Interest on unpaid penalty under sales tax law survives a stay of recovery unless the demand is set aside or reduced.

Interest under section 11B of the Rajasthan Sales Tax Act, 1954 was payable on unpaid penalty once the amended provision applied to a demand notice for penalty and the amount was not paid within the prescribed time. A stay order in appeal or revision merely suspended recovery and did not extinguish the demand or stop interest from running while the amount remained outstanding. The High Court upheld the statutory liability to interest on the unpaid penalty amount and rejected the Tribunal's contrary view.

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Issues: (i) Whether interest under section 11B of the Rajasthan Sales Tax Act, 1954 was payable on the amount of penalty, and (ii) whether the stay order during appeal and revision prevented levy of interest for the period of stay.

Issue (i): Whether interest under section 11B of the Rajasthan Sales Tax Act, 1954 was payable on the amount of penalty.

Analysis: The amended section 11B(2) applied to the demand created after the amendment and covered tax, fee, interest and penalty demanded under the Act. Once a demand notice for penalty was served and the amount was not paid within the time specified, statutory interest became payable on the unpaid amount.

Conclusion: Interest was payable on the amount of penalty.

Issue (ii): Whether the stay order during appeal and revision prevented levy of interest for the period of stay.

Analysis: The stay only suspended recovery during the pendency of proceedings and did not extinguish the demand or make it non-payable. The lapse of the stay upon dismissal of the appeal did not erase the liability to interest for the period when payment remained outstanding.

Conclusion: The stay order did not prevent levy of interest for the period of stay.

Final Conclusion: The Tribunal's view was rejected, and the statutory liability to interest on the unpaid penalty amount was upheld.

Ratio Decidendi: Where a statute imposes interest on unpaid demanded amounts, a stay of recovery does not negate the underlying liability to pay interest unless the demand itself is set aside or reduced.

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