Automatic interest on retained sales tax and strict compliance for statutory relief from interest liability.

A dealer who collected sales tax but retained it beyond the prescribed time incurred interest liability automatically under sections 22 and 23 read with rule 5(26); a prior notice of demand was not required, as the retained amount constituted public revenue and rule 31 dispensed with such notice for interest. Relief under section 23A was available only on strict compliance with its conditions, including service of demand notice by 31 March 1995 and payment of all arrears by 31 December 1997. As those requirements were not satisfied, reduction of interest was unavailable.

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Issues: (i) Whether penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 could be levied without a prior notice of demand when the dealer had collected tax but retained it beyond the prescribed time; (ii) Whether the dealer was entitled to reduction of interest under section 23A of the Act.

Issue (i): Whether penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 could be levied without a prior notice of demand when the dealer had collected tax but retained it beyond the prescribed time.

Analysis: Sections 22 and 23 of the Act, read with rule 5(26) of the Kerala General Sales Tax Rules, 1963, obliged a dealer who collected tax to pay it over to the Government within the prescribed time. The liability to pay interest arose automatically on default. In such a case, the amount retained was public revenue and the question of a further demand notice was irrelevant. The reasoning was supported by the earlier Full Bench view that service of a notice of demand was not an essential pre-requisite for levy of interest under section 23(3), and that rule 31 dispensed with such notice for interest liability.

Conclusion: Penal interest was validly leviable without a prior notice of demand, and the challenge on that ground failed.

Issue (ii): Whether the dealer was entitled to reduction of interest under section 23A of the Kerala General Sales Tax Act, 1963.

Analysis: Relief under section 23A was available only if the statutory conditions were satisfied, namely that the assessee was in arrears, a notice of demand had been served on or before 31 March 1995, and the entire arrears were paid on or before 31 December 1997. The record did not satisfy the latter requirements, so the statutory benefit could not be granted.

Conclusion: The dealer was not entitled to reduction of interest under section 23A.

Final Conclusion: The orders levying and sustaining penal interest were upheld, and no interference was called for.

Ratio Decidendi: Where a dealer collects tax under the sales tax law and fails to remit it within the prescribed time, interest liability under the relevant provision accrues automatically and is not dependent on a separate notice of demand; statutory relief from interest can be granted only if all conditions prescribed for such relief are strictly fulfilled.

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