JUDGMENT R.L. Gulati, J.
1. This is a petition under article 226 of the Constitution.
2. In respect of the assessment year 1955-56 the petitioner which is a Hindu undivided family was assessed under the U.P. Sales Tax Act (hereinafter referred to as the "Act") to the tax of Rs. 1,01,944-3-6 by the Sales Tax Officer, Sector I, Kanpur, by his order dated March 21/22, 1958. The petitioner had already paid a sum of Rs. 57,680-8-6. A notice of demand for the balance amounting to Rs. 44,263.69 was accordingly served upon the petitioner on 8th April, 1958. The petitioner preferred an appeal against the assessment order, but before the appeal was decided on 6th August, 1958, a certificate of recovery was issued by the assessing authority to the Collector, Kanpur, for the recovery from the petitioner as arrears of land revenue, the arrears of tax amounting to Rs. 44,263.69.
3. On 5th January, 1959, the petitioner's appeal came to be disposed of and as a result of the appellate order the tax liability of the petitioner was reduced by a sum of Rs. 1,760-3-6. No fresh notice of demand was served upon the petitioner in respect of the tax as reduced by the appellate authority. Thereafter, it appears that the petitioner started paying off the arrears in instalments and according to the petitioner, it had paid a sum of Rs. 16,253.12 by 31st October, 1961, thus leaving a balance of Rs. 25,250.35. A fresh certificate dated January 29/February 2, 1968, was issued by the Sales Tax Officer to the Collector, Kanpur, for the recovery from the petitioner of a sum of Rs. 25,250.35 as arrears of land revenue which according to the Sales Tax Officer was the amount of tax due from the petitioner at that time. In this recovery certificate the Collector had further been authorised to realise from the petitioner interest at 18 per cent. calculated from 1st February, 1964. The petitioner has stated that it. has paid up the arrears of tax leaving a balance of Rs. 1,833.35 which it is prepared to pay off, but it disputes the liability for interest which according to it comes to more than Rs. 20,000. The petitioner filed an objection before the Sales Tax Officer disputing its liability to pay interest, but its objection has been rejected. The petitioner has now filed this petition challenging the validity of the recovery certificate in respect of interest.
4. The contention of the petitioner is that after the appellate order, a fresh notice of demand ought to have been served upon it. This admittedly not having been done, the petitioner could not be treated to be a defaulter and as such no interest was payable by it.
5. Under Section 8(1) of the Act, the tax assessed under the Act is to be paid in such manner and in such instalments 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). Rule 45 of the Rules framed under the Act provides :
As soon as the assessment has been made the Sales Tax Officer shall send to the dealer a notice in form XI, together with a copy of the assessment order free of charge and the dealer shall pay the tax so assessed within the time and in the manner specified in the notice.
6. It is clear from the scheme of the Act that before the tax becomes payable from an assessee a notice of demand has to be served upon him in form XI, setting out therein the time and the manner in which the tax has to be paid.
7. In Income-tax Officer v. Seghu Buchiah Setty (1964) 52 I.T.R. 538 (S.C.), the Supreme Court while dealing with a case under the Income-tax Act, 1922, held that where the appellate order results in setting aside or modification of the assessment order the original notice of demand is no longer valid, and a fresh notice of demand is necessary consequent upon the appellate order in order to require the assessee to pay the tax due from him.
8. In Ram Autar Agarwal v. The Sales Tax Officer II, Bareilly, and Anr. Writ Petition No. 1659 of 1967 decided on 13-9-1968, it was held that the same principle applies under the U.P. Sales Tax Act so that a fresh notice of demand has to be served upon an assessee when the tax assessed upon him is varied or modified in appeal and in the absence of the service of such a fresh notice of demand, the assessee cannot be held to be in default. The same view was reiterated by this court in Durga Dutt Chunni Lal v. State of U.P. 1968 A.L.J. 1066.
9. Under Sub-section (1-A) of Section 8 of the Act, 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 simple interest at the rate of eighteen per cent. per annum becomes payable from the assessee. From the language of Sub-section (1-A) of Section 8 it is obvious that a person becomes liable to interest, if he does not pay the tax payable within six months after the expiry of the time specified in the notice of demand. A notice of demand would mean the notice of demand served in pursuance of an appellate order where the amount of tax has been varied as a result of an appeal. As no such notice of demand was served upon the assessee after the appellate order, the provisions of Sub-section (1-A) of Section 8 would not be attracted and the petitioner is right in its contention that it incurred no liability for the payment of interest.
10. In Masitullah Khan and Ors. v. The Collector, Shahjahanpur Writ Petition No. 1417 of 1968 decided on 23-7-1968; since reported at [1969] 23 S.T.C. 106, a Division Bench of this court held that while a legal representative of a deceased assessee was liable to pay tax due from the deceased assessee, he would not be liable to pay interest if no notice of demand in respect of the tax due was served upon him, because in the absence of such a notice, he could not be held to be a defaulter; and interest is payable only from a person who is in default of the payment of the tax in accordance with the notice of demand served upon him. This being the position, the recovery proceedings against the petitioner for the recovery of interest are clearly invalid.
11. Sri V.K. Mehrotra, learned counsel for the opposite parties, however, contends that even though a notice of demand may be necessary for the recovery of tax, yet interest becomes chargeable, even in the absence of the service of the notice of demand, if tax is not paid within six months of the date of the assessment order. According to him, it is the passing of the assessment order which gives the starting point for the liability to interest. This argument of the learned counsel appears to us to be wholly untenable and if accepted, would lead to an absurd conclusion that while tax may not be payable by an assessee, if no notice of demand is served upon him, yet he would be liable to pay interest.
12. From a perusal of Sub-section (1) and Sub-section (1-A) of Section 8 of the Act it is clear that interest is payable only if the tax payable under Sub-section (1) remains unpaid for six months from the expiry of the time mentioned in the notice of demand. Tax cannot be said to be payable unless a notice of demand is served even though there may be a liability upon the assessee in respect of the tax assessed. It is significant to note that under Sub-section (1-A) of Section 8 interest becomes chargeable "if the tax payable under Sub-section (1) remains unpaid for six months after the expiry of the time specified in the notice of demand..." and not "if the tax assessed under Sub-section (1) remains unpaid." There is a difference between a tax which is assessed and a tax which is payable. A tax is assessed when an assessment order is passed, but it becomes payable only after a notice of demand is served.
13. Learned counsel has placed reliance upon the case of State of Rajasthan and Ors. v. Ghasilal A.I.R. 1965 S.C. 1454. That was a case under the Rajasthan Sales Tax Act. There the Supreme Court held that no penalty could be charged under Section 16(1)(b) of that Act unless the tax was ascertained by the assessing authority under Section 10 or by the assessee under Section 7(2) because until then no tax could be said to be due within the meaning of Section 16(1)(b) even though there might be a liability to be assessed to tax. We have not been able to understand as to how this case helps the learned counsel for the department.
14. For the reasons stated above, this petition must succeed and the same is allowed. The proceedings for the recovery of interest from the petitioner under the certificate of recovery dated 29th January, 1968, are quashed. The petitioner is entitled to its costs.