1992 (3) TMI 328 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Interpretation of Section 23(3) of the Kerala General Sales Tax Act, 1963.
2. Whether service of a notice of demand is essential for the levy and collection of penal interest under Section 23(3) of the Act.

Summary:

Issue 1: Interpretation of Section 23(3) of the Kerala General Sales Tax Act, 1963
The case revolves around the interpretation of Section 23(3) of the Kerala General Sales Tax Act, 1963 ("the Act"). The primary question is whether the service of a notice of demand is an essential prerequisite for the levy and collection of penal interest under this section. The conflict between the Division Bench decisions in Haridas v. Assistant Commissioner, Sales Tax [1979] 44 STC 26 and Joy Varghese v. State of Kerala [1986] 62 STC 227 necessitated referring the matter to a Full Bench.

Issue 2: Necessity of Notice of Demand for Levy of Penal Interest
The petitioners argued that a notice of demand in form No. 24 is essential for the levy of penal interest u/s 23(3) of the Act, citing Joy Varghese's case [1986] 62 STC 227. The Revenue contended that such notice is unnecessary. The court examined Section 23(1) and (3) of the Act, and relevant rules including Rule 18(1) and (3), Rule 21(7) and (10), and Rule 31 of the Kerala General Sales Tax Rules, 1963.

The court noted that Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Sales Tax Officer [1973] 32 STC 429 and Haridas v. Assistant Commissioner, Sales Tax [1979] 44 STC 26 had established that the liability to pay penal interest is automatic upon default, without the need for a formal order or notice. The court also referenced the Supreme Court's decision in Associated Cement Co. Ltd. v. Commercial Tax Officer [1981] 48 STC 466, which distinguished between tax, penalty, and interest, emphasizing that interest is compensatory, not penal.

The Full Bench concluded that the Division Bench in Joy Varghese's case [1986] 62 STC 227 had incorrectly held that a notice of demand is necessary for the levy of penal interest. The court clarified that under Section 23(3) of the Act, the dealer's liability to pay penal interest arises automatically upon default in payment of self-assessed tax, without the need for a demand notice. Rule 31 explicitly dispenses with the need for such notice.

Conclusion:
The Full Bench overruled Joy Varghese's case [1986] 62 STC 227, holding that the service of a notice of demand is not an essential prerequisite for the levy and collection of penal interest under Section 23(3) of the Kerala General Sales Tax Act, 1963. Consequently, the penal interest levied in the cases under consideration was deemed valid and proper. Both O.P. No. 3501 of 1986 and W.A. No. 16 of 1988 were dismissed.