Penal interest under section 23(3) arises only on default after a tax demand notice, not on filing revised returns.

Liability to penal interest under section 23(3) arises only when the dealer fails to pay tax in accordance with the demand notice issued by the assessing authority. Mere filing of revised returns, or failure to produce proof of payment with those returns, does not itself trigger penal interest. The controlling principle applied was that default must occur after service of the demand for tax, and the earlier view that interest follows non-compliance with the notice of demand was followed.

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Issues: Whether liability to penal interest under section 23(3) arises only on failure to comply with the demand for tax.

Analysis: The dispute concerned the point at which penal interest becomes leviable when revised returns are filed. The controlling principle applied was that the liability to pay penal interest is attracted not by mere filing of revised returns or by failure to produce proof of payment along with them, but only when the dealer fails to pay the tax in accordance with the demand notice issued by the assessing authority. On that basis, the earlier decision holding that penal interest follows default in payment under the notice of demand governed the case.

Conclusion: Liability to penal interest under section 23(3) arises only on failure to comply with the demand for tax, and not from the date of filing revised returns.

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