JUDGMENT Sushil Harkauli, J.
1. The question for consideration in this case is as to whether the interest payable because of late deposit of 'luxury tax' payable by Hotels under the provisions of Uttar Pradesh Taxation and Land Revenue Act 1975 (U.P. Act No. 8 of 1975) would start running:
(a) from the date on which the said tax is actually collected by the petitioner from the customer, as contended by the petitioners or
(b) from the date on which the liability of the customer for payment arose i.e. the billing dates or the date on which the hotel room was occupied by the customer, as contended by the respondents.
2. The petitioners contend that the liability to pay interest would begin from the date on which the tax is actually realized by the hotel from the customer. In support, reliance has been placed on the use of the words "realized from" in the definition given in Section 3(f) of the Act, which is reproduced below:
3 ...
(f) "rent" means the aggregate of all charges, by whatever name called, realized from the occupier of a room in a hotel, and includes lodging, boarding or service charges or any sum charged by the proprietor on account of tips payable to servants of the hotel or any of them.
Reliance has also been placed on Rules 3 & 4 of the rules framed under the Act, known as U.P. Luxuries (in Hotel) Tax Rules 1975. For ready reference, the said rules are reproduced below:
3. Period within which and the manner in which the tax be paid: Section 5(1)-The amount of Tax payable by a proprietor under Sub-section (1) of Section 5 of the Act shall be paid into a Government Treasury or the State Bank of India by a challan in L.T. Form 1 within five days after the end of the month to which the tax collected by the proprietor relates.
4. Returns: Section 5(1) - (1) Every proprietor liable to pay tax under the Act shall submit a return in L.T. Form II, L.T. Form HI and L.T. Form IV, maintained by him under Rule 16, within seven days after the end of the month to which the returns relate.
(2) Every proprietor signing the return shall subscribe on solemn affirmation that the facts mentioned in that return are true to the best of his information and belief.
(3) The Collector may verify the return from the bound registers maintained under Rule 16.
3. Having examined the provisions of the entire Act, we are of the "opinion that both (i) the liability to pay interest, as well as (ii) the date from which the interest will begin to run are clearly defined by Section 5(2) read with Rule 3.
For ready reference Section 5 in its entirety is reproduced below:
5. Manner of payment: (1) The tax shall be collected along with rent by the proprietor of the hotel from the persons liable to pay it and shall be paid by the proprietor to the State Government in such manner as may be prescribed.
(2) If any proprietor fails to pay the tax within the prescribed period he shall be liable to pay simple interest at the rate of eighteen per cent per annum on the amount remaining unpaid, and such interest shall be added to the amount of Tax and deemed for the purposes to be part of the tax:
Provided that where as a result of an order passed on appeal the amount of tax is varied the interest shall be recalculated.
It is clear from Section 5(2) quoted above, that:
(1) the liability to pay interest arises if the proprietor (of hotel) fails to pay tax within the prescribed period;
(2) Interest is payable on the amount remaining un-paid.
Thus, because (a) that there would be no liability to pay interest if the tax is paid within the prescribed period; and (b) the interest is payable only on the amount remaining unpaid at the end of the prescribed period; therefore the liability of paying interest would start at the end of the prescribed period and would be confined to the tax remaining unpaid at the end of that period.
The "prescribed period" referred under Section 5(2) has been given in Rule 3 (quoted above). Because there has been some debate about the correct interpretation of Rule 3, therefore, the said Rule is again reproduced below with the relevant words being given in bold letters so as to make the meaning clear.
3. Period within which and the manner in which the tax be paid: Section 5(1)-The amount of Tax payable by a proprietor under Sub-section (1) of Section 5 of the Act shall be paid into a Government Treasury or the State Bank of India by a challan in L.T. Form 1 within five days after the end of the month to which the tax collected by the proprietor relates.
4. Thus, it is clear that the tax collected by the proprietor has to be deposited within five days after the end of the month of which the tax "relates". Obviously, the tax "relates" to the month in which the luxury of the hotel was availed by the customer whereby liability of luxury tax arose. The tax cannot 'relate' to the month in which it was actually collected for the simple reason that such interpretation would mean that if for some reason the amount remains unpaid/uncollected the prescribed time for deposit of lax by the hotel would never end. The liability to pay tax has been imposed upon the hotelier with liberty to pass on the burden to the customer and is therefore irrespective of whether he actually collects the same from the customer. Passing on the tax burden to the customer is a matter exclusively between the hotelier and the customer, and does not concern the State. It has been held by two Constitution Benches of the Supreme Court of India in the case of The Tata Iron & Steel Co. Ltd. v. The State of Bihar (1958) Vol. IX STC 267 (at page 284) and J.K. Jute Mills Co. Ltd. v. State of Uttar Pradesh that the fact that dealer has been permitted to pass on the liability, of the trade tax imposed upon the dealer, to the customer does not mean that if the dealer does not collect the tax or fails to pass on that liability, the dealer can be absolved from paying the tax which is primarily imposed upon the dealer.
5. In the light of the above reasoning, the words "realized from" in Section 3(f) must be interpreted to mean "realizable" from the customer or billed to the customer. The column in the prescribed Form L.T. III for mentioning the amount of luxury tax collected from each of the occupants is only for verification by the department and in our opinion it would not lead to the inference that there would be no liability to pay the tax on the part of the hotelier if he fails to realize the tax from the customer. Non-realisation from the customer would obviously be due to the fault of the hotelier in granting credit to undeserving persons. In such a case the hotelier cannot be absolved of the liability to pay tax.
6. In the circumstances, we are of the opinion that Section 5(2) read with Rule 3 lay down that the liability to pay interest would start running from the end of five days after the end of the month to which the tax relates, that is the month in which the luxury was availed by the customer in the hotel and consequent liability to pay the luxury tax arose. The respondent No. 3 will, accordingly, determine and charge the interest from the petitioners.
The writ petitions is disposed of with the aforesaid directions.