1994 (9) TMI 334 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to demand for penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 for the assessment year 1975-76.

Detailed Analysis:

1. Stay of Recovery and Penal Interest: The case involved a challenge to the demand for penal interest made under section 23(3) of the Kerala General Sales Tax Act, 1963. The original order of assessment was modified in appeal by the Appellate Assistant Commissioner, leading to a reduction in the tax amount demanded. The petitioner had furnished security for the tax amount demanded, and the Government had stayed the recovery of the tax pending the appeal. The Court held that it would be arbitrary to demand penal interest after choosing to stay the recovery, as it would be unfair to penalize the petitioner for not moving the Appellate Assistant Commissioner for stay when the recovery was already stayed by the Government. Therefore, the Court quashed the demand for penal interest for the period up to December 30, 1980, as it was not justified.

2. Liability for Penal Interest on Reduced Amount: Subsequent to the appeal decision, the amount of sales tax was reduced, and the petitioner paid the revised amount. The Court noted that under sub-section (5) of section 23, when the tax assessed is reduced, the penal interest should be proportionately reduced. The petitioner was held liable to pay penal interest on the reduced amount from the date of the appellate order. While the petitioner would have been liable for penal interest from the original order date, the Government's stay of recovery suspended the demand until the appeal decision. Therefore, the liability for penal interest on the reduced amount arose from the date of the appellate order.

3. Quashing of Excessive Demand: The Court found that the demand for penal interest from an earlier date on the entire amount demanded was not sustainable. The petitioner's liability was limited to the extent stated in the judgment. Consequently, the Court allowed the writ petition in part, quashing the excessive demands and directing the computation and refund of any excess penal interest paid by the petitioner.

In conclusion, the Court partially allowed the writ petition, quashing the excessive demands for penal interest and directing the computation and refund of any excess amount paid by the petitioner.