# KHAZAN CHAND ETC v. STATE OF JAMMU AND KASHMIR AND OTHERS

- **Citation:** [1984] 2 S.C.R. 858
- **Court:** Supreme Court of India
- **Decided:** 1984
- **Case number:** Civil Appeals Nos. 322·351 of 1984
- **Bench:** P. N: BHAGWATi, D. P. Madon
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/khazan-chand-etc-v-state-of-jammu-and-kashmir-and-others-8736
- **Pages:** 25

## Headnote

'
Constitution of India 1950,
Articles )4 and 265.
Jainmu and Kashmir General Sales Tax Act 1962 Sectlon 8 (1), (2) and
(J)-Wherher valid and constitutional.
Taxing Power of State-What is-Cotnprehends power to provide for"
collectiati of tax and prescribe methods for recovery.
'
Jammu and Kashmir General Sales Tax Act 1962-Section 8 Sales Tax'
-Payment of-After prescribed perlod-Cha,.ging of interest on sales taxWhether valid and legal.
+
Section 8 (2)-tax paid beyond prescribed period-Interest charged at
;I
graduated scale-Permissibility of-.Whether vfolatire of Article 14.
Section 8 (.3)-Goods sold on credit basis-Liability to payment of sal<'S
E
tax by dealer-Whether arises.
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The :;ippeltants and the petitioners were assessees registered as dealers
under the Jammu and Kashmir General Sales Tax Act, 1962.
They filed
their quarterly rCturos within the time prescribed by the Act but without
paying the tax due according to
su~h returns.
Some or them also filed
revised
f~turns thereafter.
The 1ax d1Je was paid by the asscssees · after
several months and in some cases by instahnents.
In a few cases. 1hc full
amount of tax was not paid even by the date l he assessment orders came
to be made.
In the case of most of the Assessees the Assessing Authority
levied penalty under sub-section ( 2) of section 8 of the Act before making
any a~sessment. lo other cases, orders requiring interest to be paid were
made along with the assessment orders.
The assessees who Were appellants in this_ Court, bad filed writ
Petitions in the High Court challenging the validity of section 8 of the Act
under which interest was sought to be recovered aS also the demand for
payment of interest.
The High Court dismissed the Writ Petitions.
In the Appeals and Writ Petitions to this Court the assessees were :
(a)
dealers who bad filed their rel urns but ~had not deposited the full
amount of tax due according to such returns, and the Assessing
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KHAZAN CHAND v. J, & K. STATE
859
Authority, having accepted the returns, had issu.ed a composite
notice of demand calling up them ·to pay the amount of tax
along wiih interest due on it,
(b)
dealers who had filed their returns but had paid the tax due
according -to such returns after the expiry of the prescribed time
and in whose cases the Assessing Authori! y had accepted the
returns and had isSued a notice of demand asking them ·to pay
interest on the amount of tax fof the period for which such payment was delayed, and
'
(c)
dealers who had filed their returns but had not paid the amount
of ta:ill due according to such returns by the prescribed time· but
bad paid it later and notices were issued against them calliOg
upon them to pay interest for the p'C:riod of default before
making aay order of assessme.nt.
It was contended on their behalf that;
(1)
The charging of interest from the assessees was violative of
Article 265 of the Constitution as there was no legislative power
in the State Legislature to make a law providing for· payment of
interest if the amount .of tax was not paid by the prescribed
time, and, for this reason, the provisions of section 8 or the Act
in so far as they provide for payment of such interest are beyond
.the legislative competence of the State Legislature and, therefore
(2)
(3)
(4)
<
(5)
unconstitutional.
'
Sub-section (2) of section 8 of the Act was void as infringing
Article 14 of the Constitution becaUse its provisions are discriminatory, arbitrary and unreasonable •
The Assessees carried on business on credit basis and as by the
dates when they filed their quarterly retuins their customers
had not pa id to them the price of goods sold to them, the
Assessees were not bound to pay tax .along with their returns but
were bound_ to pay tax in respect of these transactions of sales
only when the amount of sale price was received by them from
their customers.
In some cases, the amount of interest claimed frQm the Assessees
exceeded the amount of tax paid by them and, therefore,

## Text

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KHAZAN CHAND ETC.
v.
STATE OF JAMMU AND KASHMIR AND OTHERS
'
[P. N: BHAGWATi AND D. P. MADON, JJ.]
'
Constitution of India 1950,
Articles )4 and 265.
Jainmu and Kashmir General Sales Tax Act 1962 Sectlon 8 (1), (2) and
(J)-Wherher valid and constitutional.
Taxing Power of State-What is-Cotnprehends power to provide for"
collectiati of tax and prescribe methods for recovery.
'
Jammu and Kashmir General Sales Tax Act 1962-Section 8 Sales Tax'
-Payment of-After prescribed perlod-Cha,.ging of interest on sales taxWhether valid and legal.
+
Section 8 (2)-tax paid beyond prescribed period-Interest charged at
;I
graduated scale-Permissibility of-.Whether vfolatire of Article 14.
Section 8 (.3)-Goods sold on credit basis-Liability to payment of sal<'S
E
tax by dealer-Whether arises.
F
G
The :;ippeltants and the petitioners were assessees registered as dealers
under the Jammu and Kashmir General Sales Tax Act, 1962.
They filed
their quarterly rCturos within the time prescribed by the Act but without
paying the tax due according to
su~h returns.
Some or them also filed
revised
f~turns thereafter.
The 1ax d1Je was paid by the asscssees · after
several months and in some cases by instahnents.
In a few cases. 1hc full
amount of tax was not paid even by the date l he assessment orders came
to be made.
In the case of most of the Assessees the Assessing Authority
levied penalty under sub-section ( 2) of section 8 of the Act before making
any a~sessment. lo other cases, orders requiring interest to be paid were
made along with the assessment orders.
The assessees who Were appellants in this_ Court, bad filed writ
Petitions in the High Court challenging the validity of section 8 of the Act
under which interest was sought to be recovered aS also the demand for
payment of interest.
The High Court dismissed the Writ Petitions.
In the Appeals and Writ Petitions to this Court the assessees were :
(a)
dealers who bad filed their rel urns but ~had not deposited the full
amount of tax due according to such returns, and the Assessing
..
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KHAZAN CHAND v. J, & K. STATE
859
Authority, having accepted the returns, had issu.ed a composite
notice of demand calling up them ·to pay the amount of tax
along wiih interest due on it,
(b)
dealers who had filed their returns but had paid the tax due
according -to such returns after the expiry of the prescribed time
and in whose cases the Assessing Authori! y had accepted the
returns and had isSued a notice of demand asking them ·to pay
interest on the amount of tax fof the period for which such payment was delayed, and
'
(c)
dealers who had filed their returns but had not paid the amount
of ta:ill due according to such returns by the prescribed time· but
bad paid it later and notices were issued against them calliOg
upon them to pay interest for the p'C:riod of default before
making aay order of assessme.nt.
It was contended on their behalf that;
(1)
The charging of interest from the assessees was violative of
Article 265 of the Constitution as there was no legislative power
in the State Legislature to make a law providing for· payment of
interest if the amount .of tax was not paid by the prescribed
time, and, for this reason, the provisions of section 8 or the Act
in so far as they provide for payment of such interest are beyond
.the legislative competence of the State Legislature and, therefore
(2)
(3)
(4)
<
(5)
unconstitutional.
'
Sub-section (2) of section 8 of the Act was void as infringing
Article 14 of the Constitution becaUse its provisions are discriminatory, arbitrary and unreasonable •
The Assessees carried on business on credit basis and as by the
dates when they filed their quarterly retuins their customers
had not pa id to them the price of goods sold to them, the
Assessees were not bound to pay tax .along with their returns but
were bound_ to pay tax in respect of these transactions of sales
only when the amount of sale price was received by them from
their customers.
In some cases, the amount of interest claimed frQm the Assessees
exceeded the amount of tax paid by them and, therefore, the
demand for such excess amount of interest was bad in Jaw.
The Assessees were not liable to pay interest on the amount of
tax not paid in time without a notice of demand for payment of
tax being first issued.
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(6)
Interest was levied by the Assessing Authority for the entire
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[1984] 2 s.c.R.
period of default at the maximum rate prescribed by sub-section
(2) of section 8 which was contrary to the provisions of that subsection.
HELD: The constitutionality of sub.section (1), (2) and (3) of
section 8 of the Jammu and Kashmir General Sales Tax.Act 1962 upheld.
The State however restrained from recovering' from the Assessees. interest
on the amount of quarterly tax paid after the expiry of the date prescribed
for payment by sub.section (3) of section 8 of the Act at a rate other than
the rate of one per cent per month for the. first three months of default
and at the rate of two per cent per month for the next three months of
default and at the rate of three per cent for the period of def au It exceeding
six months. [881 G-H; 8821\]
1. Ci) The Constitution af India, does not apply in its entirety to the
State of Jammu and Kashmir because that State holds a special position in
the Constitutional set up of the country~ Article 3 70 makes special .Provisions with respect to the State of Jammu and Kashmir.
Under sub-clause
(c) of clause (I) of Article 370 the provisions of Articles I and 370 apply
in relation to the State of Jammu and Kashmir and under sub-clause (d) of
clause (I) of Article 370 such of the other provisions of the Constitution
apply in relation to that State subject to such exceptio11;s and modifications
as the President may specify by an order issued with the concurrence of the
Government of the State.
In exercise of the power conferred by clause (1)
of Article 370 the President of India, with the concurrence of the Government of the State of Jammu and Kashmir, has made the Constitution (App 1ication to Jammu and Kashmir) Order, 1954 (C. 0. 48) which was amended
from time to time.
The proviitions of the Constitution of India as in force
on June 20. 1964. and as amended by the Constitution Amendment Acts
set out in clause (2) of that Order apply in relation to the -State of Jammu
and Kashmir subject to the exceptions and modific.itions set out in the said
clause.
By sub-clause (6) (a) of clause (1) of the said Presidential Order,
Clause (I) of Article 246 of the Constitution of India was made applicable
to the State of Jammu and Kashmir with certain modifications, while clause
(3) of Article 246 was not made applicable to the State.
Sub.clause (22)
of clause 2 of the said Presidential Order applies List I in the Seventh Sche-.
dole to the State of Jammu and Kashmir with the omissions a"nd modifications mentioned in the said sub-clause.
Entries 92 and 92A of List I apply
to the State of Jammu and Kashmir in an unmodified form.
By the same
sub-clause, List II ill the Seventh Schedule, natllely, the State List, does not
apply to the State of Jammu and Kas.hmir. [870G-H; 871A·B]
(ii) Thus under section S of the Constitution of Jammu aod Kashmir
the e1:ecutivc and legislative po~er of the State extends to al1 maters with
respect to which Parliament bas power_ to make laws for the State under the
provisions of the Constitution of India under the Constitutional provisions
applicable to the State of Jammu and Kashmir, the power of the State
Legislature to enact a law relating to taxes on intra-State sale or purchase
of goods is thC same as that of the Legislatures of other States in. India.
By
sub-clause (7) of clause 2 of the said Order, Article 265 is made applicable
to tho State of Jammu and Kashmir.
Section 114 of the Constitution of
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KHAZAN CilAND v. 1. & IC, STATB
861
Jammu and Kashmir is in terms identical with Article 265 of the Constitution of India which provides. that ''No tax shall be levied or collected except
by authority of law." [871B·D)
(iii) The power to make a law with r.espect to tax comprehends with·
in it the power to levy that tax and to determine the persons who are liable
to pay such tax, the rates at which such tax is to be paid and the event
which will attract liability in respect of such tax.
This is done by the
charging sections of the particu.Jar tax law.
The taxing power of the state
will also comprehend within it the power to provide for quantification of
the Jiability of persons made liable to pay the tax.
This is done by the
provisions relating to assessment.
The taxing power will also comprehend
within it the power to provide for col1ection of tax including prescribing the
methods of recovery of the amount of tax due if the person liable to pay
the tax does not voluntarily pay it.
The power to make a law with respect
to a tax includes not only what bas been set out above but also a power to
make provisions in the relevant statute with r<'spect to all matters ancillary
and incidental 'to the levy, assessment, collection and recovery of tax. Callee·
ion of tax by the State may be either after ~be "liability is quantified by
assessment or may be prior to actual assessment by requiring the assessee to
pay before any assessment -is made the amount of taX admitted to be dtie
and payable by him. [872B-E]
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Whitney v. Commissioners of Inland Revenue, L.R. 1926 A.C. 37, 51
H. L. 10 T. C. 79, 110; Chalturam and others v. Commissioner of Income Tax,
Bihar (1947) F.C.R. 116, 126; (1947) 15 I.T.R 302, 308; Messrs Chatturam Hori/ram Lrd. v. Commissioner of Income TaX, Bthar and Orlssa, [1955]
2 s.c.R. 280, 297·8; (1955) 27 l.T.R. 708, 715·6 referred to.
E
(iv) One of the methods of collection of revenue adopted by the Act,
is to require that tax due according to the quarterly returns should. be paid
before filing such returns and it was within the legislative competence of the
Legislature of the State of Jammu and Kashmir to provide for recovery of
the amount of tax due under quarterly returns if default ·is made in paying
such amount by tho prescribed time. [872H; 873A)
(v) Payment of interest in case of default in payment of tax is a
means of compelling an assessee to pay the tax due by the·prescribed date.
It is a mode of recovery of taK and well within the legislative power of the
State. [873C]
2. (i) Inter~State trade and commerce is a matter which affects all
the States in _India and thus the whole country.
It is for this reason that
in the Seventh Schedule to the Constitution the subject of taxes on the sale
Or purchase of goods taking place in the course ol inter-State trade or
commerce bas been put in List I and made a Unioa·subject.
Taxes on the
sale or purchase of goods takin·g place within the State affect only those
who carry on the business of buying and selling goods within the State and,
therefore, this subject haS been pu_t in List II of Seventh Schedule, namely
tho State List. [874C-D]
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862
SUPREME COURT REPORTS
(1984) 2 S.C.R.
(ii) Sales tax is the biggest source of revenue for a State and it is for
the State to decide how and in what manner it will raise this revenue and to
determine which particular transactions of sale or purchase of goods taking
place within that Sta-te should be taxed and at what rates. and which particular transactions of sale or purchase of goods should be eiempted from. tax
or taxed at a lower rate having regarj to the subject-n1:i.tter of sale, as for
instance, Where particular goods constitute necessities for the poorer c!,1sses
of people or·where the goods in question are of .such a nature as ·are required to be exempled from.tax or taxed at a lowerrate_in order to encourage a local industry.
Consideration of these matters must, therefore,
differ from State to State.
Similarly it is for the each State to detern1inc
the methods -it will adopt to collect its revenue from this source and to decide
which rr1ctbods would be most efficacious for this purpose. If the provisions
of tbc legislation of every State on a particular topic are to be identic,!l in
every respect, there is no purpose in including that topic in the S'tate List
and it may as well be included in the Union List.
Merely because
the
provisions of :, State Jaw differ from the provisions of other State laws on
·the safi.1e subject cannot n1ake such provisions discriminatory. [874D·G]
(iii) Jnterest is payable under
sub~section LZ) of section 8 on the
amount of lax paid artcr the expiry of the prescribed date of p ·Yment.
The
rate of two per cent per month and particul?rly the rate of three per cent
per 1nonth can be said to· be on the high side, but this would not reader
the provisions of that sub-section void or unconstitutional.
Providing for
payment of interest in case of dela~ed payment of tax is a method usually
adopted in fiscal legislation to ensure that the amount of tax which is due
is paid by the prescribed time and provisions in that behalf form part of the
recovery machinery provided in a taxing statute.
It is for the State to provide by what means payment of tax is to be enforced and a person who .
does not pay the amount of tax lawfully and admittedly due by him can
hardly complain of the measures adopted by the State to compel him to pay
such amount. [875A·C]
(iv) Under the Act, the same rates of interest apply both to the
dealer who has made default in payment of tax due by him and to the State
Government in case )f default made by it in making payment of the amount
of tax or penalty which has become refundable as a result of an appellate or
rovisional :order.
The graduated rate of interest· provided by sub-section (2)
of section 8 cannot, therefore, be characterised as arbitrary or unreasonable.
[875F-G]
3. (i) Under the Act, the liability to pay sales tax is cast upon the
dealer.
This is made clear by sections 4,6, and clauses (G), (L) (1), (L) (II},
and (n) of section 2·.
It -is imn1aterial whether the price of goods has been
paid to the dealer or is payable to him.
The fact that a dealer has sold
goods on credit is, therefore, wholly immaterial.
Tbis liability is irrespective of tho fact whether the dealer has ffi[lde profit or loss in bis business
and Whether he has received the sale price or not. [876H; 877A-B]
(ii) Section 64·A of the Sale of Goods Act, 1930 does not deal with
the liability of the seller to pay sales tax to the Goveroment. [878E]
KHAZAN CHAND v. 1. & K. STATB
863
In tho instant caseJ the Assessees were bound to pay .the tax . due
according to 1 he quarterly returns filed by them before filing such returns
and the fact that their customers bad not paid to them the sale price did
not exempt them from their statutory liability. [8780)
4.
The recovery prov_isions of the Act are meant for· speedy a_nd
prompt collection of revenue.
These provisions are not meant for the
benefit of defaulting tax-paye1 sand Sltb defaulters cannot claim that the
amoual of interest payable by them on delayed tax payment should be
scaled down as if they were .entitled to claim relief under a debt·relief law.
[879B-C]
S.
Under sub~section 8 (1) the tax assessed o.r any other amount
demanded iS to be paid within the time specified in the notice ofdemarld.
Under sub-seceion ( 3), the quarterly tax is to be paid betore ftirnishing -the
quarterly return but not later than the date prescribed under sub-section (2)
of section 7.
Accordingly, the requirement of sub-section (2) of section· 8
that int.!f6St will be chargeable from the date specified for paym_ent in the
notice of demand cannot be applied to the payment of quarterly tax and
necessary alterations as required by sub-section (8) ~o section 8 will, therefore have to be made in the provisions of sub--section (2) in their application
to a default made in _Qayment of quarterly tax and .sub-section (2) must be
read as providing.that interest under sub-section (2) will become payable
fronl the date prescribed by sub-section (3) of section s'ror payment of
quarterly tax. [880B-F)
Messrs Royal Boot House etc. v. State of Jammu and -Kashmir and
others. C.M.P. Nos. 32413 and 32.414 of 1983 decided on January 6, 1984
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by P. N. Bhagvati, A;g. C. J. and Venkataramiah and Varadarajaa; JJ.
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referred to.
6.
Sub-section (2) of.section 8 of the Act provides for different rates
of interest depending upon the length of the period of default. [881D)
In the instant oases, int eresLon the amount of. quarterly tax not paid
, in time has been imposed at a uniform rate for the full period of default and
not according to the scale of rates prescribed by sub-section (2) of section 8.
[88 IB]
ORiGINAL JURISDICTION : Writ Petition Nos: 12695, 13478-82,
13352 of 1983, 99·100, 133-34, 231, 234-36 of 1984. ·
[Under article 32 of the Constitution of India]
Civil Appeals Nos. 322·351 of 1984
Appeals by Special leave from the Judgment and Order dated
the 24th June, 1983, 19th August, 1983, !st September, 1983, &
29th December, 1983 of the Jammu and Kashmir High Court in Writ
Petition Nos. 430 & 886/82, 364/81, 478/81, 132/82, 338/80; 525/80,
485/80, 67/83, 404/82, 681/82, 679/81, 688/82, 472/81, 678/82,
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StJPRBMB CoURT REORTS
(1984) 2 S.C.R.
230/81, 229/83,. 476/81, 228/83, 471/80, 287/83, 682/82, 344/82
621/82, 302/80, 624/80, 46/83, 912/83, 558/82 and 623/83.
K. K. Venugopal and Anll Dev Singh Salish Vig, S. P. Sharma,
L. K. Gupta, Vimal Dave, R. C. Kaushik and Subhash Sharma
for the Petitioners/ Appellants.
Altaf Ahmed for the Respondents.
The Judgment of the Court was delivered by
MADON, J. This group
of Writ Petitions and Appeals by
Special Leave challenges the constitutional validity of sub-sections
(!), (2) and (3) of section 8 of the Jammu and Kashmir General
Sales Tax Act, 1962 (J & K Act XX of !962) and seeks to quash
the orders directing the Petitioners and Appellants before us (hereinafter for the sake of brevity referred to as "the Assessees") to pay
interest on the amount of tax due according to the quarterly returns
filed by them but not paid within the prescribed time.
All the Assessees are registered as dealers under the Jammu
and Kashmir General Sales Tax Act, 1962 (hereinafter referred to
as "The Act"). Sub-section (1) of section 7 of the Act requirse
every. dealer liable to pay tax under the Act to furnish in the prescribed form a return of his turnover for a year within 120 days from
the expiry of that year. Sub-section (2) of section 7 provides as
follows :
"Without prejudice to the provisions of sub.section (1),
every dealer shall also furnish in the prescribed form
quarterly returns for each quarter of the year within thirty
days from the expiry of that quarter. Every such return
shall be accompanied by a Treasury Receipt or any other
proof of having paid the tax due on that return."
Thus, the tax due according to a quarterly return is to be paid
by the dealer before filing suoh return and proof of payment of the
tax so due is to accompany such return. Sub-sections (I), (2), (3),
(7) and (8) of section ~. omitting what is not relevant for our purpose, provide as follows:
"(!) The tax assessed, or any other amount demanded,
under this Act shall be paid in such manner and within
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KHAZAN CHAND f, 1. & K. STATE (Madon, J.)
865
such time not being less than fifteen days from the date of
the notice of demand. as may be specified in the notice. Jn
default of such payment the whole of the amount then
remaining due shall become recoverable in accordanc with
sections 16 and 16·A.
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(2) If the tax or any o_ther amount due under this Act
is not paid by the dealer or any other person, by whom it
is payable, within the period specified in demand notice,
the dealer or such other person shall be liable to pay interest on the tax or other amount from the date it was pay-
. able to the date of actual payment at.the following rates-
(a) Ifthe·default is for a period of not exceeding three
months at 1 % per month;
(b) If the default is for a period exceeding three months
but less than six months at 2 ~ per month;
(c) If the default is for a period exceeding six months at
3% per month:
Provided that where, as a result of :an order under
Sections I 1, 12, 24 or an order of the Conrt, the amount of
tax or other sum on which interest was payable under this
sub-section has been reduced, the interest shall be reduced
accordingly and excess interest paid, if any, shall be
refunded.
Explanation-Interest shall be charged. for full month
and not for a part of the month.
(3) Quarterly tax shall be paid before furnishing a
quarterly return but not later than the date prescribed under
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sub-section (2) of Section 7.
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· (7) Where a dealer fnrnishes a revised return under
sub-section (4) of Section 7 and the tax payable is more
than the tax paid on the basis of original retJrn, he shall
pay the extra tax payable before· furnishing the revised
return:
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SUPREME COURT REP OR TS
(1984] 2 S.C.R.
4.
Provided that if the tax already paid is in excess of the
·tax payable, such excess am )Unt shall be treated to have
been paid towards the tax payable for the quarter next
following the date of fuanishing such revised return.
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(8)-Notwithstanding anything contained in this Act,
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if a dealer fails to pay the tax payable under this Section,
the provisions of sub-section (2) of this Section, Section
16 and Section 16-A shall apply mutatis mutandis to the
recovery thereof.
Explanation (!)-Quarterly Tax means the tax . payable
on the basis of a quarterly return required to be furnished
by sub·section (2) of Section 7.
Explanation (2)-lnterest under sub· section (2) of this
Section on the extra tax payable on the basis of revised
return shall be payable from the date next following the
date on which the tax was payable on the basis of original
returri."
The Assessees filed their quarterly returns within the time
prescrsbed by the Act but without payfog the tax due according to
such returns. Some of them also filed revised returns ther_eafter.
The tax due was p1id by the Assessees after several months and in
some cases by instalments. In a few cases, the full amount of tax
was not paid even by the date the assessment order in their cases
came to be made. In the case of most of the Assessees, the Assessing Authority levied penalty under sub-section _(2) of section 8 of
the Act before making, any assessment. In other cases, orders requiring interest to be paid were made along with the assessment orders.
It may be mentioned that in cases where the assessment orders were
made, the returns filed by the Assessees were accepted as correct.
Those A1sessees who are Appellants. before us filed writ petitions in
the Jammu and Kashmir High Court challenging the validity of
section 8 of the Act under which interest was sought to be recovered
from them as also the demand fdr payment of interest. These writ
petitions were hea1d along with other writ petitions in which other
questions arose. The High Court dismissed all these writ petitions
but made no order as to tho costs thereof.
The petitioners before the High Court fell into four categories,
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namely-
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KHAZAN CHAND v. J. & K; STATE (Madon, J.)
(1) Dealers who had neither fried their returns ncr deposi·
ted the tax due from them and the Assessing Authority
had determined the amount of tax payable by them
and issued a composite no.lice of demand calling upon
them to deposit the amount of tax along with interest
due ·on it.·
(2) Dealers who had filed their returns but had not deposited the full amount of tax due according to such
returns and the Assessing Authority, having accepted
the returns, had issued a composite notice of demand
calling upon them to pay the amount of tax along with
interest due on it.
(3) Dealers who had filed their returns but had paid the
tax due according to such returns after the expiry of
the prescribed time and in whose cases the
A~sessing
Authority had accepted" the returns and had issued a
notice 'or demand asking them to pay interest on the
amount of tax for the period for which such payment
was delayed.
(4) Dealers who had filed their returns and had paid the
tax due according to such returns by the preacribed.
time but the Assessing Authority had not accepted the
returns and had .enhanced the amount of tax payable
by these dealers and had issued· a composite notice of
demand calling upon them to pay the amount of tax so
enhanced along with interest on it.
867
We are concerned in these Petit10ns and Appeals only with
dealers who fall tinder categories (2) and ( l) above as also with those
dealers who had filed their returns but had not paid the. !!mount
of tax due according to such returns by the prescribed time but had
paid it later and notices were issued against them calling upon
them to pay interest for the period of default before making any
order of assessment,
We are not concerned in these Petitions and
Appeals with those dealers who fall under categories (I) and (4)
above.
At the hearing. of these Petitions and Appeals, no arguments
whatever were advanced before us in support of the contention that
sub·sec,tion (l) of section 8 was unconstitutional and the challen!le
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to that sub-section must, therefore, fail.
The only contentions
which were urged at the hearing were as follows:
(I) The charging of interest to the Asssssees is violative of
Article 265 of the Constitution of India as there was
no legislative power in the State Legislature to make a
law providing for payment of interest if the amount of
tax was not paid by the prescribed time and, for this
reason, the provisions of section 8 of the Act in so far
as they provide for payment of such interest are beyond
the legislative competence of the State Legislature and,
therefore, unconstitutional.
(2) Sub-section (2) of section 8 of the Act is void as infringing Article 14 of the Constitution b~cause its provi·
sions are discriminatory, arbitrary and unreasonable
(3) The Assessees carried on business on credit basis and
as by the dates when they filed their qnarterly returns
their customers had not paid. to them ·the price of
goods sold to them, the Assessees were not bound to
pay tax .along with their returns but were bonnd to pay
tax in respect of those transactions of sale only when
the amount of sale price was received by them from
their customers.
(4) Jn some cases, the amount of interest claimed from the
Assessees exceeded the amount of tax paid by them
and, therefore, the demand for sueh excess amount of
interest was bad in law.
(5) The Assessees were not liable to pay any interest on
· the amount of tax not paid in time without a notice of
•
demand for payment of such amount of tax having
been first issued to them.
(6) Interest was levied by the Assessing Authority for the
entire period of default at the maximum rate prescribed
by sub-section (2) of section 8 which was contrary to
the provisions of that sub-section.
We will first examine the correctness of the contention that the
impugned provisions of section 8 of the Act are violative of Article
p
265 of the Constitutio'l of India. Article 265 of the Cof\stitutjon
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KHAZAN CHAND v. }, & K. STATE (Madon, J.)
369
provides that "No tax shall be levied or collected 'except by autho.
rity ·of law." ·Thus, Article 265 postulates that before any tax can
be. levied and collected there must be a valid law enacted by ·an
approp.riate legislature imposing such tax and providing for its
·collection. The submission on behalf of the Assessees ·was that
under the Constitution the Legislature ·of the State of Jammu and
Kashmir has no legislative power to provide for payment of interest
in case of late payment of tax. It was not the contention of the
Assessees, as indeed it could not be, that the Legislature of the
State of Jammu and Kashmir had no legislative power to enact a
law levying a tax on the sale or purchase of· good1 taking place
within the State and making provisions for the collection of such
tax, because the constitutional position in this behalf is clear and
indisputabfo. Under claus' (I) of Article 246 of the Constitution
of India, Parliament has exclusive power to make laws with respect
to any of the matters enumerated in List I in the Seventh Schedule
to the Constitution referred to as the "Union List" and under clause
(3) of the same Article the Legislature of any State has exclusive
power to make laws for such Slate or any part thereof with respect
to any of the matters enumerated in List II of the Seventh Schedule
to the Constitution referred to as the "State List". Taxes on the
sale or purchase of newspapers and on a1verti rements published
therein fall under Entry .92 of the Union List and taxes on the sale
or purchase of goods, other than newspapers, where such sale or
purchase takes place in the course of inter-State trade or commerce
fall under Entry 92A of the Union List, while taxes on the sale or
purchase of goods, other than newspapers, subject to the provisions
of Entry 92A of List I, fall under Entry 54 of the State List. Thus,
so far as sales tax is concerned, the Constitution bifurcates the
legislative field of taxation between the Union and the States. As a
result of this bifurcation, the subject of taxes on intra·State sale
or purchase of goods (other than newspapers) falls exclusively within
the State power of taxation. The Constitution of India, however,
dbes not apply in its entirety to the State of Jammu and Kashmir
because that State holds a special position i11 the constitutional set
up of our country. Article 370 of the Constitution of India makes
special provisions with respeci to the State of Jammu and T<ashmir.
Under sub-clause (c) of clause (I) of Article 370 the provisions of
Articles I and 370 apply in relation to the State of Jammu and
Kashmir and under sub·clause (d) of clause (I) of Article 370 such
of the other provisions of the Constitution apply in relation to that
State subject to such exceptions and modifications as the President
may specify by an order iss11ed with the concurrence of the GovernB
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SUPllEME COUil T REPORTS
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ment of that State.· Thus, by reason of the application of Article 1
t() the State of Jammu and Kashmir by sub-clause (c) of clause (I)
Qf Article 370 the State of Jammu and Kashmir is one of the States
which. form the Union of India and by virtue .of sub-clause (d) of
clause (I) of that Article so far as the provisions of the Constitution,
other than·those of Articles I and 370, are concerned, the President
of India' has the power, with the concurrrnce of the Government of
the State of Jammu and Kashmir, to issue an order specifying which
of them. shall apply to that State and whether such provisions shall
apply in their entirety or subject to such exceptions and modifications as may be specified in that order.
Article 370 also envisages
the convening of a Constituent Assembly for that State and the
framing of a separate Constitution for it. In exercise <if the power
corife~red by clause (I) of Article 370 the President of India, with
the concurrence of the Government of the State of Jammu and
Kashmir', has made the Constitution (Application to Jammu. and
Kashmir) Order, 1954 (C. 0. 48). This order deals with the entire
constitutional position of the State of Jammu and Kashmir within
the framework of the Constitution of India, except only the internal
Constitution of the State Government to be framed by the Constituent Assembly of that State. The Constituent Assembly of the
State· of Jammu and Kashmir framed its own Constitution repealing
and replacing its earlier Constitution. This new Constitution, called
the •;constitution of Jammu and Kashmir", was adopted and
enacted by the Constituent Assembly of that State on November
17, 1965.
By the Constitution (Application to Jammu and Kashmir)
Order, 1954 CC. 0. 48), as amended from time to time, the provisions
of the Constitution of India as in force on June 20, 1954, and as
amended by the Constitution Amendment Acts set out in clause (2)
of that Order apply in relation to the State of Jammu and Kashmir'
subject to the exceptions and modifications set out in the said clause.
By sub-clause (6) (a) of clause (2) of the said Presidential Order,
clause (1) of Article 246 of the Constitution of India is made applicable to the State of Jammu and Kashmir with certain modifications
with which we are not concerned, while clause (3J of Article 246 is
not made applicable to that State. Sub-clause (22J of clause 2 of
the sa;d Presidential Order applies Lisi I in the Seventh Schedule to
the State of Jammu ·and Kashmir with the omissions and modifications mentioned in the said sub-clause.
These omissions. and ·
modifications are, however, irrelevant for our purpose inasmuch as
Entries 95 and 92A of List I apply to tbe State of Jammu and
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KHAZAN CHAND v. ], & K. STATE (Madon, J.)
871
Kashmir in an unmodified form. By the same sub-clause, .List II
in the Seventh Schedule, namely, the State List, does not apply to
the State of Jammu and K.ashmir: Section 5 of the Constitution of
Jammu anc!· Kashmir, however, provides as follows:·
l
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"5, Extent of executive and legisiative. power of the
State.-The executive and legislative power of the State
extends to all matters except those with respect to which
Parliament has power to make laws for the State under the
provisions of the Constitution of India."
Thus, under the constitutional provisions applicable to the
State of Jammu and Kashmir, the 'power of the State Legislature to
enact a law relating to taxes on intra-State sale or purchase of goods
is the . same as that of the Legislatures of other States ·in India. By
sub·clausc (7) of clause 2 of the _said Order, Article 265 is made
applicable to the State of Jammu and Kashmir. Furthe1, section·
114 of the Constitution of Jammu and Kashmir is in terms identical
with Article 165 of the Constitution of India and equally provides
that "No tax shall b_e levied· o:- collected except by authority of
law."
The question which-we, therefore, have to consider is "Whe·
ther in the exercise of its power to make a Ia.w with respect to taxes
on the sale or purchase of goods ·taking place within the State, the
Legislature of that State has the legislative competenee to provide
for payment of interest on the amonnt of tax due according to the
return filed by an assessee. but not paid within the prescribed time?"
As was pointed out by Lord Dunedin in Whitney v. Commissioner of Inland Revenue(1); a passage cited with approval by the Fede·
ral Court in Chatturam and others v. Commissioner of Income Tax,
Bihar,(2) and by this Court in Messrs Chatturam Hori/ram Ltd. v.
Commissioner of Income Tax, Bihar and Orissa<' J:
"Now, there are three stages in the imposition of a
tax: there is the declaration of liability, that is the part o(
the statute which determines what persons in respect of
what property are liable. Next, there is the assessment.
(I) L. R. (t926] A. C. 37, 51.H. L; 10 T. C. 79, 110.
(2)
[1947] F.'c. R. 116; 126; (1947) IS I. T. R. 302, 308.
(3) [1955)2 S. C.R. 290,-297·8; (1955) 27 I; T. R. 7081 715·6.
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SUPRBMB COURT REPORTS
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Liability does not depend on assessment.
That, ex hypothesi, has already been fixed. But assessment particularises
the exact snm which a person liable has to pay. Lastly,
come the methods of recovery, if the person 1axed does not
voluntarily pay."
It would follow from the above decisions that the power to
make a law with respect to a tax comprehends within it the power
to levy thlt tax and to determine the persons who are liable to pay
such tax, the rates at which such tax is to be paid and the even
__,.....__
which will attract liability in respect of such tax. This is done by r
the charging sections of the particular tax law.
The taxing power.
r
of the State will also comprehend within it the power to provide
for quantification of the liability of persons made liable to pay the
tax. This is done by the provisioas relating to assessment. The
taxing power will also comprehend within it the power to provide
for collection of tax including prescribing the methods of recovery
of the amount of tax due if the person liable to pay the tax does
not. voluntarily pay ·it. The power to make a law with respect to a
tax includes not only what has been set out above but also a power
to make provisions in the relevant st1tute with respect to all matters
ancillary and incidental to the levy, assessment; collection and reco·
very of tax. 'Collection of tax by the State may be either after the
liability is quantified. by assessment or may be prior to '4ctual assessment by requiring the assessee to pay before any assessment is made
the amount of tax admitted to be due and payable by him. This is
done 'by making proviaions such as those for advance payment of
tax and for self-assessment contained in the Income Tax Act, 1961.
This is also what sub-section (3) of section 8 of the Act does by
requiring that the quarterly tax payable .on the basis of a quarterly
return. required to. be furnished by sub-section (2) of section 7 _shall
be paid before furnishing such return. This is a mode of collction
of revenue in advance before quantification of the actual tax liability and the Legislature would be well within its right and would be
competent to provide for recovery of such amount if it is not paid
by the prescribed time. The Act, as its long title shows is "An Act
to provide for the levy of a general tax on the sale or purchase of
goods in the State and for other matters connected therewith" and
one of the methods of collection of revenue adopted by it is to
require that tax due according to the quarterly returns should be .
paid before filing such returns and it was within the legislative competence of the Legislature of the State of Jam mu and Kashmir to
provide for recovery of the amount of tax dμe under quarterly
>
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KllAZAN CHAND v. 1. & K. STATE (Madon, J.)
873
return• if default is made in paying such amount by the prescribed
time. This has been done by the State. Legislature by enacting subsection (8) of section 8 under which the provisions of sub-section
(2) of section 8 and of sections 16 and 16-A are made applicabie
mutatis mutandis to the recovery of tax payable by a dealer if he
fails to pay it.
Sub-section (2) of section 8 provides for payment
of interest, section 16 provides for recovery of tax as arrears of land
revenue, and section 16-A provides for issue of a garnishee notice
to a person from whom money is due, or may become due, to the
~·~- assessee or to a person who holds, or may subsequently hold, money
...._
'for or on account of the assessee to pay to the Assessing Authority
. .
as much of the money as is sufficient to pay the amount due by the
assessee by way of tax.
Thu•, payment of interest in case of default
in payment of tax is a means of compelling an assessee to pay the
tax due by the prescribed date. It is a mode of recovery of tax
and well within the legislative power of the State.
·
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The challenge to sub-section (2) of section 8 on the ground
that the provisions of that sub-section infringe Article 14 of the
Constitution is a twofold one, namely:
(I) tha,t the said sub-section is discriminatory, and
(2) that it is arbitrary and unreasonable.
Sub-clause ( 4) of clause 2 of the Constitution (Application to
Jammu and Kashmir) Order, 1954, makes Article 14 of the Constitution oflndia applicable ·to the State of Jammu and Kashmir.
With respect to the charge of discrimination, it was submitted that
such high rates of interest for nori'payment of ta)\ are not to be found
in the. sales tax law of any other State and, therefore, by enacting
.