Penal interest requires a valid demand notice; without Form No. 14 under rule 18(3), the levy cannot stand.

Penal interest under section 23(3) of the Kerala General Sales Tax Act is contingent on prior issuance of a valid notice of demand in the manner prescribed by rule 18(3) in Form No. 14. Where no such notice is issued, the statutory precondition for levy is absent and the penal interest demand cannot stand. The revisional demand was therefore unsustainable against the assessee, and the demand and revisional order were quashed.

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Issues: Whether penal interest under sub-section (3) of section 23 of the Kerala General Sales Tax Act could be levied without issuance of the notice of demand required by sub-rule (3) of rule 18 in Form No. 14.

Analysis: The levy of penal interest was challenged on the ground that no notice of demand in Form No. 14 had been issued. The Court applied its earlier ruling that liability to pay penal interest arises only when there is a failure to pay the tax demanded under a notice issued in accordance with sub-rule (3) of rule 18 of the Kerala General Sales Tax Rules. Since the required notice had not been issued, the statutory condition for levy of penal interest was absent.

Conclusion: Penal interest could not be levied in the absence of the notice of demand required under rule 18(3), and the demand and revisional order were quashed in favour of the assessee.

Ratio Decidendi: Levy of penal interest under section 23(3) is contingent upon prior issuance of a valid notice of demand in the manner prescribed by rule 18(3); without such notice, the levy is unsustainable.

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