Kar Vivad Samadhan Scheme excludes separate interest on penalty arrears; only the prescribed amount and later interest apply.

The Kar Vivad Samadhan Scheme, 1998 was construed to fix the amount payable on tax arrears consisting only of penalty at fifty per cent of the arrear, with no separate liability for interest on that penalty amount. The Calcutta HC held that the departmental clarification adding interest misread the Scheme and was unauthorised. The levy of interest on the penalty arrears was therefore set aside, although interest was still directed from 30 days after the determination order until payment because the assessee had retained the Scheme benefit.

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Issues: Whether the Kar Vivad Samadhan Scheme, 1998 permits levy of interest on tax arrears consisting only of penalty.

Analysis: Section 88 of the Scheme contains a non obstante clause and fixes the amount payable on tax arrears comprising only interest or penalty at fifty per cent of the arrear. The Scheme does not contemplate any separate liability to pay interest on such penalty arrears. The departmental clarification adding interest was based on a misreading of the Scheme and was not authorised by it. However, as the petitioner had already retained the benefit of the Scheme amount, interest was directed only from 30 days after the determination order until payment.

Conclusion: The levy of interest on the penalty arrears under the Scheme was set aside, and only the prescribed amount with subsequent interest from 30 days after the determination order was held payable by the assessee.

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