure outlined by me above, becomes necessary. In other words, when the assessee fails to pay interest of his own accord and it becomes necessary for the State to proceed against him under Section 8(8), it is imperative that the assessee must be served with a notice of demand and on his failure to comply with it, a recovery certificate should be issued to the Collector specifying therein the amount of interest which is sought to be realised.

60. In the end it may be useful to draw an analogy from the corresponding provisions under the Income Tax Act. The Income Tax Act of 1961 also contains several provisions for the imposition of interest when the assessee defaults in making payment of advance or regular tax. Under Section 156 of the Income Tax Act, 'when any tax, interest, penalty fine or any other sum is payable in consequence of any order passed under the Act, the Income Tax Officer has to serve upon the assessee a notice of demand in the prescribed form specifying the sum BO payable.'

61. Sections 220 and 222 deal with the collection and recovery of tax, interest and penalty etc. The following portion of Section 220 is material for our purpose:

'220. When tax payable and when assessee deemed in default:-- (1) Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under Section 156 shall be paid within thirty five days of the service of the notice at the place and to the person mentioned in the notice:

Provided that, where the Income Tax Officer has any reason to believe that it will be detrimental to revenue if the full period of thirty-five days aforesaid is allowed, he may with the previous approval of the Inspecting Assistant Commissioner, direct that the sum specified in the notice of demand shall be paid within such period being a period less than the period of thirty-five days aforesaid, as may be specified by him in the notice of demand.

(2) If the amount specified in any notice of demand under Section 156 is not paid within the period limited under subsection (1), the assessee shall be 'liable to pay simple interest at four per cent, per annum from the day commencing after the end of the period' mentioned in subsection (1): (underlining here in ' ') is mine).

Provided that, where as a result of an order under Section 154, or Section 166, or Section 250 or Section 264, the amount on which interest was payable under this section had been reduced, the Interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded.

(3) Without prejudice to the provisions contained in Sub-section (2), on an application made by the assessee before the expiry of the due date under Sub-section (1) the Income-tax Officer may extend the time for payment or allow payment by instalments, subject to such conditions as he may think fit to impose in the circumstances of the case.

(4) If the amount is not paid within the time limited under Sub-section (1) or extended under Sub-section (3), as the case may be, at the place and the person mentioned in the said notice the assessee shall be deemed to be in default'

Section 222 reads:

'222. Certificate to Tax Recovery Officer-- (1) When an assessee is in default or is deemed to be in default in making payment of tax, the Income-tax Officer may forward to the Tax Recovery Officer a certificate under his signature specifying the amount of arrears due from the assessee, and the Tax Recovery Officer on receipt of such certificate, shall proceed to recover from such assessee, the amount specified therein by one or more of the modes mentioned below, in accordance with the rules laid down in the Second Schedule--

(a) attachment and sale of the assessee's movable property;

(b) attachment and sale of the assessee's immovable property;

(c) arrest of the assessee and his detention in prison;

(d) appointing a receiver for the management of the assessee's movable and immovable properties.

(2) The Income-tax Officer may issue a certificate under Sub-section (1) notwithstanding that proceedings for recovery of the arrears by any other mode have been taken.'

62. The scheme under the Income-tax Act as revealed by the provisions quoted above, is that an assessee has to be served with a notice of demand in respect of any tax, interest or penalty payable by him and if he fails to comply with the terms of the notice of demand, he is treated to be an assessee in default and can then be proceeded against under Sub-section (2) of Section 220 under which the Income-tax Officer has to issue a recovery certificate to the Tax Recovery Officer specifying therein the amount sought to be recovered. Any omission on the part of the Income-tax Officer to comply with any of the requirements mentioned above vitiates the recovery proceedings.

63. In : [1964]52ITR538(SC) , the Supreme Court quashed the recovery proceedings because a fresh notice of demand had not been served upon the assessee after his tax liability had been reduced in appeal. This Court has applied the proposition enunciated in this case in Ram Autar Agarwal v. Sales Tax Officer, Writ No. 1659 of 1967, D/-13-9-1968 (All) holding that 'we see no reason why that principle should not be adopted in cases under the U. P. Sales Tax Act'. In Vimlaben Khimji v. Manivikar : [1964]51ITR29(Bom) ; Sriramiah v. Income-tax Officer, (1965) 52 ITR 408 and Collector of North Arcot v. Kannan, (1967) 65 ITR 302 : AIR 1967 Mad 249; recovery proceedings were quashed because the real amount of tax had not been specified therein.

64. Plainly the scheme under the Income-tax Act is more or less analogous to the scheme under the U. P. Sales Tax Act. If under the Income-tax Act a notice of demand has to be served upon the assessee in respect of the interest payable by it on arrears of tax, there appears to be no good reason why the same procedure should not be practicable under the U. P. Sales Tax Act. There is, however, one difference so far as the recovery is concerned. It would be noticed that under Section 222 recovery certificate is issued when the assessee is in default in making a payment of the tax. Interest, penalty or other dues are not mentioned therein. From this omission it might appear that recovery proceedings can be taken against an assessee only in respect of the arrears of tax. But this omission has been made good by the legislature in Section 229 which says:

'229. Recovery of penalties, fine, Interest and other sums.-- Any sum imposed by way of interest, fine, penalty, or any other sum payable under the provisions of this Act, shall be recoverable in the manner provided in this Chapter for the recovery of arrears of tax.'

The procedure under the Income-tax Act for the levy and collection of interest is, therefore, completely identical with the procedure prescribed under the U. P. Sales Tax Act and no one has ever contended that under the Income-tax Act, the Income-tax Officer can proceed to recover the interest from an assessee without following the procedure for the recovery of Income-tax.

65. The last distinction that was pointed out between the schemes of the two Acts was that under Section 156 of the Income-tax Act a notice of demand is required to be served in respect of all dues including interest, while under the U. P. Sales Tax Act. Rule 45, which corresponds to Section 156 of the Income-tax Act requires a notice of demand in respect of the tax only. It is forgotten that as a result of the legal fiction created in Section 8 (1-A), the interest is deemed to be tax for all purposes and therefore. It would be tax for purposes of Rule 45 also so that a notice of demand shall have to be issued in respect of interest also. Moreover, if one examines closely the scheme under the U. P. Sales Tax Act prior to its amendment in 1964, it becomes obvious that a notice of demand was necessary even then in the case of penalty and interest because penalty and interest were also recoverable as arrears of land revenue under Section 8 (8). If in the case of tax, Section 8 (8) becomes operative only when the assessee commits a default of its payment there is no reason to suppose that it would be applicable in the case of interest and penalty even tf the assessee is not in default. And as assessee can be said to be in default only if he fails to make the payment when called upon to do so which means when a notice of demand is served upon him.

66. Under the Income-tax Act, there is, of course, no appeal provided against the levy of interest under Section 222 (2) but an order imposing interest under Section 156 is open to revision by the Commissioner under Section 264 and is also liable to rectification under Section 154. In this regard, the U. P. Legislature has gone a step further inasmuch as bv equating the interest with the tax, it has automatically made available to the assessee all the remedies which are open to him with regard to the levy of the tax.

67. Although I have discussed and tried to prove that the entire procedure for the levy and collection of tax would be applicable in the case of interest also, yet for purposes of the present case it was not really necessary to have gone to that extent. The writ petition is directed against the recovery proceedings. Those proceedings suffer from two infirmities: (1) the proceedings have been commenced without issuing a notice of demand to the petitioner and (2) the amount of interest has not been mentioned in the recovery certificates. The petitioner is entitled to succeed on either of the two grounds. Therefore, even if one was to assume everything else against the petitioner, the petitioner would still be entitled to succeed on the simple ground that the amount of interest not having been specified in the recovery certificates the recovery proceedings are bad in law. Looking at the matter from that view, the question which has been referred to the Full Bench to my mind is rather hypothetical, couched as it is in an abstract form divorced from the facts of the case and in any case is too widely stated. I would, therefore, prefer to reframe the question to read:

'Whether on the facts and circumstances of the case the proceedings for the recovery of interest from the petitioner by the Collector are valid?'

and would answer it in the negative.

68. The wider proposition of law embodied in the question referred is comprehensive and goes beyond the scope of the controversy which arises in this and the connected cases. However, as I have dealt with it quite exhaustively, I would not hesitate to answer the question referred to the Full Bench. My answer is:

'In order to recover the interest under Section 8 (1-A) of the U. P. Sales Tax Act as arrears of land revenue, it is necessary for the Sales Tax Officer to serve upon the assessee a notice of demand in pursuance of an order quantifying the amount of interest (even though it may not be an order of assessment) and on the assessee's failure to comply with the notice of demand to issue a recovery certificate to the Collector specifying therein the amount of interest sought to be recovered.'

69. As admittedly, this procedure has not been followed in this and the connected writ petitions the recovery proceedings are unauthorised and are liable to be quashed.

By The Court

70. in view of the majority judgment, we answer the question referred to us by saying that it was not necessary for the Sales Tax Officer to make an assessment order in respect of interest and to issue a notice of demand in respect of the same.


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