JUDGMENT
P.V. Reddy, C.J.
1. The appellant is the writ petitioner in Writ Petition No. 33953 of 1996, The petitioner in that writ petition is a partnership firm. The appellant questioned the demand notices– annexures “B” and “F” dated November 4, 1996 and November 30, 1996 calling upon it to pay penalty of Rs. 2,00,269 apart from the tax due for the year 1992-1993. The penalty was demanded under Section 13(2)(ii) of the Karnataka Sales Tax Act, 1957. This penalty was for non-payment of tax within the stipulated time. The appellant filed a writ petition challenging the assessment order. This Court granted an order of stay on March 7, 1994, The writ petition was dismissed and even the appeal filed thereon was dismissed on November 15, 1995. Thereupon, the impugned notice was issued. The appellant contended that in view of the stay order granted by this Court, there was no default in the payment of tax and, therefore, the period during which stay was imposed should be excluded in calculating the interest. It is also contended that the imposition of interest at 24 per cent for the first three months and 30 per cent thereafter is discriminatory and violative of Article 14 of the Constitution for the reason that in case of refund to the assessee, the interest is payable only at the rate of 12 per cent under Section 13-A of the Act. Both the contentions were rejected by the learned single Judge. In this appeal, the learned counsel for the appellant has laid stress on the first point. As regards the first point, the learned single Judge observed that :
“The provisions of Section 13 contemplates a default in not making the payment of tax due under the Act. The default continues even when the stay is granted by a competent authority. It is only the operation of that order which is temporarily stayed. If, ultimately, the appeal/revision or writ is accepted, the position may be different. Otherwise, the result would be that, the action under Section 13(2)(ii) would be taken even in a case where the demand was under stay.”
2. The learned counsel for the appellant has placed strong reliance on a recent decision of the Supreme Court in Consolidated Coffee Ltd. v. Agricultural Income-tax Officer, Madikeri [2001] 248 ITR 417 ; (2001) 1 SCC 278, whereas the learned Government Advocate has placed reliance on the decision of the Supreme Court in Haji Lal Mohd. Biri Works v. State of U.P. .
3. Section 13 of the Karnataka Sales Tax Act in so far as it is relevant reads as follows :
“13. Payment and recovery of tax.–(1) The tax or any other amount due under this Act shall be paid in such manner in such instalments, subject to such conditions, on payment of such interest and within such times, as may be prescribed.
(2) If default is made in making payment in accordance with Sub-section (1),–
(i) the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or any other amount due under this Act ; and
(ii) the person or persons liable to pay the tax or any other amount due under this Act shall pay a penalty equal to,–
(a) one and one half per cent of the amount of tax or any other amount due remaining unpaid for each month for the first three months after the expiry of the time prescribed under Sub-section (1) ; and
(b) two and one half per cent of such amount for each month subsequent to the first three months as aforesaid.
Explanation.–For purposes of Clause (ii), the penalty payable for a part of a month shall be proportionately determined.
(2A) Notwithstanding anything contained in Sub-section (2), the State Government may, subject to such conditions as may be prescribed, remit the whole or any part of the penalty payable in respect of any period by any person or class of persons.
(3) Any tax assessed, or any other amount due under this Act from a dealer or any other person may without prejudice to any other mode of collection, be recovered–
(a) as if it were an arrear of land revenue ; or
(aa) by attachment and sale or by sale without attachment, of any property of such dealer or any other person by the assessing authority or the prescribed officer in accordance with such rules as may be prescribed ;
(b) notwithstanding anything contained in the Code of Criminal Procedure, 1973 (Central Act 2 of 1974), on application to any Magistrate, by such Magistrate as if it were a fine imposed by him ;
Provided that where a dealer or other person who has appealed or applied for revision of any order made under this Act and has complied with an order made by the appellate or the revising authority in regard to the payment of the tax or other amount, no proceeding for recovery under this sub-section shall be taken or continued until the disposal of such appeal or application for revision.
(4) ………”
4. The sine qua non for levying penalty under Section 13(2)(ii) is the default in making payment of tax as per Sub-section (1). When the stay order is in force and the collection of tax is kept under a spell of suspension, no default can be said to have been made by the assessee in the payment of tax as per the demand notice. This is the view taken in the recent judgment of the Supreme Court in Consolidated Coffee Ltd. v. Agricultural Income-tax Officer [2001] 248 ITR 417 ; (2001) 1 SCC 278. Their Lordships were considering a provision in the Karnataka Agricultural Income-tax Act which is almost in pari materia with the provisions contained in Section 13 of the Karnataka Sales Tax Act. Section 42 of the Karnataka Agricultural Income-tax Act to the extent it is relevant is extracted hereunder :
“Mode and time of recovery,–(1) Where any assessee is in default in making payment of the tax or any other amount due under this Act,–
(i) the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or any other amount due under this Act, and
(ii) the person or persons liable to pay the tax or any other amount due under this Act shall pay a penalty equal to,–
(a) one and one half per cent of the tax remaining unpaid for each month for the first three months after the expiry of the time specified under Sub-section (1) or allowed under Sub-section (2), of Section 41 ; and
(b) two and one half per cent of such tax for each month subsequent to the first three months as aforesaid.
Explanation.–For the purposes of Clause (ii), the penalty payable, for a part of a month shall be proportionately determined.
(2) Any tax assessed or any amount due under this Act from any assessee or any other person may, without prejudice to any other mode of collection, be recovered–
(a) as if it were an arrear of land revenue ; or
(aa) by attachment and sale or by sale without attachment of any property of such assessee or any other person by such authority, in such manner, as may be prescribed ;
(b) notwithstanding anything contained in the Code of Criminal Procedure, 1973 (Central Act 2 of 1974), on an application to any Magistrate, by such Magistrate, as if it were a fine imposed by him :
Provided that where an assessee or other person who has appealed or applied for revision of any order made under this Act and has complied with an order made by the appellate or the revising authority in regard to the payment of tax or other amount, no proceedings for recovery under this sub-section shall be taken or continued until the disposal of such appeal or application for revision.”
5. An argument similar to the one was raised by the learned Government Advocate in that case, as seen from paragraph 5 of the judgment. We quote paragraph 5 (page 431 in ITR) :
“The argument on behalf of the taxing authorities is that the stay order only prevented them from effecting a recovery of the tax due from the assessee ; it did not preclude the assessee from paying the tax. Therefore, the assessee’s obligation to pay the tax remained unaffected by the stay order and it continued to be in default. It was, therefore, liable to make payment of the penalty demanded under Section 42.”
6. Construing Section 42 in the context of non-payment of tax by virtue of a stay order granted by the court, the Supreme Court observed :
“Section 42 speaks of an assessee in default. The question, therefore, is : can an assessee be said to be in default during the period for which an order of stay of recovery of the tax due from him is operating ? The answer is indicated in the proviso to Sub-section (2) itself. Sub-section (2) empowers the collection of tax from an assessee in default as if it were an arrear of land revenue and as if it were a fine imposed by a Magistrate under the Code of Criminal Procedure. The proviso says that where an assessee or other person has appealed or applied for revision of any order made under the said Act and has complied with an order made by the appellate or the revising authority in regard to the payment of tax, no proceedings for recovery under Sub-section (2) may be continued until the disposal of the appeal or revision. Thus, there is recognition that during the period the stay is in operation recovery of the tax cannot be effected. It cannot be effected because the order of stay has placed the demand for the tax in abeyance. During the period of the stay, therefore, the assessee is not in default.”
7. Earlier, the nature of levy under Section 42 was considered by their Lordships. It was held :
“It may immediately be noted that Section 41 contemplates the payment of interest when an assessee seeks time for payment of the tax due. A provision in regard to interest is also to be found in Section 61 of the Act. There is, therefore, no good reason for assuming, as the High Court appears to have done, that what Section 42 contemplated was in reality the payment of interest and not penalty. Interest is compensatory, penalty is penal, that is, punishing in character. Section 42 requires the payment of penalty by an assessee who has not paid tax in time and the quantum of the penalty increases with the delay.”
8. The decision in Kanoria Chemicals and Industries Ltd. v. U.P. State Electricity Board was distinguished. That was a case in which the surcharge for belated clearance of the electricity bill under Regulation 7(b) of the notification issued under Electricity Supply Act was considered by the Supreme Court. The Supreme Court observed that the grant of stay of the notification did not have the effect of relieving the consumers of their obligation to pay late payment surcharge/interest on the amount withheld by them when their writ petitions were dismissed ultimately. The contention that when the operation of the notification itself was stayed, no surcharge could be demanded upon the amount withheld was not accepted. Apart from the distinction pointed out by the Supreme Court in Consolidated Coffee Ltd. case [2001] 248 ITR 417 ; (2001) 1 SCC 278, the language of Clause 7(b) is materially different from the language employed in Section 13 of the Karnataka Sales Tax Act or Section 42 of the Karnataka Agricultural Income-tax Act. The decision of the Supreme Court in Consolidated Coffee Ltd. case [2001] 248 ITR 417 ; (2001) 1 SCC 278 has no direct application in the instant case.
9. The learned Government Advocate has relied on the decision of the Supreme Court in Haji Lal Mohd. Biri Works v. State of U.P. wherein the Supreme Court took a view that the liability to pay interest on the amount of sales tax remaining unpaid was automatic. Their Lordships observed as follows :
“Argument has also been advanced by Mr. Sen that the interest on arrears of sales tax could not be realised for the period during which the recovery of sales tax was stayed. We find it difficult to accede to this contention because there is nothing in the language of Section 8(1-A) of the Act which prevents the running of interest because of the operation of any stay order. Indeed, the liability to pay interest is created by the statute and the Sales Tax Officer has no discretion to grant any exemption from the payment of interest.
Mr. Sen has pointed out that the amount of sales tax payable by the appellant was reduced on appeal and the appellant is entitled to a consequential relief on that account. This is a matter which is outside the ambit of the question which has been dealt with in the judgment under appeal. In case the appellant is entitled to any relief on account of reduction of the amount of sales tax in appeal, it would be for him to agitate the matter in appropriate proceedings.
The appeal consequently fails and is dismissed with costs.”
But, that case has to be distinguished having regard to the difference in the language. This is what Section 8 of the U.P. Sales Tax Act provided for :
“8. Payment and recovery of tax.–(1) The tax assessed under this Act shall be paid in such manner and in such instalments, if any, and within such time, not being less than fifteen days from the date of service of the notice of assessment and demand as may be specified in the notice. In default of such payment, the whole of the amount then remaining due shall become recoverable in accordance with Sub-section (8).
This reference appears to be to Kanoria Chemicals and Industries Ltd. v. U.P. State Electricity Board (1997) 5 SCC 172.- Ed.
(1-A) If the tax payable under Sub-section (1) remains unpaid for six months after the expiry of the time specified in the notice of assessment and demand or the commencement of the Uttar Pradesh Bikri-Kar (Dwitiya Sanshodhan) Adhiniyam, 1963, whichever is later, then, without prejudice to any other liability or penalty which the defaulter may, in consequence of such non-payment, incur under this Act, simple interest at the rate of eighteen per cent per annum shall run on the amount then remaining due from the date of expiry of the time specified in the said notice, or from the commencement of the said Adhiniyam, as the case may be, and shall be added to the amount of tax and be deemed for all purposes to be part of the tax.”
10. It is seen from the language of Section 8 of the U.P. Sales Tax Act that the factum of non-payment of tax for whatever reason it be, gives rise to the liability to pay interest in accordance with the said provision. There was no imposition of penalty under the said provision, as in the present case. Moreover, the words “default in making payment” is not there in Section 8 of the U.P. Sales Tax Act. We would, therefore, prefer to follow the latest decision of the Supreme Court which interpreted more or less an identical provision. Hence, the writ appeal is allowed to the extent of quashing the impugned notice in so far as it demanded the payment of interest by way of penalty for the period during which the stay order was in force. Accordingly the amount shall be re-calculated and a fresh demand notice should be issued to the appellant.
11. It is not necessary to go into the second question raised by the appellant.
The writ appeal is allowed partly without costs.