# J.K. SYNTHETICS LTD v. THE COMMERCIAL TAXES OFFICER "' - **Citation:** [1994] 3 S.C.R. 964 - **Court:** Supreme Court of India - **Decided:** 1994-05-09 - **Case number:** Civil appeals Nos. 3414-16 of 1982 - **Bench:** M.N. Venkatachaliah, A.M. Ahmadi, J.S. Verma, c G.N. RAY, S.P. Bharucha - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/j-k-synthetics-ltd-v-the-commercial-taxes-officer-12238 - **Pages:** 19 ## Headnote Rajasthan Sales Tax Act, 1954. Sections 7(2), 7(2A), J JB-77ie appellant paid the whole amount of Sales Tax 011 returns filed on the premise that freight charged did not Jami part of the p1ic&-The revenue contended otherwise--Sales tax liability ultimately worked ow by adding freight to p1ic&-Differencc on tax liability ivorked out-Whether interest on the dijJ'erence liable to be recovered? D The appellant challenged before the Commercial Taxes Officer the .E F .levy of interest on tax on the amount of freight charged in respect of sale of cement. The Commercial Taxes officer held that the appellant was required to pay interest on the additional sales tax which had to be paid on the inclusion of the freight amount in calculating the sale price. Aggrieved by the judgment of the Commercial Taxes Officer, the appellant preferred the present appeal. On behalf of the appellant it was contended that interest under Section 11-B of the Rajaothan Sales Tax Act, 1954 can only be charged subsequent to the determination of Sales Tax under the final assessment; that its case related to differential tax under Section i (2A) and not Section 7(2); and that since the full amount of tax 'shown' in the return was deposited the question of payment of interest does not arise. On behalf of the respondent it was contended that interest becomes payable from the date on which the original return was filed under Section G 7(2) or 7(2A) of the Act; and that failure to deposit the tax due on final assessment would entail liability to pay interest under section 11-B of the Act. Allowing the appeal, this Court H HELD: 1. Section 11-B of the Rajasthan Sales Tax Act, 1954 nowhere 964 .! JK SYNTHETICS v. COMMERCIAL TAXES OFFICER [AHMADI. .I.I 965 .... \ . ....,.. provided for payment of interest on the unpaid tax amount as found on A final assessment from the date of the filing of the return under Section 7 ) -· of the Act. If the amount of tax payable under Section 7 (2) or 7(2A) is paid there is no question of payment of interest under Section 11-B(a) or 11-B(b). (972-B-C] 2. So long as the assessee pays the tax which according to him is due on the basis of information supplied in the return filed by him, there would be no default on his part and it would be difficult to hold that the "tax payable" by him "is not paid" to visit him with the liability to pay interest under Sectionll-B of the Act. (981-G] 3. It is difficult on the plain language of the section to hold that the law envisages the assessee to predicate the final assessment and expect him to pay the tax on that basis to avoid the liability to pay interest. That would be asking him to do the near impossible. [981-H, 982-A] B c Associated Cement Company v. C.T.O. & Ors., 48 STC 466, overruled D and State of Rajasthan v. V Ghasi Lal, 16 STC 318, relied on. ## Text _Characters 0–39,847 of 50,194. This is a partial read: ask again with offset=39847 for what follows._ A J.K. SYNTHETICS LTD. v. THE COMMERCIAL TAXES OFFICER "'- MAY 9, 1994 B [M.N. VENKATACHALIAH, C..L, A.M. AHMADI, .J.S. VERMA, c G.N. RAY AND S.P. BHARUCHA, JJ.j Rajasthan Sales Tax Act, 1954. Sections 7(2), 7(2A), J JB-77ie appellant paid the whole amount of Sales Tax 011 returns filed on the premise that freight charged did not Jami part of the p1ic&-The revenue contended otherwise--Sales tax liability ultimately worked ow by adding freight to p1ic&-Differencc on tax liability ivorked out-Whether interest on the dijJ'erence liable to be recovered? D The appellant challenged before the Commercial Taxes Officer the .E F .levy of interest on tax on the amount of freight charged in respect of sale of cement. The Commercial Taxes officer held that the appellant was required to pay interest on the additional sales tax which had to be paid on the inclusion of the freight amount in calculating the sale price. Aggrieved by the judgment of the Commercial Taxes Officer, the appellant preferred the present appeal. On behalf of the appellant it was contended that interest under Section 11-B of the Rajaothan Sales Tax Act, 1954 can only be charged subsequent to the determination of Sales Tax under the final assessment; that its case related to differential tax under Section i (2A) and not Section 7(2); and that since the full amount of tax 'shown' in the return was deposited the question of payment of interest does not arise. On behalf of the respondent it was contended that interest becomes payable from the date on which the original return was filed under Section G 7(2) or 7(2A) of the Act; and that failure to deposit the tax due on final assessment would entail liability to pay interest under section 11-B of the Act. Allowing the appeal, this Court H HELD: 1. Section 11-B of the Rajasthan Sales Tax Act, 1954 nowhere 964 .! JK SYNTHETICS v. COMMERCIAL TAXES OFFICER [AHMADI. .I.I 965 .... \ . ....,.. provided for payment of interest on the unpaid tax amount as found on A final assessment from the date of the filing of the return under Section 7 ) -· of the Act. If the amount of tax payable under Section 7 (2) or 7(2A) is paid there is no question of payment of interest under Section 11-B(a) or 11-B(b). (972-B-C] 2. So long as the assessee pays the tax which according to him is due on the basis of information supplied in the return filed by him, there would be no default on his part and it would be difficult to hold that the "tax payable" by him "is not paid" to visit him with the liability to pay interest under Sectionll-B of the Act. (981-G] 3. It is difficult on the plain language of the section to hold that the law envisages the assessee to predicate the final assessment and expect him to pay the tax on that basis to avoid the liability to pay interest. That would be asking him to do the near impossible. [981-H, 982-A] B c Associated Cement Company v. C.T.O. & Ors., 48 STC 466, overruled D and State of Rajasthan v. V Ghasi Lal, 16 STC 318, relied on. CIVIL APPELLATE JURISDICTION : Civil appeals Nos. 3414-16 of 1982 etc etc. From the Judgment and Order dated 5.11.81 of the Commercial tax E Officer, Special Circle Kola, in G.l.R. No. J-3 of 1977-78. Harish N. Salve, Ashok Sen, Ravinder Narain, Ms. Amrit Mitra D.N. Misra for JED & Co. Ms. Meenakshi Grover, Ms. Poonam Madan, Krishna Kumar, Bhasker Raj Pradan, for Khaitan & Co., AP. Dhjamija, S. Atreya, N.D.B. Raju, S.K. Jain, M. Nisha Bagchi, Ms. Ayesha Khatri, Ms. Indu Malhotra, Ms. Kusum Chaudhary and Aruneshwar Gupta for the appearing parties. The Judgment of the Court was delivered by : F AHMADI, J. These appeals by special leave are directed against G certain assessment orders made by the Commercial Taxes Officer relating to the Assessment Years 1975-76, 1976-77 and 1977-78 under the Rajasthan Sales Tax Act, 1954 (hereinafter called 'the Act') and the Central Sales Tax ,_..>- Act, 1965 (hereinafter called 'the Central Act'). The ques•.ion relates to payment of interest on tax on the amount of freight charge:d in respect of H ~ ,' ' I 966 SUPREME COURT REPORTS [1994] 3 S.C.R. A sale of cement under the relevant Cement Control Order. The returns were .-., filed by the appellant on the promise that the amount of freight cliarged ,_, in respect of sale of cement under the said Control Order did not form part of the sale price for the payment of sales tax. The appellant contends that it had raised the contention bona fide but the same was rejected by B this Court by its judgment and order dated August 22, 1978 in the case of Hindustan Sugar Mills Ltd. v. State of Rajasthan and J.K. Synthetics Ltd. v. C. T.O., Kata, 43 STC 13. By the said decision this Court held that the freight element formed part of the price of cement and sales tax was leviable on the sale price inclusive of the freight amount. The appellant ¥ ~ was, therefore, required to pay sales tax on the sale price inclusive of the c freight. There is now no dispute on the question of computation of the sale price for calculating the sales tax. The dispute now is limited to whether the appellant is required to pay interest on the additional sales tax which had to be paid on the inclusion of the freight amount in calculating the sale price. According to the appellant interest under Section 11-B of the Act D can only be charged for the period subsequent to the determination of sales tax under final assessment and that too after the expiry of the period allowed under the Notice of Demand issued on finalisation of the assessment. This contention of the Assessee is countered by the Revenue. Ack cording to the latter, interest becomes payable from the date on which the original return was filed under Section 7(2) or 7(2A) of the Act, as the E case may be. The Assessee supports its contention on the decision of this Court in State of Rajasthan v. V. Ghasi Lal, 16 STC 318 whereas the c: Revenue places reliance on the decision rendered by this Court in Associated Cement Company v. C. T.O. & Ors.,, 48 STC 466 wherein it was held that where a return is filed under section 7(2) of the Act, interest runs F from the date of filing of the return. The Assessee, however, seeks to 4. distinguish it on the ground that the case related to deposit of differential tax under section 7(2A) of the Act. We will, therefore, be required to ' interpret sections 7(2), 7(2A) read with section 11-B of the Act and section 9(2) of the Central Act and the ratio of the decisions of which reliance has G been placed. Under the Act by virtue of the charging section 3 the liability to pay tax arises. Section 5 prescribes the rate of tax. Section 7(1) provides that every dealer liable to pay tax shall furnish returns of his turnover for the prescribed pericds in the prescribed form and in the prescribed manner _ __,;___ .... H within the prescnbed time, to the assessing authority. Section 7(2) says that J.K. SYNTHETICS v. COMMERCIAL TAXES OFFICER [AHMADI, J.) 967 every such return shall be accompanied hy a treasury receipt or receipt of A any authorised bank showing the deposit of the full amount of tax due on the basis of the return in the Government Treasury or bank concerned. Sub-section 2A added to section 7 by Rajaslhan Act 13 of 1963 with effect from 29th April, 1963, empowers the Slate Government notwithstanding sub-section (2) to require any dealer or class of specified dealers to pay B tax at intervals shorter than those prescribed under sub-section (1) in which case the dealer will deposit the tax al such shorter intervals. Such deposit of tax shall, under section 7( 4), be deemed to be provisional, subject to , necessary adjustments in pursuance of the final assessment of tax. Section 7 A enjoins the making of a provisional assessment on best-judgment basis if the dealer fails to submit a return or fails to deposit tax as required by c section 7(2A). Section 7AA prescribes the penalty for failure to furnish the returns. According to section 10 the assessment and determination of tax due for any year, shall be made after the returns for all the periods of that year have become due. Section llB makes provisions for charging interest on failure to pay tax, fee or penalty. Clauses (a) and (b) of the said section 11-B before its substitution by Act 4 of 1979 w.e.f. 7th April, 1979, read as D under: "llB. Interest on failure to pay tax, fee or penalty : (a) If the amount of any tax payable under sub-sections (2) and (2A) of the section 7 is not paid within the period allowed, or E (b) If the amount specified in any notice of demand, whether for tax, fee, or penalty, is not paid within the period specified in such • notice, or in the absence of such specification, within 30 days from the date of service of such notice, the dealer shall be liable to pay simple interest on such amount at one per cent per month from F j ) the day commencing after the end of the said period for a period . of three months and at one and a half per cent per month thereafter during the time he continues to make default in the payments. 11 (The two provisos are not material for our purpose) G The Rajasthan Sales tax Rules, 1955, hereinafter called 'the Rules', provide in Chapter VII for the filing of returns, etc. Rule 25 provides that the return referred to in section 7(1) shall be in Form ST 5 and shall be __ ..._ signed by the dealer or his agent. The said return has to be filed for such quarters ending with the last day of the months of June, September, H 968 ·SUPREM.E COURT REPORTS [1994] 3 S.C.R. ) A December and Man;h Of every assessment year if the 'previous year' of the B c D dealer ends on 31st March of any year, and in other cases for each of the quarters of the year of accounts of the dealer. The rule further provides that if the return is not accompanied by a receipt showing deposit of tax as required by section 7(2), the Assessing Authority shall not be bound to take cognizance of .the return. If we turn to Form ST 5 we find that the Column 11 thereof requires the dealer to indicate the turnover for the concerned quarter and permits certain deductions enumerated therein. The return has to be verified in the manner indicated at the foot of the form. It was, therefore, contended on behalf of the Revenue that a conjoint reading of section 7 and Rule 25 clearly brings out that the dealer or his agent is under an obligation to file a true and complete return and hence the failure to deposit the tax due on the turnover as determined on final assessment would entail liability to pay interest. It may be noted that section26 ( 5) of the Act makes all rules made under the said provision and duly published in the Gazette to form part of the Act itself on such publication. The Assessee contends that since the present case related to the deposit of differet:.tial tax under sub-section (2A) of section 7 and not under section 7(2) the differential tax required to be paid would be on 'the full amount of tax due shown in the return'. Since in the present case the full amount of tax 'shown' in the return was deposited no such demand for E interest as has been made could be entertained. The Revenue on the other hand contends that when the law enjoins on the Assessee to files a 'return', it can ori.ly mean a true and correct return, that is, a return which reflects the tax due on fmal assessment. Therefore, contends the Revenue, as the whole amount found due on final assessment was not included in the return F and the full amount of tax due on that basis was not deposited as required by law, interest became payable under section 11-B of the Act. The Assessee on the contrary relies on the difference in language between sub-sections (2) and (2A) of section 7 and emphasising on the words 'amount of tax due shown in the return' found in sub-section (2A) of section 7, which phraseology is not to be found in sub-section (2) of that G section, contends that no interest can be charged under section 11-B. H Sub-sections (2) and (2A) of section 7 as they stood before their amendmeut by Rajasthan Act 4 of 1979, read as under : "(2). Every such return shall be accompanied by a Treasury receipt or receipt of any Bank authorised to receive money on behalf of l J.K. SYNTI-!ETICS v. COMMERCIAL TAXES OFFICER [AHMADL J.] 969 the State Government, showing the deposit of the full amount of A lax due on the basis of return in the Government Treasury or Bank , cor.cerned. (2A). Notwithstanding anything contained in sub-section (2), the S_tate Government may by notification in the Official Gazette require any dealer or class of dealers specified therein, to pay tax at intervals shorter than those prescfibed under sub-section (1). Jn such cases, the proportionate tax on the basis of the last return shall be deposited at the intervals specified in the said notification B in advance of the return. The difference, if any, of the tax payable according to the return and the advance tax paid shall be deposited C with the return and the return shall be accompanied by the treasury receipt or receipts of any Bank authorised to receive money on behalf of the State Government, for the full amount of tax due ·shown in the return. 1 '. In sub-section (2A); by Amending Act 4 of 1979, the words 'tax according D to his accounts' were substituted for the words'proportionate tax on the basis of the last return' atid the latter part of the sub-section was restructured by deleting the words 'The difference, if any, of the tax payable according to the return and the advance tax paid shall be deposited with the return' and making the sentence a running one. Sub-section (3) permits E a dealer who discovers any error or omission in his return to submit a revised return in the prescribed manner before the time prescribed for the . submission of the next return but not later. Now section 7(2) says that every 'such' return, meaning thereby the return referred to in section 7(1), shall be accompanied by a receipt showing the deposit of the full amount of tax due ',on the basis of the return'. In other words the dealer is 1equired to pay the full amount of tax that becomes due on the basis of the particulars in regard to the turnover and taxable turnover disclosed in the return. Sub-section (2A) begins with F a non-obstante clause, namely, notwithstanding anything contained in sub- G section (2), and provides that any dealer or class of dealers specified in the notification may pay the tax at intervals shorter than those prescribed under sub-section (1), in which case the tax shall be deposited at the intervals specified in the notification in advance of the return and the return shall be accompanied by the receipt for the full amount of _tax due H 970 SUPREME COURT REPORTS [1994] 3 s:c.R. A 'shown in the return'. Although the phraseology used in sub-sections (2) and (2A) of section 7 is not the same, the content and purport of the two sub~sections i.s more or less identical, namely, both the sub-sections require that the return shall be accompanied by & receipt evidencing the deposit of the 'ful! amount of tax due' on the basis of the return or on basis of the B information shown in the return. The full amount of tax due and payable prior to the submission of the return is clearly relatablL to the information furnished in the return. Undoubtedly, the information to be furnished in the return must be 'correct and complete', that is, true and complete to the best of knowledge and belief, without the dealer being guilty of wilful c omission. This is the essence of the verification clause found at the foot of From ST 5. Ruic 25 expects the verification of the return to be in the manner indicated in Form ST 5. Therefore, on a conjoint reading of section 7(1), (2) and (2A), Ruic 25, the information to be furnished under Form ST 5 and the form of verification, it becomes clear that the dealer must deposit the full amount of tax due on the basis of information furnished, D \vhich information must be correct and complete to the best of the dealer's knowledge and belief without he being guilty wilfnl omission. If the c!ealer has furnished full particulars in rc.<-,pect of his bu".iness, \Vithout wilfuily omitting or withholding any particular inforn1ation which has a bearing on the assessment of tax, which he honestly believes to be 'correct and E complete', it would be difficult to hold that the dealer had not acted 'bona fide' in depositing the tax due on that information before the submission of the return. Of course the tax so deposited is to be deemed to be provisional and subject to necessary adjustments in pursuanc~ of the final assessment. Section 7 AA empowers levy of penalty if the assessing F authority is satisfied that any dealer has 'without reasonable cause' failed to furnish the return under section 7(1) within the time allowed. The use of the words 'without reasonable cause' clearly implies that if .the deale( can sho\V reasonable cause for his lapse he cannot be visited with the penalty prescribed by section 7AA. To put it differently if reasonable cause G is shown by the dealer for the lapse, he cannot be visited with penalty under this provision. This is also suggestive of the fact that the legislature desired to be harsh with wilful defaulters or those guilty of wilful omission of material information and not with dealers who failed to supply some information under the 'bona fide' belief that the same was not necessary or those who failed to pay the full tax due not with a view to evading or H ( ' J.K. SYNTHETICS v. COMMERCIAL TAXES OFFICER [AHMADI, J.] 971 avoiding the liability to pay the tax but because they bona fide believed that A they were liable to pay the tax assessed by them on the basis of the return and no more. If at a later date on the basis of a different interpretation put on the language of the relevant provisions of the law, the dealer becomes to pay tax in excess of that already paid, he may be called upon to make good the difference bu.I he cannot be visited with penalty under section B 7AA unless it is shown that the dealer had withheld payment of the differential tax by wilfully withholding material information or had acted without reasonable cause in committing the default. The Assessee, therefore, contends that there was no wilful omission in not including the freight charges in the price of the commodity on the basis whereof the tax was assessed before filing of the returns; on the contrary, contends the Asses- c see, it had acted 'bona fide' having regard to the ratio of this Court's decision in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh, 24 STC 487. Counsel for the Revenue, however, points out that considerations for the levy of penalty under section 7 AA are different from those which guide the recovery of interest under section llB and while in D a given case levy of penalty may not be permissible, recovery of interest on unpaid tax amount may still be justified. As the relevant Assessment Years in question are from 1975-76 to 1977-78 we are concerned with section llB as it stood before its substitution by Act 4 of 1979 w.e.f. 7th April, 1979. Section llB then provided that if the amount of any tax payable under sub-sections (2) and (2A) of section 7 is not paid within the time allowed or if the tax amount specified in any notice of demand is not paid within the period specified, the dealer shall be liable to pay simple interest on .such amount at one per cent per month E F for a period of three months and thereafter at one and a half per cent per month during the time he continues to make default in the payments. However, according to section llB substituted by Act 4 of 1979 w.e.f. 7th April, 1979, the liability to pay interest accrues (a) where the dealer has furnished returns but has failed to pay the tax as per the said rel ur_ns or \vithin the time allowed; (b) \Vhcre a dealer has furnished a revised return under section 7(3) whereunder the amount of tax payable is larger than G that already paid; ( c) where a dealer has filed his return after expiry of the prescribed period but has not paid the tax as per return or within the time allowed; ( d) where a dealer is required to pay lax without furnishing a return for any period and such tax is not paid in full by the due date; ( e) where a dealer required to furnish returns pays tax for any period without H 972 SUPREME COURT REPORTS IJ994] 3 S.C.R. A furnishing returns; and (f) where the liability to pay t~ is quantified in A r-< respect of a dealer who had submitted returns for the period for which the tax is quantified. It will thus be seen that under section llB before the 1979 amendment the liability to pay interest on unpaid tax amount accrued on the dealer in two situations only, viz., (i) failure to pay the tax due under sub-sections (2) and (2A) of section 7 and (ii) failure to pay the tax within B the time allowed by the notice pf demand or thirty days from the receipt of the notice by the dealer. Section llB before its amendment nowhere provided for payinent of interest on the unpaid tax amount as found on final assessment from 5he date of the filing of the return under section 7 ~ of the Act. If the amount of tax payable under sub-section (2) is paid on c the basis of return, not on the basis of final assessment, there can be no question of payment of interest under· clause (a) of section llB. Similarly, if the tax is paid according to the return as required by sub-section (2A), in ·other words, if the full amount of tax due 'shown' in the return is paid, there can be no question of charging interest under clause (a) of section llB. So far as clause (b) is concerned it is a post-assessment situation. D Where tax is found due on final assessment and the dealer is required to make good the difference, a notice of demand will issue. If the dealer fails , to pay the tax within the time specified in the notice, and if no time is specified within 30 days from the receipt of notice, he is required to pay > interest at the rates prescribed by the sub-section. But if he pays the difference of tax within the prescribed time there is no question of charging E interest. If such an interpretation is not placed and if the Revenue's plea is accepted serious anomalies would surface. Firstly, if the liability to pay interest on the balance tax amount accrues from the date of submission of returns under section 7, clause (b) of section llB read with section 11(2) would be rendered nugatory. Otherwise one would be required to hold that interest would be payable from the date of submission of the return till the F date of issuance of notice of demand and thereafter no interest would have .. to be paid till the expiry of the specified p~riod or thirty days, as the case may be, and thereafter interest would have to be paid at a given rate for the first three months and thereafter at a higher rate. Such could not be · the legislative intent. Secondly, take the case of a dealei who has failed to G submit a return and is subjected to assessment of tax on the basis of best judgment. Pursuant to the said assessment he deposits the tax. Such a dealer would not be liable to pay interest on the balance tax if the tax assessed under section 10 is higher thaa what was provisionally assessed. He can always claim that he cannot be made liable to pay interest for the error of the authority in making the provisional assessment under section ~- H 7 A. The defaulter would be in a better position than a dealer who complies } ' • _J J.K SYNTHETICS v. COMMERCIAL TAXES OFFICER [AHMADI, J.] 973 with the requirement of section 7(1). And if he can show reasonable cause, A he would also escape the penalty clause in sections 7AA & 16(1). More or less a similar situation may arise in the matter of payment of interest wherL; provisional assessment is made under section 78. (Jfcourse such a dealer may become liable to penalty but that is a difforent matter altogether. Take also Lhe case of a dealer who submits a return without depositing the tax on the basis thereof. Under Rule 25(4) the authority may or may not take cognizance of the return. If cognizance is not taken the dealer would be treated on par with one who has not submitted a return but if cognizance is taken he must be treated as one who is liable to pay interest under clause (a) of section llB of the Act. Therefore, the-view Canvassed by the Revenue leads to incongruou.S situations which can never be the legislative intent. This is how the situation emerges on a plain reading of the provisions of the Act as they stood before Act 4 of 1979 came into force. After the substitution of section llB by Act 4 of 1979 the situation has changed altogether. What we have said earlier has nothing to do with section 11B as introduced by Act 4 of 1979. We may now examine the case la\V on which reliance was placed. The decision rendered by the Constitution Bench of this Court in the· case of Ghasi Lal (supra) turned on the following facts. The Act had come B c D into force on 1st April, 1955 while the Rules framed therkunder were published in the Rajasthan Government Gazette on 28th March, 1955. Ghasi Lal challenged the making of assessments on his turnover for the E year 1955-56 on the ground that-the Rules were invalid. The High Court in the writ petition filed by Ghasi Lal made an interim order on 9th January, 1958 that Ghasi Lal will maintain proper accounts and fiie the prescribed returns and the Revenue \Vill not assess him till further orders. During the pendency of the writ petition the Rules were validated by F Ordinance No. 5 of 1959 (which later became an Act). Thereupon Ghasi Lal withdrew his writ petition. Thereafter on 4th December, 1959, the Sales Tax Officer, Kotah City Circle, sent hin1 a sho\v cause notice' asking him to deposit ihc tax due upto date \vi thin a \Vcck) failing \vhich he thrcateneJ to take necessory action pcrmissibll; in law. ()n receipt of the notice Ghasi Lal filed a retrun.in respect of the 4th quarter ending on 22nd October, 1957 and deposited the tax of Rs. 11,808.37. On 25th April, 1960, the Sales Tax Officer madC an assessment in respect of the- accounting period f;~_m 3rd November 1956 to 22nd October, 1957 and imposed a penalty under section 16(1)(b) of the Act on the ground that the assessee had not G H 974 SUPREME COURT REPORTS (1994] 3 S.C.R. A deposited the tax for the earlier quarters on the due dates and the tax for the 4th quarter was deposited after a lapse of two years. His appeal was dismissed by the Deputy Commissioner of Sales Tax who endorsed the view that the interim order of the High Court had not precluded the assesscc fro\" paying the tax and filing the returns. On the same line of reasoning B c penalty was also levied for the subsequent periods. Ghasi Lal challenged the levy of penalty by a writ petition and the High Court allowed the same. It may be noted that section 7 AA was not on the statute book then and the penalty was levied under section 16(l)(b) as it then stood which illlcr alia provided for imposition of penalty if the tax due was not pijid within the time allowed. The submission made on behalf of Ghasi Lal was that there was no breach of section 16(1)(b) inasmuch as no tax was due till the assessee filed his returns under section 7 (1) of the Act because the tax to be deposited as required by section 7(2) was to be calculated on the basis of the return. There cannot be non-compliance of section 7(2) unless a return is filed without depositing the tax due on the basis of the return. D Hence, counsel contended, there was no violation of section 7(2) and so long as the tax was not assessed and determined as required under section 10, the liability for payment of penalty did not arises. On the other hand the Revenue contended that the liability to pay tax had arisen under sections 3 and 5 of the A.ct and the delay in complying with the demand E notice entailed imposition of penalty. This Court held : F G "According to the terms of section 161(1)(b), there must be tax due and there must be a failure to pay the tax due within the time allowed.................... Section 3, the charging section, read with section 5, makes tax payable, i.e. creates a liability to pay tax. That is the normal function of a charging section in a taxing statute. But till the tax payable is ascertained by the assessing authority under section 10, or hy the assessee under section 7(2), no tax can be said to be due within section 16(1 )(b) of the Act, for till then there is only a liability to be assessed to tax.'' The situation may be different after the i-Q_~ction of section 7 A. The contention based on the show cause notice was brushed aside as one \Vithout substance as the learned counsel for the Revenue \Va.s unable to sho\V any rule or section under \vhich it was issued. On this line of H reasoning this Court upheld the High Court decision and dismissed the , • • ~- .J.K. SYNTHETICS v. COMMERCIAL TAXES OFFICER [AHMADI.].) 975 appeal. Before we proceed further we must emphasise that penalty provisions in a statute have to be strictly construed and that is why we have pointed out earlier that the considerations which may weigh with the authority as well as the Court in construing penal provisions would be different from those which would weigh in construing a provision providing for payment of interest on unpaid of tax which ought to have been paid. Section 3, read with section 5 of the Act, is the charging provisions \Vhereas the rest of the provisions provide the machinery for the levy and collection A B c of the tax. In order to ensure prompt collection of the tax due certain penal provisions are made to deal with erring dealers and defaulters and these provisions being penal in nature would have to be construed strictly. But the machinery provisions need not be strictly construed. The machinery provisions must be so construed as would enable smooth and effective collection of the tax from the dealers liable to pay tax under the statute. Section llB provides for levy of interest on failure of the dealer to pay tax due under the Act and within the time allowed. Should this provision be D strictly construed or should it receive a broad and liberal construction, is a question which we will have to consider in determining the sweep of the said provision. We will do so at the appropriate stage but for the present we may notice the thrust of this Court's decision in the case of Associationed Cement Co. Ltd. (Supra). E That was a case in which the Company had submitted its returns under the Act as well as the Central Act for the period between lst August, 1973 and 31st July, 1974 accompanied by receipts evidencing the payment of tax on the basis of the said returns. the freight charges were, however, not included in the taxable turnover on the plea that the said charges were F not liable to be so included. However, after the decision of this Court in Hindustan Sugar Mills Ltd., revised returns including the freight charges were filed along with receipts evidencing the deposit of the balance tax amount under both the !-.latutes. In the assessment order 111a