Automatic penal interest and remedial recomputation of sales tax liability under the amended statutory scheme.

Penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 was described as accruing automatically when tax remains unpaid within the prescribed time, without any prior demand notice. The later insertion of sections 23(4) to 23(6) was treated as remedial legislation addressing cases where provisional liability is reduced in final assessment, appeal, or revision. On that construction, the relevant date is the final assessment or appellate order, and the penal interest must be recomputed to match the reduced tax liability where that order is made after the amendment.

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Issues: (i) Whether penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 accrues automatically on default without a prior demand notice. (ii) Whether sections 23(4) to 23(6) of the Kerala General Sales Tax Act, 1963 apply to penal interest levied in respect of an earlier assessment year where the final assessment reducing the provisional liability was made after the amendment came into force.

Issue (i): Whether penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 accrues automatically on default without a prior demand notice.

Analysis: The liability to penal interest was held to arise on the tax becoming due and remaining unpaid within the prescribed time. The later view that a separate notice of demand was necessary was rejected, and the earlier view that default itself triggers the statutory liability was affirmed. The rule was applied with reference to the scheme of section 23(3) and the relevant rules governing provisional assessment and demand.

Conclusion: Penal interest under section 23(3) accrues automatically on default and does not depend on a prior demand notice.

Issue (ii): Whether sections 23(4) to 23(6) of the Kerala General Sales Tax Act, 1963 apply to penal interest levied in respect of an earlier assessment year where the final assessment reducing the provisional liability was made after the amendment came into force.

Analysis: The amendment introducing sub-sections (4) to (6) was treated as remedial legislation intended to remove the anomaly of penal interest surviving even after the tax liability was reduced in appeal, revision, or final assessment. On that construction, the relevant time was the date of the final assessment order that triggered the operation of sub-section (6), not merely the assessment year to which the tax related. Accordingly, where the final assessment reduced the provisional liability after the amendment, the penal interest had to be recomputed and reduced to match the final tax liability.

Conclusion: Sections 23(4) to 23(6) apply to the reduced liability arising from a final assessment made after the amendment, even though the assessment year was prior to the amendment.

Final Conclusion: The challenge to automatic levy of penal interest failed in one matter, but relief was granted in the other by quashing the penal interest component and directing fresh consideration of liability in accordance with the amended statutory scheme.

Ratio Decidendi: Penal interest under the sales tax provision attaches on default without a separate demand, but a later remedial amendment reducing or cancelling the tax liability applies to the corresponding penal interest when the final assessment or appellate order is made after the amendment, requiring recomputation of the interest.

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