STATE OF PUNJAB AND ORS. versus M/S. ATUL FASTENERS LIMITED

Citation: [2007] 5 S.C.R. 1010 · Decided: 30-04-2007 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Case Partly allowed

Judgment (excerpt)

A 
B 
STATE OF PUNJAB AND ORS. 
MIS. ATUL FASTENERS LIMITED 
APRIL 30, 2007 
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.] 
Sales Tax-Punjab General Sales Tax (Deferment and Exemption) Rules, 
1991-Schemefor deferment of tax-Benefit of tax deferment, effective for 7 
C years from 1997 till 2004, given in 2001-Claim for refund of tax amount 
already paid from 1997 to 2001-Granted by High Court-Interest on the 
refunded amount from 200 I upto date of refund/adjustment-Entitlement to-
Held, not entitled-Interest is admissible in a lax enactment on two grounds 
namely 'Agreement' or 'Statutory Provision'-// cannot be granted on the 
basis of equity under the tax enactment, particularly under statutory schemes 
D for grant of exemption/deferment-Neither the Deferment Scheme nor the 
Deferment Rules provided for interest-Punjab General Sales Tax Act, 1948-
ss. 11 & 12. 
E 
F 
Interpretation of Statutes-Sales Tax-Tax deferment scheme-Strict 
Interpretation. 
The Sales Tax Department granted Deferment Certificate to Respondent-
assessee on 21-12-2001 for the period 30-4-1997 to 29-4-2004. The Deferment 
Certificate was given bas_ed on the Eligibility Certificate issued by the 
Industries Department, which was granted to Respondent only on 13-09-2001. 
Under the Deferment Certificate, quantum of benefit of tax deferment was 
Rs.62,47 ,500/-. Respondent availed deferment of tax for the period from 1-
10-2001 to 29-04-2004 amounting to Rs.33,48,600/- as against total 
entitlement of Rs.62,47,500/-. Subsequently it filed writ petition claiming that 
during the period 30-04-1997 to 30-09-2001, it had deposited tax amount of 
Rs.42,62,807/- and is therefore entitled to refund of such amount High Court 
G allowed the petition and further directed the Department to pay 18% p.a. 
interest on Rs.42,62,807/- from 21-12-2001 upto the date of refund/ 
adjustment. Hence the present appeal in which primarily the grant of interest 
of the refund is under challenge. 
Partly allowing the appeal, the Court 
fl 
1010 
. -
ST A TE OF PUNJAB v. A TUL FASTENERS LTD. 
1011 
HELD: 1.1. The present case does not concern with regular assessment A 
.., 
of tax. It is concerned with the Deferment Scheme and the Deferment Rules, 
1991 framed under Punjab General Sales Tax, 1948. Neither the Scheme nor 
the Rules provides for interest. [Para SJ [1013-F, GJ 
1.2. Interest is admissible in a tax enactment on two grounds namely 
'Agreement' or 'Statutory Provision'. Interest cannot be granted on the basis B 
of equity under the tax enactment, particularly under statutory schemes for 
grant of exemption/deferment. Exemption schemes have to be given strict 
interpretation . Applying the above test the High Court has erred in granting 
interest @ 18% p.a. on Rs.42,62,807/- with effect from 21.12.2001 till 
payment. [Para SJ [1013-B, EJ 
c 
Redihot Electricals v. Union of India and Ors., [1989J 7S STC 2S7, 
referred to. 
2. The assessee wanted to avoid payment of penalty during the period 
when its application for Eligibility Certificate was pending before the D 
Industries Department. In fact under the Deferment Rules of 1991 an applicant 
is required to calculate his entitlement on the basis of notional tax liability 
for the year in question. Therefore, the assessee has paid the tax under the 
Sales Tax Act in order to avoid penalty. The question of paying interest will 
also not arise because sales tax is an indirect tax. It is collected by the assessee 
from its customers. The incidence of tax falls not on the assessee but on its E 
customers. The assessee collects the sales tax from its customers as a part 
of sale price. It forms part of his turnover for the stipulated period. Under the 
Scheme the liability to pay tax by the assessee accrues each year but the 
payment of tax is deferred. On expiry of seven years the assessee .has to pay 
back the tax collected by it during 7 years. It is a sort of a loan given by the F 
t 
State to the assessee so that the assessee can use the tax amount to meet its 
working capital requirement. The liability of the respondent-assessee accrued 
each year, therefore, there is no question of the Department paying interest 
@ 18% on the tax collected by the assessee during the aforestated period. 
The tax was collected by the assessee from its customers as an agent for the 
Government. Therefore, the question of payment of interest under the G 
Deferment Scheme does not arise. This reasoning appears to be the basis for 
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