JUDGMENT Prakash Krishna, J.
1. These two revisions are directed against the common order of the Tribunal dated August 20, 1994 passed by the Trade Tax Tribunal, Aligarh, in two connected Second Appeals Nos. 577 of 1992 (1982-83) U.P. and 578 of 1993 (1982-83) Central. The assessment years involved in these two revisions are assessment years 1982-83 (U.P.) and (1982-83) Central. The applicant is a private limited company, engaged in the business of manufacturing and selling of P.T.F.E. (Teflon) insulated wires and cables, etc.
2. The factual scenario which is almost undisputed and leading to the revisions is as follows :
The applicant was required to deposit a sum of Rs. 36,000 as security for the release of certain goods which were intercepted at check-post vide notice dated September 30, 1982. The required amount was deposited on October 1, 1982 and the goods were got released. Placing reliance upon a circular letter/notification No. Check Post 376-(81-82)-1402 Sales Tax, dated December 10, 1981, the applicant adjusted the aforesaid amount of Rs. 36,000 towards the admitted tax payable by him in the following manner :
3. The adjustment was claimed, as stated above on the assumption that the department has failed to initiate and complete the penalty proceedings within the period of three months. However,-the aforesaid adjustment as claimed by the dealer in the monthly returns of January and February (U.P.) and (Central) was not disputed by the department at that stage. Subsequently the assessment orders for the assessment years 1982-83 (U.P.) and (Central) were passed on September 30, 1986. The department also converted the security amount of Rs. 36,000 into penalty with the result the dealer on January 7, 1987 deposited Rs. 36,000, which was earlier adjusted towards the admitted tax liability for the months of January and February (U.P.) and (Central). The assessing authority by two miscellaneous orders both dated February 25, 1991 demanded interest, under Section 8(1) of the U.P. Sales Tax Act, 1948 (hereinafter it shall be referred to as "the Act") for the period March 1, 1983 to January 7, 1987 for U.P. on Rs. 2,548.09 and similarly in Central. The appellate authority as well as the Tribunal have confirmed the demand of interest on the ground that the dealer could not claim adjustment in pursuance of the aforesaid circular of the Commissioner, as by subsequent circular it was clarified by the Commissioner that the adjustment could be claimed only after the expiry of three months of the passing of the penalty order and no time-limit was prescribed by the aforesaid circular to complete the penalty proceedings within the period of three months.
4. These orders are under challenge in the aforesaid revisions. There is one more important aspect of the case. During the pendency of the second appeal before the Tribunal the order levying penalty for violation of Section 28-A was set aside by this Court in Sales Tax Revision No. nil of 1992 decided on September 16, 1992. A true copy of the judgment of this Court has been annexed as annexure No. 2 to the revisions. It is clear from the order of the Tribunal that this fact was brought to its knowledge and has been noticed by it, while narrating the facts of the case.
5. Heard the counsel for the parties and perused the record.
6. The learned counsel for the dealer submitted that as the order of penalty was ultimately set aside by this Court, the adjustment of Rs. 36,000 as claimed by it was perfectly justified. The initial order of penalty has been merged in the order of the High Court and as such the order of the High Court shall relate back to the date of the penalty order. The penalty proceedings having been set aside, there was no unpaid amount towards the tax, admittedly payable by the dealer and as such no interest could be charged from it by the department. In contra the learned Standing Counsel supported the orders under revisions. He could not and did not dispute the fact that the order of the penalty has been set aside finally by this Court with the result the dealer was entitled for the refund of Rs. 36,000 the security money deposited by it for the release of the seized goods under Section 28-A of the Act.
7. Section 7(1) and (1-A) of the Act casts a duty on every dealer, who is liable to pay tax under the Act, to submit such returns of his turnover at such intervals within the prescribed time in the prescribed manner. Such dealer is also required to deposit in the prescribed manner the amount of tax due on the turnover shown in such return. Section 8(1) of the Act provides for payment of tax admittedly payable by such dealer within the prescribed time. For failure to deposit the tax admittedly payable on such return, interest would have to be paid at the rate of 2 per cent per annum. Thus, the State Government is empowered by the Legislature to raise revenue through the mode prescribed in the Act so that the State should not suffer on account of delay, caused by the tax-payers in payment of tax. The provision for charging the interest obviously has been made in order to compensate the State (or the revenue) for the loss occasioned due to delay in paying the tax [Vide Commissioner of Income-tax v. M. Chandra Sekkar [1985] 151 ITR 433 (SO ; (1985) 1 SCC 283 and Central Provinces Manganese Ore Co. Ltd. v. Commissioner of Income-tax [1986] 160 ITR 961 (SO ; 1986 UPTC 1251 (SC)]. The Supreme Court while interpreting the similar provisions with reference to the Bengal Finance (Sales Tax) Act, 1941, in Calcutta Jute Manufacturing Company v. Commercial Tax Officer [1997] 106 STC 433 ; AIR 1997 SC 2920 has held that in interpreting a provision in a taxing statute, a construction which would preserve the purpose of provision must be adopted. The relevant portion is quoted below :
"The State is empowered by the Legislature to raise revenue through the mode prescribed in the Act so the State should not be the sufferer on account of the delay caused by the tax-payer in payment of the tax due. The provision for charging interest would have been introduced in order to compensate the State (or the Revenue) for the loss occasioned due to delay in paying the tax [vide Commissioner of Income-tax v. M. Chandra Sekhar [1985] 151 ITR 433 (SC); (1985) 1 SCC 283 ; AIR 1985 SC 114 and Central Provinces Manganese Ore Co. Ltd, v. Commissioner of Income-tax [1986] 160 ITR 961 (SC) ; (1986) 3 SCC 461 ; AIR 1987 SC 438]. When interpreting such a provision in a taxing statute a construction which would preserve the purpose of the provision must be adopted. It is well-settled that in interpreting a taxing statute normally, there is no scope for consideration of principles of equity. It was so said by Rowaltt, J. in Cape Brandy Syndicate v. Commissioners of Inland Revenue [1921] 1 KB 64 at page 71 :
'In a taxing statutes one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.' The above observation has been quoted with approval by a Bench of three Judges of this Court in Commissioner of Income-tax, Madras v. Ajax Products Ltd. [1965] 55 ITR 741 (SC) ; AIR 1965 SC 1358. In another decision rendered by a Bench of three Judges of this Court in State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191 ; AIR 1975 SC 1871 it has been observed thus :
'In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book, should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile.'"
8. The upshot of above discussion is that the interest is charged by way of compensation in order to compensate the revenue for the loss caused to it due to delay in deposit of tax. It is also firmly established that the charge of interest is not by way of penalty. The Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. [1986] 160 ITR 961 ; (1986) 3 SCC 461; AIR 1987 SC 438, with reference to Sub-section (8) of Section 139 of Income-tax Act has held that the interest is levied by way of compensation and not by way of penalty. The interest is levied under Sub-section (8) of Section 139 and under section 215 of the Income-tax Act because by reason of omission or commission penalty mentioned in the relevant provision. The revenue is deprived of the benefit of the tax for the period during which it has remained unpaid. Interest under Section 139(8) of the Income-tax Act is payable if a return is not furnished at all or not furnished in time. A Constitution Bench of the Supreme Court has considered the aforesaid two cases with reference to Rajasthan Sales Tax Act in the case of J.K. Synthetics Ltd. v. Commercial Tax Officer [1994] 94 STC 422 (SC) ; AIR 1994 SC 2393. It has been held that the statutory provision authorising the State or the Revenue to charge interest on delayed payment of tax must be construed as the substantive law and not procedural law.
9. Reverting to the facts of the present case it is clear that the applicant claimed adjustment of Rs. 36,000 towards the tax admittedly payable by it for the months of January and February, 1983 (U.P.) and (Central).
10. At the cost of repetition Rs. 36,000 was deposited on September 1, 1986 by the applicant towards the security for the penalty, to be levied in future. Ultimately it was held that no penalty was leviable on the dealer. The amount of Rs. 36,000, thus, deposited by the dealer was not due to the department and the department wrongly asked the dealer to deposit the said amount. Indisputably, the said amount remained with the department since the date .of its deposit. The applicant further deposited a sum of Rs. 36,000 on January 7, 1987. The question, thus, arises as to whether the adjustment as claimed by the dealer of the aforesaid Rs, 36,000 is justified and the department is entitled to claim interest. Section 29 of the Act deals with the adjustment, which reads as follows :
"(3) Notwithstanding any judgment, decree or order of any court or authority, no refund shall be allowed of any tax or fee due under this Act on the turnover of sales or purchases or both, as the case may be, admitted by the dealer in the returns filed by him or at any stage in any proceedings under this Act.
Explanation I.-The date of refund shall be deemed to be the date on which intimation regarding preparation of the refund voucher is sent to the dealer in the manner prescribed.
Explanation II.-The expression 'refund' includes any adjustment under the proviso to Sub-section (1)."
11. At this stage it is interesting to note that the U.P. Sales Tax Act as it was enacted originally did not contain any procedure for the refund of the excess amount to a dealer. In the year 1949 the legislator intervened and enacted Section 29. It obliged the assessing authority to in the manner prescribed refund to a dealer applying on this behalf any amount of tax, fees or other dues paid in excess of the amount due from him under the Act ; provided he made an application for the purpose within 24 months from the date on which the order of assessment was passed or within 12 months of the final order passed in appeal, revision or reference in respect of the order of assessment whichever period was later. This section enables the dealer to claim refund even of an amount which he had paid prior to the assessment made by the assessing authority in case it was found to be in excess of the amount eventually assessed against him. But then such amount or any amount directed to be refunded by the appellate or the revisional authority could be refunded only if an application for the purpose was made by him. See Indodan Milk Products v. State of U.P. 1983 UPTC 583.
12. A division Bench of this Court in Dhingra Mechanical Works v. Commissioner of Sales Tax, U.P. [1972] 29 STC 238 ; 1971 UPTC 821 has held that when a tax liability is to be discharged by an assessee, he can ask the Sales Tax Officer to adjust against any such liability any amount which may be refundable to him. Under proviso to Section 29 there is a provision for automatic adjustment.
13. The initial order of penalty converting the security amount into penalty has been set aside by this Court, as stated above. The net effect is that the penalty order ceased to exist and it has merged into the order of the High Court, holding that no penalty could be levied. This aspect of the case was not considered by the Tribunal. The order holding that no penalty could be levied on the dealer has attained finality. In this view of the matter the department was in possession of Rs. 36,000 deposited as security as excess amount. By no stretch of imagination it could be said that the dealer has failed to deposit Rs. 36,000 which was due to the department or it was unpaid amount by the dealer. The interest under Section 8(1) of the Act is payable on the tax admittedly payable which is due. The dealer has claimed the payment of admitted tax by way of adjustment in accordance with Section 29 of the Act on account of fact that it had already paid Rs. 36,000 earlier, before filing of the return and the said amount has been found to be excess amount subsequently. The purpose of charging interest is to compensate the revenue for the loss caused to it due to the late payment. If no loss has been caused to the department or the revenue as the money was already lying in deposit with the department earlier, I am of the view that no interest can be charged in such circumstances, by the department. The demand of interest in the facts of the present case is unwarranted and illegal and the same cannot be sustained.
14. The Tribunal should have taken into consideration the fact that ultimately it has been held that no penalty could be levied on the dealer. Keeping this fact in mind it should have decided the controversy. The condition precedent for levy of interest under Section 8(1) is only if there is default in payment of tax admittedly due to the department. In the present case the dealer has claimed the deposit of tax due on the basis of the returns for the months of January and February constructively by adjustment under Section 29 of the Act.
15. The Supreme Court has held in the case of the Sales Tax Officer, Banaras v. Kanhaiya Lal Makund Lal Saraf [1958] 9 STC 747 that as Section 72 of the Contract Act is applicable for the recovery of the amount paid by an assessee as sales tax, refund can be ordered on the principle of Section 72 of the Contract Act, if ultimately it is found that no tax is payable by the assessee. The payment of such amount by the assessee will be the payment under mistake of law. This matter with some detail has been discussed in the case of Hari Ram Seth Khandsari v. Commissioner of Sales Tax [2005] 139 STC 358 (All.); 2004 UPTC 106.
16. The dealer apart from claiming adjustment of Rs. 36,000, the dealer deposited a further sum of Rs. 36,000 on January 7, 1987.
17. In the result the orders of the Tribunal cannot be sustained. Both the revisions are hereby allowed by holding that on the facts of these cases, interest under Section 8(1) of the Act could not be levied.