2000 (6) TMI 777 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability to pay penal interest under Section 23(3) of the Kerala General Sales Tax Act, 1963.
2. Applicability of Supreme Court and High Court judgments on penal interest.
3. Bona fide filing of returns and subsequent tax payments.

Issue-Wise Detailed Analysis:

1. Liability to pay penal interest under Section 23(3) of the Kerala General Sales Tax Act, 1963:
The main question addressed is whether an assessee can be charged with penal interest under Section 23(3) when they file a return on time, disclose full particulars, and pay the tax as per the return based on bona fide calculations, but later pay the difference in tax on demand after assessments are made based on subsequent court pronouncements. Section 23(3) stipulates that if the tax or any other amount assessed or due is not paid within the prescribed time, the dealer shall pay interest at specified rates, which is termed as penal interest due to its punitive nature.

2. Applicability of Supreme Court and High Court judgments on penal interest:
The Revenue relied on several judgments, including the Supreme Court's decision in Associated Cement Co. Ltd. v. Commercial Tax Officer, Kota [1981] 48 STC 466, and a Full Bench decision of the Kerala High Court in P.C. Abdulla v. Sales Tax Officer, IV Circle, Thrissur [1992] 86 STC 259, which held that failure to pay tax along with the return automatically attracts penal interest. However, the Supreme Court's Constitution Bench in J.K. Synthetics Ltd. v. Commercial Taxes Officer [1994] 94 STC 422 overruled the majority judgment in Associated Cement Co.'s case, approving the dissenting view of Bhagwati, J., which stated that penal interest is not payable if the tax was paid based on the bona fide return filed by the assessee.

3. Bona fide filing of returns and subsequent tax payments:
In the present case, the petitioner, a firm engaged in the manufacture of PVC pipes, filed a return for the assessment year 1984-85, disclosing the entire turnover and claiming exemption under S.R.O. No. 968 of 1980. The return was accepted by the assessing authority, but subsequent reassessment led to a demand for additional tax and surcharge, which the petitioner paid. The petitioner contended that since they disclosed all particulars and paid the tax as per the return bona fide, no penal interest should be levied. The court held that since the petitioner filed the return in time, disclosed all materials, and paid the tax as per the return, there was no liability to pay penal interest. The court referenced the Supreme Court's decision in J.K. Synthetics Ltd., which held that penal interest is not applicable if the tax was paid based on the bona fide return.

Conclusion:
The court concluded that the petitioner was not liable to pay penal interest as the return was filed bona fide, disclosing all particulars, and the tax was paid as per the return. The subsequent demand for additional tax was met without delay, and the imposition of penal interest was not justified based on the Supreme Court's ruling in J.K. Synthetics Ltd.'s case. The original petition was allowed, and the demands for penal interest were set aside.