1992 (3) TMI 327 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of Section 23(3) of the Kerala General Sales Tax Act, 1963.
2. Automatic accrual of penal interest under Section 23(3).
3. Necessity of notice of demand for penal interest.
4. Applicability of subsections (4) to (6) of Section 23 to previous assessment years.
5. Relief from penal interest based on final assessment reducing provisional assessment.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 23(3) of the Kerala General Sales Tax Act, 1963:
In both original petitions, the petitioners sought to declare Section 23(3) of the Kerala General Sales Tax Act as unconstitutional. However, no substantive grounds were presented to support this claim. Consequently, the court did not find Section 23(3) to be invalid or unconstitutional.

2. Automatic Accrual of Penal Interest under Section 23(3):
The main contention by the petitioners was that the liability to pay penal interest is not automatic and would only accrue after a demand notice is issued. This was contrasted with an earlier Division Bench decision in Haridas v. Assistant Commissioner, Sales Tax [1979] 44 STC 26, which held that the liability for penal interest is automatic upon the tax becoming due. The court reaffirmed this earlier decision, stating that the accrual of penal interest under Section 23(3) is indeed automatic and not dependent on any demand notice by the sales tax authorities.

3. Necessity of Notice of Demand for Penal Interest:
Petitioners argued that penal interest could not be levied without a notice of demand in the prescribed form. The court rejected this argument, aligning with the earlier decision in Haridas v. Assistant Commissioner, Sales Tax, and clarified that the mere non-payment of tax pursuant to provisional assessment suffices to trigger the liability for penal interest.

4. Applicability of Subsections (4) to (6) of Section 23 to Previous Assessment Years:
The court examined whether the provisions of subsections (4) to (6) of Section 23, introduced by the Kerala General Sales Tax Amendment Act, 1980, could be applied retrospectively to assessment years prior to their enactment. The court concluded that these provisions, which provide relief from penal interest if the tax liability is reduced upon final assessment, apply retrospectively. This conclusion was drawn from the remedial nature of the amendments and the intention to correct anomalies in the law.

5. Relief from Penal Interest Based on Final Assessment Reducing Provisional Assessment:
In O.P. No. 2361 of 1984, the petitioner argued that since the final assessment showed an excess payment of tax, no penal interest should be levied for the provisional assessment period. The court agreed, stating that subsections (4) to (6) of Section 23 should be applied to recompute the penal interest in light of the final assessment. The court quashed the imposition of penal interest of Rs. 58,332.54 and directed the 2nd respondent to reassess the liability considering the final assessment order.

Conclusion:
- O.P. No. 9277 of 1983: Dismissed. The court upheld the automatic accrual of penal interest and found no grounds to declare Section 23(3) unconstitutional.
- O.P. No. 2361 of 1984: Allowed. The court quashed the penal interest imposed and directed a fresh assessment in light of the final assessment and subsections (4) to (6) of Section 23.

Separate Judgments:
- O.P. No. 9277 of 1983: Dismissed.
- O.P. No. 2361 of 1984: Allowed.