1992 (3) TMI 342 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Justification of imposing penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963.
2. Period for which penal interest is applicable.

Detailed Analysis:

Issue 1: Justification of Imposing Penal Interest under Section 23(3) of the K.G.S.T. Act

The appellant, a dealer, was levied a penal interest sum of Rs. 77,956.12 under section 23(3) of the Kerala General Sales Tax Act, 1963 (K.G.S.T. Act) for the assessment year 1977-78. The appellant filed a return in form 8 on April 30, 1978, and paid the tax provisionally along with monthly returns in form 9. However, upon final assessment on July 25, 1979, the appellant filed a revised return, leading to an additional tax liability. The final assessment order was passed on August 29, 1979, and the balance tax was paid within the specified time. Nonetheless, the assessing authority issued a demand notice on August 8, 1980, for penal interest calculated from May 1, 1978, to March 22, 1980.

The appellant contended that penal interest should not be charged for the period prior to filing the revised return. The Deputy Commissioner initially favored the appellant, limiting the penal interest period from July 25, 1979, to March 22, 1980. However, the Board of Revenue reversed this decision, restoring the original demand for penal interest from May 1, 1978.

Issue 2: Period for Which Penal Interest is Applicable

The court examined whether penal interest under section 23(3) of the K.G.S.T. Act should be payable from April 30, 1978, the date of the original return, or from July 25, 1979, the date of the revised return. The relevant statutory provisions were scrutinized, particularly section 23(3) and rule 21(11) of the K.G.S.T. Rules, 1963. Section 23(3) was amended with effect from April 1, 1978, to include the phrase "or within the time specified therefor in this Act or in any rule made thereunder," thereby linking the penal interest liability to the timelines specified in the rules.

The court referred to the Supreme Court's decision in Associated Cement Co. Ltd. v. Commercial Tax Officer, Kota, which distinguished between penalty and penal interest. The Supreme Court held that penal interest accrues by statutory force from the date the return ought to have been properly filed, irrespective of the actual filing date or any doubts the assessee might have about tax liability.

Applying this principle, the court concluded that penal interest under section 23(3) of the K.G.S.T. Act became payable from May 1, 1978, the day after the original return was due, and not merely from July 25, 1979, when the revised return was filed. The court emphasized that the liability arose from the statutory requirement to pay tax along with the return, and not from the issuance of a demand notice.

Conclusion

The court upheld the Board of Revenue's decision, holding that the appellant was liable for penal interest from May 1, 1978, in accordance with section 23(3) of the K.G.S.T. Act. The appeal was dismissed, affirming the imposition of penal interest for the period from May 1, 1978, to March 22, 1980.

Appeal dismissed.