1994 (1) TMI 246 - HC - VAT and Sales Tax

Issues Involved:
1. Compliance with High Court's stay order.
2. Adjustment of refund towards tax liability.
3. Levy of penal interest.
4. Maintainability of revision under Section 36 of the Kerala General Sales Tax Act.

Detailed Analysis:

1. Compliance with High Court's Stay Order:
The petitioner-firm, an assessee under the Kerala General Sales Tax Act, 1963, sought a stay on the collection of disputed tax pending appeal. The High Court, in O.P. No. 546 of 1983, directed the petitioner to deposit Rs. 25,000 within three weeks. The petitioner failed to comply within the stipulated time but later deposited the amount after obtaining an extension from the Court. The Assistant Commissioner (Assessment) issued a notice (Exhibit P1) demanding the entire arrears with penal interest due to non-compliance. The petitioner protested, claiming compliance within the extended time, and the Assistant Commissioner eventually accepted this position, agreeing to refund the adjusted amount.

2. Adjustment of Refund Towards Tax Liability:
The petitioner had deposited Rs. 23,364 to release detained goods, which was later ordered to be refunded by the Appellate Assistant Commissioner. The Sales Tax Officer initially adjusted this refund towards the petitioner's tax arrears for 1978-79. The petitioner then attempted to adjust this refund against his tax liability for September 1983. The Assistant Commissioner, in the final assessment for 1983-84 (Exhibit P10), did not credit this adjustment and demanded payment, leading to a dispute over the legitimacy of self-adjustment without explicit permission.

3. Levy of Penal Interest:
The petitioner was charged penal interest for the shortfall in tax payment for September 1983. The legal basis for penal interest under Section 23(3) of the Act was affirmed by the Full Bench in P.C. Abdulla v. Sales Tax Officer [1992] 86 STC 259, which held that liability for penal interest arises automatically upon non-payment of tax, without the need for a separate order or demand notice. The Court noted that the petitioner's failure to pay the tax as required, despite claiming an adjustment, justified the imposition of penal interest.

4. Maintainability of Revision Under Section 36:
The petitioner filed a revision under Section 36 against the demand notice (Exhibit P11), arguing that the adjustment of the refund should negate the penal interest. The revisional authority dismissed the revision, stating that no order or proceeding was involved that could be challenged under Section 36. The Court upheld this view, emphasizing that the issuance of a demand notice under Form 24 does not constitute an adjudicative order or proceeding. The Court referenced the decisions in Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Sales Tax Officer [1973] 32 STC 429 and P.C. Abdulla's case [1992] 86 STC 259, affirming the automatic nature of penal interest liability and the non-necessity of a demand notice.

Conclusion:
The Court dismissed the original petition, holding that the petitioner's failure to comply with the initial Court directive led to the current situation. The self-adjustment of the refund without explicit authorization was not permissible under the Act and Rules. The imposition of penal interest was legally justified, and the revision under Section 36 was not maintainable as the demand notice did not constitute an adjudicative order or proceeding.

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