Penal interest cannot be charged during an operative stay order extending payment time under the U.P. Sales Tax Act.

Penal interest under the U.P. Sales Tax Act is chargeable only when tax remains unpaid beyond the stipulated period and the dealer becomes a defaulter. Where the Commissioner, acting under the relevant power to extend time and keep recovery in abeyance, issued a stay order that remained in force, the assessee could not be treated as in default during that period. Interest could run only after the stay was withdrawn and the extended protection ended. Consequently, penal interest was not leviable for the period covered by the operative stay order, and recovery for that period was rejected.

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Issues: Whether penal interest under the U.P. Sales Tax Act could be levied for the period during which the Commissioner's stay order extending time for payment remained operative.

Analysis: Penal interest under section 8(1-A) is attracted only when the assessee is a defaulter and the tax demanded under section 8(1) remains unpaid beyond the stipulated period. Under section 8(4), the assessing authority may extend the time for payment or amend or revoke the notice of demand. The Commissioner, exercising the powers of a Sales Tax Officer under rule 80, could therefore extend the time for payment and keep the recovery in abeyance until further orders. As the stay order continued until it was revoked, the petitioners could not be treated as defaulters during that period, and interest could run only after six months from the withdrawal of the stay.

Conclusion: Penal interest was not leviable for the period during which the Commissioner's stay order remained in force, and the claim for recovery of such interest for that period was rejected.

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