IN THE HIGH COURT OF DELHI AT NEW DELHI. SUBJECT : Delhi Sales Tax Act, Judgment reserved on : Judgment delivered on :

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1 IN THE HIGH COURT OF DELHI AT NEW DELHI SUBJECT : Delhi Sales Tax Act, 1975 Judgment reserved on : Judgment delivered on : STR Nos. 5/1989 THE COMMISSIONER OF SALES TAX... Appellant versus M/S LLOYDS SALES CORPORATION... Respondent Advocates who appeared in this case: For the Appellant : Mr.H.L.Taneja For the Respondent : Mr.M.K.Arora CORAM :- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE RAJIV SHAKDHER RAJIV SHAKDHER, J 1. This is a reference under Section 45(1) of the Delhi Sales Tax Act, 1975 (hereinafter referred to as the Act ) made to us by the Appellate Tribunal Sales Tax, Delhi (hereinafter referred to as the Tribunal ) by an order dated By virtue of the aforesaid order, the Tribunal has referred the following questions for the opinion of this Court:- i) Whether the Tribunal was justified in holding that Rule 23A was repugnant to Section 2(o) and interest was not leviable on the tax calculated on the value of the raw materials purchased ii) Whether the Tribunal was justified and was

2 empowered to hold that Rule 23A was repugnant to Section 2(o) of the Delhi Sales Tax, In order to deal with the questions referred to us, it would be necessary to detail out certain facts which have given rise to the said reference: 2.1 The respondent/dealer at the relevant point of time, was engaged in the business of selling refrigerators, Air Conditioners and carrying out installation thereof. The respondent/dealer was assessed to sales tax by the Assessing Authority for the period under the Act. By virtue of the assessment order dated 23rd December, 1981, the Assessing Authority raised additional demand of sum of Rs 89,683/-. The said additional demand consisted of: tax on the price of transferred goods or unutilized purchases on the basis of registration certificate, for the manufacture of goods: amounting Rs 58,481.90, while the balance sum amounting to Rs 31, was imposed by way of interest, on the said tax. In so far as the interest was concerned, it was imposed by invoking the provisions of Section 27 of the Act, for the reason that the tax in issue, was not deposited quarterly, alongwith the quarterly returns. 2.2 The respondent/dealer being aggrieved by the demand, filed an appeal before the Additional Commissioner, Sales Tax (hereinafter referred to as the Commissioner ). Before, the Commissioner, the respondent/dealer, while admitting the liability towards imposition of tax in the sum of Rs 58,481.90, disputed the remaining liability on account of interest amounting to Rs 31, Before the Commissioner, the respondent/dealer contended that the Assessing Authority had failed to appreciate the provisions of the Act, in as much as, the interest could have been charged only if the respondent/dealer had failed to pay the entire tax under Section 21(3) of the Act. The Commissioner, however, repelled the contentions of the respondent/dealer and consequently, sustained the imposition of interest by the Assessing Authority vide order dated / The respondent/dealer, being aggrieved, preferred an appeal to the Tribunal. The respondent/dealer reiterated the contention made before the authority below. The Tribunal, after hearing submissions on behalf of both, the respondent/dealer, as well as, the Department, came to the conclusion that the respondent/dealer was required to show the price of the transferred goods or unutilized raw material purchased on the basis of registration certificate, in the turnover, which is yearly, and was required to pay tax on the basis of the turnover within one month from the date of demand notice and, if the dealer did not pay the tax, so assessed, within one month from the service of demand notice, it is only then, that, the dealer would be liable to pay interest. In coming to the said

3 conclusion, the learned Member of the Tribunal followed the decision of his predecessor by noting that he was in respectful agreement with the view held by his predecessor, in as much as, that the interest was payable by a dealer if it failed in paying the assessed tax within one month from the date of service of demand notice issued by the Assessing Authority. The Tribunal thus concluded that the Assessing Authority was not justified in levying interest on the assumption that the tax was liable to be paid alongwith each quarterly return. Accordingly, the Tribunal allowed the appeal vide its order dated 02nd November, 1988, and set aside the orders of the authority below with regard to the imposition of interest, while upholding levy of tax. 2.4 The Department, as mentioned above, being aggrieved, filed an application before the Tribunal under Section 41 of the Act for referring questions of law to this Court. Accordingly, the reference has been placed before us for our opinion. 3. Before we proceed further, it would be pertinent to note that, in the order of reference, the Tribunal has observed that in view of the fact, that the, learned Member of the Tribunal has placed reliance on an earlier judgment of the Tribunal, passed by his predecessor, Shri D.C.Aggarwal in the case of M/s Hamdard Dawakhana (Wakf) v. Sales Tax Commissioner 23 Delhi Sales Tax Cases T- 32; in respect of which, questions of law have already been referred to this Court vide reference No.65/STT/85-86, in the case titled, Commissioner of Sales Tax v. Hamdard Dawakhana (Wakf), Lal Kuan, Delhi; a reference was made to this court in the instant case. 4. It has been submitted before us by the learned counsel for the Department, Shri H.L.Taneja, Advocate that in view of the fact that the Tribunal had based its decision on an earlier decision of the Tribunal in Hamdard Dawakhana (Wakf) (supra), wherein the Tribunal had observed that Rule 23A of the Delhi Sales Tax Rules, 1975 (hereinafter referred to as Rules ) had an element of repugnancy, the impugned decision was bad in law, as the settled position is, that the, authority (i.e., the Tribunal in the instant case) being a creature of the Act could not have based its decision on such a premise. In support of his submissions, the learned counsel for the Department has cited the following authorities:- K.S. Venkataraman and Co vs State of Madras (1996) 17 STC 418; Collector of C.E. Chandigarh vs Doaba Cooperative Sugar Mills (1988) 37 ELT 478 (SC); M/s Shri Radhey Shiam Sharma vs Sales Tax Officer and Ors. ( ) 40 ESTC J- 91(Delhi); Gajendra Kumar Banthia vs UOI (1996) 222 ITR 632 (Calcutta); Firm A.T.B. Mehtab Majid and Co vs The State of Madras and Anr. (1963)

4 14 STC 355 (SC); Kuldip Nayar and Ors. vs UOI and Ors. (2006) 7 SCC 1-71 (p-120); Commissioner of Sales Tax, Delhi and Ors. vs Shri Krishna Engg. Co and Ors. (2005) 139 STC 457; Karnataka Bank Ltd vs State of A.P. and Ors (2008) 12 VST 459 (SC). 5. As against this, the learned counsel for the respondent/dealer, Mr.M.K.Arora, Advocate, made the following submissions: (i) the Tribunal has based its decision both; in the instant case, as well as, in the case of Hamdard Dawakhana (Wakf) (supra) on the construction of the provisions of Section 27 (1) of the Act. The Tribunal in the case of Hamdard Dawakhana (Wakf) (supra) has made a passing reference with respect to the submissions raised by the counsel appearing in that case on the aspect of the Rule 23A being repugnant to Section 2(o) of the Act, but the decision is not based on this aspect of the matter; (ii) as a corollary to the submissions made above, Mr.M.K.Arora, Advocate, submitted that the questions referred to this Court by the Tribunal did not arise in the instant case and hence, this Court need not answer the said questions. 5.1 In support of his submissions, Mr M.K.Arora, cited the following decisions:- J.K.Synthetics Ltd v. Commercial Taxes Officer 94 STC 422 (SC); India Carbon Ltd v. State of Assam 106 STC 460 (SC); Khemka and Co(Agencies) P.Ltd v. State of Maharashtra 35 STC 571 (SC); and Maruti Wire Industries P.Ltd v. Sales Tax Officer and Others. 6. Having heard the learned counsel for the appellant, as well as, the respondent and perused the orders of the authority below, we are of the view that, in the instant case, the questions referred to this Court for our opinion need not be answered for the reasons stated hereinafter. 6.1 First and foremost, there is no reference to repugnancy i.e., Rule 23A being repugnant to Section 2(o) of the Act, in the impugned judgment. Questions referred to us do not arise from the impugned judgment. The only reason (as indicated hereinabove) the Tribunal has made a reference to us is, that, a reference was made to this court in the case of Hamdard Dawakhana (Wakf) (supra). That alone, in our view, cannot be the basis of a reference to us. The reasoning given in the impugned judgment for the decision arrived at by the Tribunal is not premised on the aspect of repugnancy. 6.2 Secondly, a close reading of the decision of the Tribunal in the case of Hamdard Dawakhana (Wakf) (supra) would show, while there is a reference to the submissions in paragraphs 3 and 4 on the aspect of the repugnancy, the decision with respect to the liability of the dealer as regards payment of interest has been dealt with in paragraph 5 of the said judgment. The relevant observations are

5 as follows:- Now Section 27 provides that if any dealer fails to pay the tax as required by sub-section (3) of Section 31, he shall, in addition to the tax due, be liable to pay simple interest on the amount so due at one percent per month from the date immediately following the last date for the submission of the return under sub-section (2) so long as he continues to make default in such payment or till the date of completion of assessment under Section 23, whichever is earlier. Sub-section (3) of Section 21 expressly requires that only that amount of tax should be deposited as may be due under the Act according to such return. Such return would be return as prescribed and required to be submitted according to sub-section (2) of Section 21. Thus according to the learned counsel, this assessee-dealer would not be deemed to make any default in the payment of tax so long as he continues to pay tax in the prescribed manner as due from him under this Act according to such return. This being so, the provisions of sub-section (1) of Section 27 of the Act do not come into play in the instant case in as much as the appellantdealer had paid the tax in each quarter according to the return of his turnover as defined in clause (o) of Section 2. Sub-section (2) of Section 27 provides that when a dealer or a person is in default or is deemed to be in default in making the payment of tax, he shall, in addition to the amounts payable under Section 23 or Section 24, be liable to pay simple interest on such amount at one per cent per month from the date of such default for a period of one month, and at one and a half per cent per month thereafter for so long as he continues to make default in the payment of the said amount. As per Section 25 of the Act, a person is deemed to be in default in respect of the amount of tax if it is not paid within the time specified in sub-section (1) or extended under sub-section (2), as the case may be. This being so, the liability to pay interest shall arise if the assessed amount of tax under Section 23 or under Section 24 is not deposited in Government Treasury within 30 days from the date of service of notice of demand as contemplated by subsection (1) of Section 25. So, on the said point with regard to liability to interest, the orders of the authorities below are liable to be set aside with a direction that the interest would be calculated at the permissible rate w.e.f. the expiry of one month from the serving the demand notice. 7. A perusal of the judgment of the Tribunal dated , passed in the instant case would show, that, in coming to the conclusion whether the respondent/dealer was required to pay interest was predicated on the interpretation of Section 27 of the Act read with sub sections (3) and (2) of Section 21, as also, Sections 23, 24, and 25 of the Act. The judgment of the Tribunal dated was not founded on Rule 23A being repugnant to

6 Section 2(o) of the Act. The upshot of the discussion both, in the Tribunal s judgment dated and in Hamdard Dawakhana (Wakf) (supra) was that if the dealer had paid tax in each quarter according to the returned turnover as defined in Section 2(o), then the dealer could not be held to be a person in default within the meaning of Section 27 (2) of the Act. The liability to pay interest would arise under Section 23 and Section 24 of the Act, if the assessed tax is not deposited with the Government treasury within 30 days from the date of service of notice of demand as contemplated under Section 24 (1) of the Act. There is thus, according to us, nothing in the judgment of the Tribunal dated based on which it could be said that its ratio decidendi was other than what we have observed above. The passing observation that Rule 23A contained an element of repugnancy vis- -vis Section 2 (o) could at best be described as an obiter dicta. 8. In view of what we have said hereinabove, we consider it unnecessary to discuss the judgments referred to by the Petitioner. There can no quarrel with the proposition laid down in the judgments of the Supreme Court in the case of K. S. Venkataraman (supra) or Doaba Cooperative Sugar Mills (supra) or even of this Court in Shri Radhey Shiam Sharma (supra) that an authority created under a statute cannot question the vires of the statute or any other provision thereof, as it functions within the four corners of the Act and not outside it. The remaining judgments that the rules made under statute must for all purposes of construction and obligation be construed as if they were in the Act and are to be of the same effect as contained in the Act, or that there is a presumption of constitutionality in respect of law made by the legislature are propositions which are well settled. As observed by us, the questions referred for our opinion, do not arise in the facts and the circumstances of the case. 9.1 We may also note that, the learned counsel for the respondent/dealer placed reliance on the judgment of a Division Bench of the Rajasthan High Court in the case of Educational and Civil List Reserve Fund No.1 v. Commissioner of Income-Tax, Delhi and Rajasthan (1963) 51 ITR 112, to support his submission that since the Tribunal in the impugned judgment chose not to decide the issue of repugnancy of Rule 23A vis- -vis Section 2(o) of the Act, even though it made a passing observation with respect to the same, it would be open to the court to refuse to answer such a reference made to it, on an issue, which the Tribunal chose consciously not to decide. 9.2 In the said judgment, the Division Bench of the Rajasthan High Court, in turn, has placed reliance upon the judgment of the Supreme Court in the case of CIT v. Scindia Steam Navigation (1961) 42 ITR 589. The Division Bench opined, in the context of Section 66 of the

7 Income Tax Act, 1922, while interpreting the expression any question of law arising out of such order would not include a question of law which even though raised before the Tribunal, the Tribunal consciously chooses not to decide and yet chooses to refer the question to the High Court for advice. The observations of the Division Bench in the aforesaid case being apposite, are extracted herein below:- We do not think that this clause was intended to cover a case of the present kind where a Tribunal fails to deal with a point not by mistake or inadvertence but, if we may say so, without meaning any disrespect, by design or deliberation, and yet chooses to refer such a question to the court. While discussing the true scope of the jurisdiction of the High Court under Section 66, their Lordships, in the course of their judgment cited above, made the following observations which require to be carefully noted: If the true scope of the jurisdiction of the High Court is to give advice when it is sought by the Tribunal, it stands to reason that the Tribunal should have had an occasion to consider the question so that it may decide whether it should refer it for the decision of the court. How can it be said that the Tribunal should seek for advice on a question which it was not called upon to consider and in respect of which it had no opportunity of deciding whether the decision of the court should be sought (The underlining is ours). A little later in this very judgment, their Lordships proceeded to observe as under:- The correct view to take, in our opinion, is that the right of the litigant to ask for a reference, the power of the Tribunal to make one, and the jurisdiction of the court to decide it are all co-extensive and, therefore, a question of law which the applicant cannot require the Tribunal to refer and one which the Tribunal is not competent to refer to the court, cannot be entertained by the court under Section 66(5) of the Act. In view of the above considerations, we are unable to construe the words, any question of law arising out of such order, as meaning any question of law arising out of the findings in the order of the Tribunal That being so, it seems to us to follow that a Tribunal cannot legitimately ask for advice on a question which it was called upon to consider but which it deliberately refused to decide although it had an opportunity of deciding it. This appears to us to be a legitimate extension of the view contained in the observation of the Supreme Court which we would, with respect, repeat here: How can it be said that the Tribunal should seek for advice on a question which it was not called upon to consider and in respect of which it had no opportunity of deciding whether the decision of the court should be sought If we may adopt the phraseology of their Lordships to suit the present occasion, then we would put it somewhat like this: How can it be said that the Tribunal should seek for advice on a question which it was called upon to consider

8 and which it had, therefore, an opportunity to consider and decide but which it deliberately refused to decide It seems to us that the answer to this question has to be in the negative. We should also like to add that, in the circumstances of this case, we are altogether unable to hold that this particular question should be deemed to have been dealt with by the Tribunal or treated as having been answered by it against the department when it was fully conscious of it and yet it deliberately refused to answer the question. So far as we are able to understand the spirit and intendment of Section 66 of the Act, it does not seem to go so far as to contemplate that a Tribunal can be held to be within its bounds in seeking for advice on a question which was specifically raised before it but which it has not thought fit to decide not by mistake or accident but by deliberate choice. Under the circumstances, we have felt persuaded to hold that we should decline to answer the reference. In Kusumben D. Mahadevia v. Commissioner of Income-Tax, it was laid down by the Supreme Court that Section 66 does not confer jurisdiction on the High Court to decide a different question of law from those arising out of such orders and that it is possible that the same question of law may involve different approaches for its solution, and the High Court may amplify the question to take in all the approaches. But the question must still be one which was before the Tribunal and was decided by it. It must not be an entirely different question which the Tribunal never considered. 11. In the instant case the judgment of the Tribunal dated 02nd November, 1988 would show that even though there is a reference to the order of Hamdard Dawakhana (Wakf) (supra) there is, unlike the observations made in Hamdard Dawakhana (Wakf) (supra), no reference whatsoever to the aspect of Rule 23A being repugnant to Section 2(o) of the Act. The entire focus was as to whether the respondent/dealer was an assessee in default despite the fact that it had paid tax every quarter based on the return filed by it. It is in this context that the Tribunal, in the instant case, had relied upon the judgment in the case of Hamdard Dawakhana (Wakf) (supra). 12. In the circumstances, we deem it fit to return the reference unanswered. Sd/- RAJIV SHAKDHER, J

9 Sd/- BADAR DURREZ AHMED, J

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