ASSOCIATED CEMENT CO. LTD. vs. COMMERCIAL TAX OFFICER, KOTA & ORS.

CIVIL APPEAL No. 852/1980Supreme Court[1982] 1 S.C.R. 56302 September 1981Bench: 3 JudgesAuthor: P.N. BHAGWATI, A.P. SEN, E.S. VENKATARAMIAH44 pages
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What were the facts?

The appellant-assessee, Associated Cement Co. Ltd., filed sales tax returns for assessment year 1974-75 under the Rajasthan Sales Tax Act, 1954, and the Central Sales Tax Act, 1956. Initially, they did not include freight charges in the taxable turnover, believing them to be non-taxable based on prior High Court and Supreme Court decisions. Following the Supreme Court's ruling in Sugar Mills Limited v. State of Rajasthan on August 29, 1978, which held freight charges as part of sale price and includible in taxable turnover, the assessee filed revised returns on October 20, 1978, including freight charges and depositing the balance tax. The Assessing Authority levied penalties and interest under the State and Central Acts for the delay in depositing tax on freight charges.

What did the Supreme Court hold?

The Supreme Court, in a majority decision, held that the levy of penalties was unsustainable and liable to be quashed. The Court reasoned that the assessee had acted bona fide based on existing legal interpretations and had promptly filed revised returns and paid the tax upon clarification by the Supreme Court. The Court found no default that would warrant a penalty under section 7AA. Regarding interest under section 11B, the Court held that the assessee was liable to pay interest. The reasoning was that the statutory liability to pay interest arises from a default in payment of tax within the period allowed by law, irrespective of any doubt an assessee may entertain about the liability. The Court noted that freight charges were includible in taxable turnover and the tax should have been paid as required by section 7(2) before filing the original returns. The subsequent Supreme Court decision declaring the liability did not create a new liability but merely clarified an existing one. Therefore, the appeal was allowed in part, setting aside the penalties but dismissing the appeal concerning the levy of interest.

What were the issues?

1. Whether the Assessing Authority was competent to impose penalty on the assessee under section 7AA of the Rajasthan Sales Tax Act, 1954, read with section 9(2) of the Central Sales Tax Act, 1956, for not depositing tax on freight charges at the time of filing original returns, when revised returns were subsequently filed and tax paid. 2. Whether the assessee was liable to pay interest under section 11B of the Rajasthan Sales Tax Act, 1954, on the tax due in respect of freight charges for the period between the date of filing the original return and the date of filing the revised return. Assessee's Contentions: The assessee argued that they acted bona fide in not including freight charges initially, based on prevailing legal interpretations. They filed revised returns promptly after the Supreme Court's decision and paid the tax. They contended that no penalty should be levied for a delay arising from a genuine misunderstanding of the law, especially when the tax was eventually paid. Revenue's Contentions: The revenue contended that the delay in depositing the tax on freight charges, even if due to a bona fide belief, constituted a default. They argued that the assessee was liable for penalties and interest as per the relevant provisions of the Acts for not paying the tax within the prescribed time, irrespective of the subsequent filing of revised returns.

Which sections of the Income-tax Act were involved?

Section 7AA,Section 10,Section 11B,Section 9,Section 7(2),Section 7(1),Section 16(1)(b),Section 16(3)(d)

AI-generated summary — verify with the full judgment below

A 563 ASSOCIATED CEMENT CO. LTD. v. COMMERCIAL TAX OFFICER, KOl A & ORS.

September 2, 1981 [P.N. BHAGWATI, A.P. SEN & E.S. VENKATARAMIAH, JJ.] Rajasthan Sales Tax Act 1954 Ss. 7AA, 10, JIB and Central Sales Tax Act 1956, S. 9-Scope of. A B Assessee not depositing the tax in respect of amount of freight at the time of filing original return-Revised return filed and tax deposited-Assessing authority C whether competent to inipose penalty-Assessee whether liable to pay interest on the tax due.

The appellant-assessee a company manufactured cement which was sold partly in the State of Rajasthan and partly outside the State. The sales tax returns relating to the sales were filed by the assessee under the Rajasthan Sales Tax Act, 1954 and under the Central Sales Tax Act 1956 before;; the Assessing Authority for the period August 1, 1973 to July 31, 1974 i.e. for the assessment year 1974-75. In those returns the assessee did not include in the taxable turn .. over the freight charges paid in respect of the goods sold under the bona fide impression that freight charges were not to be so includible in the taxable turn- over in view of certain decisions rendered by the

The order continues below.

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