1998 (3) TMI 658 - HC - VAT and Sales Tax

Summary

Issues:
1. Validity of demand notices issued under sections 7 and 34 of the Kerala Revenue Recovery Act for penal interest.
2. Liability of petitioners to pay turnover tax and penal interest prior to assessment completion.
3. Applicability of penal interest for the period before demand notices issued pursuant to assessment orders.

Analysis:
The petitioners, partners of a firm, challenged demand notices for penal interest issued under the Kerala Revenue Recovery Act. The firm had ceased operations, completed assessments, and paid taxes. The notices demanded Rs. 99,083 for 1987-88 and 1988-89. The petitioners contended they did not admit liability to turnover tax until assessments were completed. They remitted taxes and interest in instalments based on government-granted instalments. They sought withdrawal of the notices, arguing no liability existed before assessments were finalized.

The court considered that the petitioners had not admitted liability to turnover tax in their returns for the relevant years. The assessing authority had not completed assessments or raised demands before the notices. The court referred to previous decisions, including Joy Varghese v. State of Kerala, to establish that liability arises only after assessment completion and default in payment. As the petitioners denied liability until assessments were finalized, they could not be held liable for penal interest before demand notices issued pursuant to assessment orders.

In conclusion, the court quashed the demand notices (exhibits P1 and P2) for penal interest, ruling in favor of the petitioners. The original petition was allowed, and the order on C.M.P. No. 29394 of 1997 in O.P. No. 16465 of 1997 was dismissed. The judgment emphasized that liability for penal interest arises only after assessments are completed and defaults in payment occur, in line with established legal principles and precedents.