1993 (8) TMI 279 - HC - VAT and Sales Tax

Issues Involved:
1. Liability to pay penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 for arrears of sales tax due under the General Sales Tax Act, 1125.

Issue-wise Detailed Analysis:

1. Liability to Pay Penal Interest under Section 23(3) of the KGST Act, 1963 for Arrears of Sales Tax Due under the General Sales Tax Act, 1125

The primary issue in this case is whether an assessee under the General Sales Tax Act, 1125 is liable to pay penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 for arrears of sales tax due from the period when the former Act was in force.

The petitioner, the son of the deceased assessee, challenged a demand notice (Exhibit P9) which included penal interest under section 23(3) of the KGST Act, 1963. The petitioner contended that he is not liable for penal interest as the assessment pertains to a period when the General Sales Tax Act, 1125 was in force, which did not have a provision similar to section 23(3) of the KGST Act, 1963.

The court examined section 61 of the KGST Act, 1963, which is the repealing provision. Section 61(1) of the KGST Act, 1963 states that the General Sales Tax Act, 1125 is repealed but this repeal does not affect the previous operation of the said Act or any right, title, obligation, or liability already acquired, accrued, or incurred thereunder. The proviso further states that all arrears of tax and other amounts due at the commencement of the 1963 Act may be recovered as if they had accrued under the 1963 Act.

The court interpreted the three parts of the proviso to section 61(1) as follows:
- The first part saves the rights and liabilities acquired or incurred under the repealed Act.
- The second part deems actions taken under the repealed Act as actions taken under the 1963 Act for procedural purposes.
- The third part deals with the mode of recovery of arrears of tax and does not affect substantive rights or liabilities.

The court held that the right to be assessed under the 1125 Act and the immunity from paying penal interest on arrears of sales tax is a right accrued to the assessee under the repealed Act, which is saved by the first part of the proviso. Therefore, the penal interest provision under section 23(3) of the KGST Act, 1963 cannot be applied to arrears of sales tax due for the period when the 1125 Act was in force.

The court referenced similar cases, including the Supreme Court's decision in Sales Tax Officer v. Hanuman Prasad [1967] 19 STC 87, where it was held that rights and liabilities acquired under a repealed Act remain unaffected by the new Act. The court also noted that the absence of certain words in the proviso to section 61 of the KGST Act, 1963, as compared to the Madhya Pradesh General Sales Tax Act, 1959, does not alter the interpretation that substantive rights and liabilities are preserved under the repealed Act.

The court distinguished this case from the decision in State of Kerala v. Pareed Pillai [1991] 83 STC 377, where the court dealt with the mode of recovery under the 1963 Act, which is procedural and not substantive.

In conclusion, the court held that section 23(3) of the KGST Act, 1963 does not apply to arrears of tax due for the period when the General Sales Tax Act, 1125 was in force. The demand for penal interest in Exhibit P9 was quashed, but the department was allowed to enforce the balance amount due.

Petition allowed.

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