Fresh demand notice and prospective penalty rate are required after appellate reduction of tax liability.

Penalty under section 24(3) for delayed tax payment was linked to the amount validly demanded under the operative assessment or instalment order. When an appellate authority reduced the tax liability, the earlier notice could not support penalty on the revised demand; a fresh demand notice after giving effect to the appellate order was required. The later amendment increasing the penalty rate from one per cent to two per cent was held inapplicable to earlier assessment years, because liability had to be assessed with reference to the law in force when the default arose. The demand was therefore treated as unsustainable on both grounds.

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Issues: (i) Whether, after the appellate authority reduced the tax liability, penalty under section 24(3) could be levied without issuing a fresh demand notice for the revised amount; (ii) whether the enhanced rate introduced by the later amendment to section 24(3) could be applied to earlier assessment years.

Issue (i): Whether, after the appellate authority reduced the tax liability, penalty under section 24(3) could be levied without issuing a fresh demand notice for the revised amount.

Analysis: Penalty under section 24(3) was attracted only when the tax assessed or instalment thereof was not paid within the time specified in the relevant notice of assessment or order permitting instalments. Once the original assessment was modified in appeal and the tax liability stood reduced, the earlier notice could not serve as the basis for treating the assessee as a defaulter for the revised demand. A fresh demand notice was necessary after giving effect to the appellate order, and in the absence of such notice the assessee could not be fastened with penalty under section 24(3).

Conclusion: The issue is answered in favour of the assessee. The impugned penalty demand was not sustainable without a fresh demand notice.

Issue (ii): Whether the enhanced rate introduced by the later amendment to section 24(3) could be applied to earlier assessment years.

Analysis: The liability, if any, had to be determined with reference to the assessment years and the law in force when the default arose. The later amendment increasing the rate from one per cent to two per cent could not be applied retrospectively to assessment years 1960-61 to 1964-65. The higher rate was therefore unavailable for computing the impugned demand.

Conclusion: The issue is answered in favour of the assessee. The amended higher rate could not be applied to the earlier years.

Final Conclusion: The demand of penalty was illegal both because no fresh demand followed the appellate modification and because the later enhanced rate could not be used for the earlier assessment years; the writ appeal was therefore allowed and the demand was set aside.

Ratio Decidendi: Penalty for delayed payment of sales tax can be levied only on the basis of a valid demand specifying the amount due after the operative assessment order, and an amendment enhancing the rate of penalty operates prospectively unless the legislature clearly provides otherwise.

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