Interest cannot accrue on a penalty demand while it stands set aside, even if later restored in further proceedings.

When a penalty demand is set aside in appeal, the amount ceases to be payable during the intervening period until it is restored in later proceedings. On that basis, interest under the Rajasthan Sales Tax Act could not accrue for the period after annulment and before restoration, because the dealer had obtained refund and the liability was not subsisting then. The later revival of the penalty operated only from the date of restoration, so the levy of interest for the interregnum was rightly set aside in favour of the assessee.

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Issues: Whether interest was chargeable on the penalty amount for the period after the penalty was set aside in appeal and before it was restored in further proceedings.

Analysis: The penalty imposed under section 22(6) of the Rajasthan Sales Tax Act, 1954 was initially set aside in appeal, and the dealer obtained refund. During that period, the penalty amount was not payable. The later restoration of the penalty revived the demand only from the date of restoration and did not make interest payable for the intervening period. The levy of interest under section 11B could not therefore survive for the period when the penalty stood annulled.

Conclusion: Interest on the penalty amount for the interregnum was not chargeable and the levy was rightly set aside, in favour of the assessee.

Ratio Decidendi: When an appellate order sets aside a tax or penalty demand, the amount ceases to be payable for the period until restoration in further proceedings, and no interest can accrue during that intervening period.

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