Automatic penal interest and no unilateral refund adjustment under sales tax law sustain the demand notice

Penal interest under the Kerala General Sales Tax Act arises automatically when tax is not paid within the prescribed time, so a demand notice in the prescribed form is only a consequential intimation and not an independent order or proceeding revisable under section 36. The assessee could not unilaterally set off a refundable amount against a later tax liability because the statutory mode of payment required remittance in the prescribed manner; that unauthorised adjustment caused short payment and attracted penal interest under section 23(3).

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Issues: (i) Whether a notice issued in the prescribed form demanding penal interest amounted to an order or proceeding so as to be revisable under the Act; (ii) Whether the assessee was entitled to unilaterally adjust a refundable amount towards a later tax liability and avoid penal interest for short payment.

Issue (i): Whether a notice issued in the prescribed form demanding penal interest amounted to an order or proceeding so as to be revisable under the Act.

Analysis: Penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 arises automatically on non-payment of tax within the prescribed time. In the light of the binding interpretation of section 23(3), read with the relevant rules, the issuance of a demand notice in the prescribed form does not by itself create an independent adjudicatory order or proceeding. Where the statutory liability springs directly from default, the notice is only a consequential intimation and not a revisable decision under section 36 of the Act.

Conclusion: The notice was not an order or proceeding within section 36, and the revision was not maintainable.

Issue (ii): Whether the assessee was entitled to unilaterally adjust a refundable amount towards a later tax liability and avoid penal interest for short payment.

Analysis: The statutory scheme required the tax due for the relevant return period to be paid in the manner prescribed by rule 21(7) of the Kerala General Sales Tax Rules, 1963, namely by remittance through the treasury receipt or by an accompanying crossed cheque or draft for the full amount payable. Although a refund was due to the assessee, there was no order authorising unilateral appropriation of that sum towards a different tax liability. Self-adjustment of a refund against another head of liability was therefore inconsistent with the statutory mode of payment, and the resulting short payment attracted penal interest under section 23(3).

Conclusion: The assessee had no right to make the unilateral adjustment, and the levy of penal interest was sustained.

Final Conclusion: The challenge to the demand notice failed, the revisional objection was rejected, and no relief was granted to the assessee.

Ratio Decidendi: Liability to penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 arises automatically on default, and a prescribed demand notice issued in consequence of that default does not, by itself, constitute a revisable order or proceeding under section 36.

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