Compensatory tax interest under sales tax law upheld, but liability must be computed strictly and only for actual delay.

Section 24(3) of the Tamil Nadu General Sales Tax Act was treated as a compensatory charge for delayed payment of tax, not a penal provision, and was upheld as constitutionally valid. The provision was construed strictly and applied only where tax assessed or payable was not paid within the statutory time specified in a notice of assessment or instalment order; it could not be automatically extended to monthly-return defaults under rule 18(3). No prior hearing was required before enforcing the charge because it operated automatically on default, though revision could test whether the amount and period were correctly computed. Interest was payable only for the actual period of delay, not for a full month when the default covered only part of a month.

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Issues: (i) Whether section 24(3) of the Tamil Nadu General Sales Tax Act, 1959, which levied a monthly charge for delayed payment of tax, was constitutionally valid and whether it was penal or compensatory in nature. (ii) Whether section 24(3) could be invoked where a dealer, having opted for the monthly-return system under rule 18(3) of the Tamil Nadu General Sales Tax Rules, 1959, failed to deposit the full tax along with the return. (iii) Whether prior notice or hearing was required before enforcing liability under section 24(3), and whether the demand could be challenged in revision. (iv) Whether interest under section 24(3) could be levied for the whole month when the delay was only for part of a month.

Issue (i): Whether section 24(3) of the Tamil Nadu General Sales Tax Act, 1959, which levied a monthly charge for delayed payment of tax, was constitutionally valid and whether it was penal or compensatory in nature.

Analysis: Section 24 formed part of the recovery machinery of the Act. The liability created by section 24(3) arose only on default in payment of tax already assessed or payable, and the provision fixed the rate, base and period of the charge. In the context of the Act, and in contrast with the separate penal provisions dealing with wilful defaults, the levy under section 24(3) was treated as a compensatory exaction for withholding State money, not as a true penalty requiring proof of contumacious conduct.

Conclusion: Section 24(3) was held constitutionally valid and was construed as compensatory interest, not penal liability.

Issue (ii): Whether section 24(3) could be invoked where a dealer, having opted for the monthly-return system under rule 18(3) of the Tamil Nadu General Sales Tax Rules, 1959, failed to deposit the full tax along with the return.

Analysis: Rule 18(3) made the return provisionally accepted and declared the tax shown therein to become due without notice of demand. However, section 24(3), on its plain language, was attracted only when tax assessed or payable was not paid within the time specified in a notice of assessment or in an order permitting instalments. A strictly construed fiscal provision could not be expanded to treat the monthly return itself as a notice of assessment. The amendment introducing the words "or has become payable" did not alter that basic structure.

Conclusion: Section 24(3) did not automatically apply to defaults under rule 18(3) merely because the monthly return tax had not been fully deposited.

Issue (iii): Whether prior notice or hearing was required before enforcing liability under section 24(3), and whether the demand could be challenged in revision.

Analysis: Since the levy was compensatory and automatic on the occurrence of the statutory default, no separate enquiry into wilfulness was necessary and the principles of natural justice were excluded by the scheme of the provision. At the same time, the revisional power under section 33 was wide enough to examine whether the charge had been levied on the correct amount and for the correct period.

Conclusion: No prior hearing was required before enforcing section 24(3), but a demand under that provision could be questioned in revision under section 33.

Issue (iv): Whether interest under section 24(3) could be levied for the whole month when the delay was only for part of a month.

Analysis: The words "for each month or part thereof" required computation according to the actual duration of default. The statutory language did not permit charging interest for an entire month where payment was delayed only for a few days. A contrary computation would ignore the express inclusion of "part thereof" in the provision.

Conclusion: Interest under section 24(3) was payable only for the actual period of delay.

Final Conclusion: The challenge to the constitutional validity of section 24(3) failed, but demands based on monthly-return defaults under rule 18(3) and demands computed for the whole month despite part-month delay were not sustainable. The decision therefore sustained the statutory charge in principle while granting relief where the demands exceeded the statutory scope.

Ratio Decidendi: A fiscal provision imposing a charge for delayed payment of tax, when structured as a compensatory recovery measure and fixed by statute as to rate and period, is valid and operates automatically according to its terms, but it must be construed strictly and cannot be extended beyond the exact statutory conditions for its enforcement.

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