Statutory interest on tax arrears survives stay and pending proceedings, and notice defects do not defeat automatic levy.

Interest on delayed payment of tax and penalty under the Haryana, Punjab and Central sales tax regimes was upheld as a valid recovery mechanism and not arbitrary under Article 14, because defaulting dealers and the State were not similarly situated and the classification had a rational nexus with prompt revenue collection. Interest was also held payable during periods of stay and pendency of reference, since liability arises by operation of law and a stay suspends recovery only, not the underlying statutory obligation. The challenge based on absence or defect of notice failed because automatic interest did not require a separate show-cause notice, and no prejudice was shown in relation to the penalty notice.

---

---

Issues: (i) Whether the provisions levying interest on delayed payment of tax or penalty, including the proviso to section 59 of the Haryana General Sales Tax Act, 1973 and the analogous provisions under the Central Sales Tax Act, 1956 and the Punjab General Sales Tax Act, 1948, were unconstitutional as violative of article 14 of the Constitution of India. (ii) Whether interest could be charged during the period when recovery was stayed or while proceedings remained pending before reference, and whether such levy curtailed the powers of the High Court or the Supreme Court. (iii) Whether the levy of interest and penalty was bad for want of notice or breach of natural justice.

Issue (i): Whether the provisions levying interest on delayed payment of tax or penalty, including the proviso to section 59 of the Haryana General Sales Tax Act, 1973 and the analogous provisions under the Central Sales Tax Act, 1956 and the Punjab General Sales Tax Act, 1948, were unconstitutional as violative of article 14 of the Constitution of India.

Analysis: The challenge was tested on the settled article 14 standard of reasonable classification. The Court held that fiscal legislation may differentiate so long as the classification rests on an intelligible differentia and has a rational nexus with the object of the statute. Interest on delayed payment was treated as part of the recovery machinery designed to secure prompt collection of revenue. A defaulting dealer and the State, when collecting tax in exercise of sovereign power, were held not to be similarly situated. The absence of a corresponding obligation on the State to pay interest on excess collections did not create unconstitutional discrimination.

Conclusion: The interest provisions were held to be constitutionally valid and not violative of article 14, in favour of Revenue.

Issue (ii): Whether interest could be charged during the period when recovery was stayed or while proceedings remained pending before reference, and whether such levy curtailed the powers of the High Court or the Supreme Court.

Analysis: The Court held that liability to pay interest arose automatically by operation of law and did not depend on a separate adjudicatory step. A stay order only suspended recovery; it did not extinguish the statutory liability to interest if the demand ultimately survived. The expression "ultimately found due" was construed to mean the amount finally payable after appellate adjustments, not that interest could be deferred until every reference or higher proceeding ended. The statutory levy was also held not to impose any restriction on the judicial powers of constitutional courts.

Conclusion: Interest was held recoverable for the stay period and during pendency of proceedings, and the statutory scheme was not found to infringe the powers of the High Court or the Supreme Court, in favour of Revenue.

Issue (iii): Whether the levy of interest and penalty was bad for want of notice or breach of natural justice.

Analysis: The Court held that where interest accrues automatically under the statute, the assessing authority is not obliged to issue a separate show-cause notice before levying it, though in the present case a notice had in fact been issued and contested. As regards penalty, the defect in citing the wrong section number in the notice was treated as non-fatal because the assessee was aware of the case it had to meet and had in fact raised defences. No prejudice or denial of opportunity was established.

Conclusion: The challenge based on absence or defect of notice failed, in favour of Revenue.

Final Conclusion: The writ petitions were held to be without merit, and the statutory levies of interest and penalty were upheld.

Ratio Decidendi: Interest on statutory tax arrears is a recoverable incident of default that accrues by operation of law, remains payable notwithstanding a stay of recovery if the demand is ultimately sustained, and does not offend article 14 where the classification is between defaulting dealers and the State acting in its sovereign capacity.

---