(1) The point for decision in this writ petition is a short one. It is the propriety of levy of interest for default, in payment of arrears of sales tax, under Section 21(3) of the Madras General Sales Tax Act 1959, in relation to an arrears of sales tax, which accrued before that Act came into force.
(2) A few facts will be helpful to understand the question raised for decision in this case. For the year 1950-51 the petitioner was assessed to sales tax, by an order of the assessing authority, passed on 29-3-1952. The demand notice for the tax thus levied, was served on him on 9-4-1952. The demand notice specified a period of 21 days for making the payment. In the Madras General Sales Tax Act of 1939 then in force there was no provision for levy of any interest by way of penalty on tax not paid within the time specified in the notice of demand. In the Madras General Sales Tax Act of 1959, however, S. 24(3) had such a provision in the following terms:
'If the tax assessed under this Act or any instalment thereof is not paid by any dealer or person within the time specified therefor in the notice of assessment or in the order permitting payment in instalments, the dealer or person shall pay by way of penalty, in addition to the amount due a sum equal to (a) half a percent of such amount, for each month or part thereof for the first three months after the date specified for its payment; (b) one per cent of such amount, for each month or part thereof subsequent to the first three months aforesaid'. The department issued an order on 3-11-1962 to the petitioner stating that, as he had not paid the arrears of tax assessed on him for 1950-51 within the period specified in the notice, he was liable to pay by way of penalty interest calculated for 40 months under the provisions of S. 24, sub-section (3) of the Madras General Sales Tax Act 1959 for an amount of Rs. 1455.65. The petitioner contends that the Madras General Sales Tax Act of 1959 would not have any retrospective effect for the purpose of levying penal interest under S. 24(3) in regard to arrears accrued before the Act, and therefore the order or the authority was ultra vires and requires to be quashed by a writ of certiorari.
(3) I am of opinion that the contention of the petitioner is right. I have just now mentioned that the Madras General Sales Tax Act of 1939 which was in force at the time when the assessment order was passed and also at the time, when it became an arrears, when it was not paid within 21 days as required under the notice of demand, did not contain a provision for levy of interest by way of penalty. Learned Government Pleader appearing for the respondent, Commercial Tax Officer, relied upon the transitory provision enacted in S. 61 of the Madras General Sales Tax Act of 1959, for supporting the demand. The transitory provision is in the form, which is usually found, where there is a repealing and a re-enacting piece of legislation, as in the case of the Madras General Sales Tax Act of 1959, Section 61 reads:
'Repeal: (1) The Madras General Sales Tax Act 1939 (Madras Act IX of 1939) is hereby repealed:
Provided that such repeal shall not affect the previous operation of the said Act or any right, title, obligation or liability already acquired, accrued or incurred thereunder and subject thereto, anything done or any action taken including any appointment, notification, notice, order, rule, form, regulation, certificate, licence or permit in the exercise of any power, conferred by or under the said Act, shall be deemed to have been done or taken in the exercise of the powers conferred by or under this Act, as if this Act were in force on the date on which such thing was done, or action was taken, and all arrears of tax and other amounts due at the commencement of this Act, may be recovered as if they had accrued under this Act.'
It is on the proviso to this section, and in particular on the last part of it, which reads 'all arrears of tax and other amounts due at the commencement of this Act, may be recovered, as if they had accrued under this Act', that the learned Government pleader relies for supporting the impugned order. It is plain that though there was an arrears of tax due by the petitioner, at the commencement of the Madras General Sales Tax Act 1959, the interest levied on him by way of penalty was not an amount due from him at the commencement of that Act. Because, as I have already said, such an amount was not leviable under the provisions of the pre-existing Act of 1939. Learned Government Pleader wanted to read in the clause, 'may be recovered as if they had accrued under this Act', a power also to levy interest by way of penalty under S. 24(3). But I have not been shown any authority by the learned Government Pleader to support the view, that the levy of penalty by way of interest is a method of recovery of an arrear. The proper way of looking at the amount is to treat it as a liquidated sum for damages for the period for which the State is kept out of the money to which it is entitled. Levy of such an amount cannot by any stretch of interpretation be treated as a process of recovery of an amount due. Therefore, support for the impugned levy, cannot be found in any of the clauses of the transitory provision in S. 61 of the Madras General Sales Tax Act 1959, much less in the concluding clause of the proviso above referred to and which is relied upon by the Government Pleader.
(4) The learned Government Pleader quoted the decision of the Supreme Court in Income-tax Commissioner Andhra Pradesh, Hyderabad v. M/s. Bhikaji Dadabhai and Co., : 42ITR123(SC) . In that case an amount of income-tax was due as an arrear under an earlier Hyderabad Income-tax Act, which was in force and that Act provided also for the levy of the penal interest. What the decision laid down was that, even after the Indian Income-tax Act was extended to the former Hyderabad territory, the proceedings for the collection of penalty already levied, under the pre-existing enactment, could be continued by virtue of the transitory provision. There is also the observation in the same judgment, that penalty is to be regarded as an additional tax levied in the case of contumacious action. The above observation in the decision would support the contention of the petitioner, in so far as he claims that the penal interest in this case was a levy of an amount in addition to the arrear of tax, which was due on the date of the commencement of Act of 1959 and that it is not a levy, which can be related to the process of recovery. Learned counsel for the petitioner referred to the decision in M. M. Mathew v. Second Addl. Income-tax Officer, Kottayam, where there is an observation at page 459 (of ITR): (at p. 186 of AIR) no doubt in some other context under the Indian Income-tax Act. 'It is impossible to consider that the imposition of penalty is also a mode of recovery of tax'. In my opinion, no authority is really necessary for the clear position, that the penalty levied in this case, which the new Act alone contemplates, but not the old Act, cannot be imposed, retrospectively in respect of an arrear of sales tax, which became due before the new Act, and that nothing in the transitory provision in S. 61 will justify its levy. The writ petition is therefore allowed and the impugned order is quashed by a writ of certiorari. The rule nisi is made absolute.
(5) Petition allowed.