1994 (5) TMI 239 - HC - VAT and Sales Tax

Summary

Issues: Liability for penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 during the period the demand for tax stood set aside by an appellate authority and later restored.

Analysis:
1. The petitioner, a dealer in kattymore, collected and paid tax on sales at 4%, but the assessing authority considered kattymore a milk product taxable at 10%. The Appellate Tribunal set aside the 10% tax assessment, but the High Court later restored it.

2. The petitioner disputed the demand for penal interest under section 23(3) of the Act, specifically for the period when the demand was set aside by the Appellate Tribunal and later restored by the High Court. The issue was whether penal interest accrued during this period.

3. The Court referred to precedents like Income-tax Officer v. Seghu Buchiah Setty and Rajagiri Rubber & Produce Co. Ltd. which held that when an appellate order sets aside or modifies an assessment, the demand for tax becomes nullified until the appellate order is set aside in further proceedings.

4. The Court analyzed the provisions of section 23(3), (4), and (5) and concluded that penal interest does not accrue during the period when the demand is set aside by an appellate authority, aligning with the principle that penal interest runs after the expiry of the time allowed for payment by an appellate or revisional authority.

5. The Court emphasized that penal interest should not apply when the demand is not payable due to an order passed by a statutory authority. It highlighted the potential injustice if penal interest were to accrue during periods of stay granted by appellate authorities.

6. To avoid anomalies and ensure justice, the Court held that the petitioner was not liable for penal interest during the period when the Appellate Tribunal's decision set aside the tax levy on kattymore. The Court directed the limitation of the demand for penal interest for specific periods, allowing the writ petition in part.

7. The Court's decision aligned with the interpretation of section 23(3) to prevent unreasonable consequences and ensure fairness in tax assessments and penal interest liabilities. The judgment referenced relevant case law and statutory provisions to support its reasoning.