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Issues: Whether penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 could be levied for non-payment of tax shown in the return filed under rule 18(1) of the Kerala General Sales Tax Rules, 1963 without first serving a notice of demand under rule 18(3) and form No. 14.
Analysis: Section 23(3) fastens liability to penal interest where tax assessed or any other amount due under the Act, or an instalment thereof, is not paid within the time specified in the notice of demand, instalment order, or the Act or Rules. Rule 18(1) requires the dealer to file a return showing turnover and tax due, while rule 18(3) requires payment of the tax due on the basis of that return along with the return and provides for service of a demand notice if payment is not made. Form No. 14 expressly states that penalty under section 23(3) becomes leviable only if the amount demanded in that notice is not paid within the stipulated time. The liability to penal interest therefore arises only on failure to comply with the demand notice, and not merely because the return tax was not remitted along with the return.
Conclusion: Penal interest could not be levied from the date of submission of the return in the absence of a demand notice under rule 18(3); the levy was quashed.
Ratio Decidendi: Where the statutory scheme makes penal interest contingent on non-payment after service of a demand notice, liability cannot be fastened merely for failure to pay the tax declared in the return unless the prescribed demand procedure has first been followed.
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