Interest on delayed tax payments requires express statutory authority; State recovery provisions cannot create Central tax liability.

A levy described as a penalty under section 13(2) of the Karnataka Sales Tax Act was characterised as interest because it is fixed, quantified, non-discretionary, and compensatory for delayed payment of tax. Interest on delayed tax payment was also treated as a substantive charge that can arise only from express statutory authority. On that basis, the Karnataka High Court held that the State provision could not be used to impose interest on Central sales tax dues under section 9(2) of the Central Sales Tax Act in the absence of a substantive charging provision in the Central Act.

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Issues: (i) Whether the amount payable for default in payment under section 13(2) of the Karnataka Sales Tax Act, 1957 is in substance interest or penalty; (ii) Whether interest could be levied on delayed payment of tax under section 9(2) of the Central Sales Tax Act, 1956 by taking aid of the Karnataka Sales Tax Act, 1957 in the absence of a substantive provision in the Central Act.

Issue (i): Whether the amount payable for default in payment under section 13(2) of the Karnataka Sales Tax Act, 1957 is in substance interest or penalty.

Analysis: The amount prescribed under section 13(2) is fixed and quantified, and the authority has no discretion to reduce or enhance it. Earlier decisions treating the expression used in the provision as penalty were relied upon to examine its true character. The reasoning adopted is that the liability is attached to delayed payment of tax and functions as compensation for withholding tax dues, even though the provision uses the word penalty.

Conclusion: The amount payable under section 13(2) is to be treated as interest and not as a true penalty.

Issue (ii): Whether interest could be levied on delayed payment of tax under section 9(2) of the Central Sales Tax Act, 1956 by taking aid of the Karnataka Sales Tax Act, 1957 in the absence of a substantive provision in the Central Act.

Analysis: Interest on delayed payment is a substantive charge and can be imposed only when the statute levying the tax specifically authorises it. Although the Karnataka provision may operate as a compensatory levy within that Act, no such substantive liability is created under the Central Sales Tax Act itself. In the absence of an express provision in the Central enactment, the State provision cannot be invoked to sustain levy of interest on Central sales tax dues.

Conclusion: Interest could not be levied on delayed payment of Central sales tax by invoking the Karnataka Sales Tax Act.

Final Conclusion: The challenge succeeded to the extent that levy of interest on Central sales tax dues was held impermissible, while the amount under the State provision was characterised as interest.

Ratio Decidendi: Interest on delayed tax payment is a substantive levy and can be imposed only when the taxing statute itself expressly provides for it; a State recovery provision cannot be used to create such liability for Central sales tax dues in the absence of an express Central provision.

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