Penalty cannot be levied during court-stayed recovery of tax demand, as no default exists while enforcement is suspended.

Penalty under section 13(2)(ii) of the Karnataka Sales Tax Act could not be levied for the period during which recovery of the tax demand was stayed by the Court, because the provision applies only on default in payment of tax due under section 13(1). A subsisting stay kept enforcement of the demand in abeyance, so the assessee could not be treated as in default for that period. The Court distinguished authorities on statutory interest, rejected the discrimination challenge, and quashed the demand notice to the extent it included penalty for the stay period, directing recalculation and issuance of a fresh demand notice.

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Issues: Whether penalty under section 13(2)(ii) of the Karnataka Sales Tax Act, 1957 could be levied for the period during which recovery of the tax demand remained stayed by the Court.

Analysis: Penalty under section 13(2)(ii) is attracted only when there is a default in payment of tax due under section 13(1). When a stay order is operating, recovery of the demand is kept in abeyance and the assessee cannot be treated as being in default for that period. The Court followed the principle that a stay suspends the enforceability of the demand, and distinguished cases dealing with statutory interest where liability was created in different language. The challenge based on discrimination was not accepted.

Conclusion: The levy of penalty for the stay period was unsustainable. The impugned demand notice was quashed to that extent and the amount was directed to be recalculated and a fresh demand notice issued; the assessee succeeded on this issue.

Ratio Decidendi: Where the governing provision makes penalty depend on default in payment of tax, no default can be said to occur for the period during which payment recovery is stayed by a competent court, and penalty cannot be levied for that period.

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