Penal interest under sales tax law cannot arise from a lower rate error alone when turnover is fully disclosed.

Penal interest under section 23(3) of the Kerala General Sales Tax Act applies only on default in paying tax that has become due on the return or assessment basis, while section 23(3A) applies only to omission of turnover from the return or escapement of turnover. A mere disclosure of turnover at an incorrect lower rate of tax does not amount to omission of turnover or escapement. Where the assessing authority rejects the return, the proper course is assessment and demand, and interest can arise only if the assessed tax is not paid within time. On this basis, penal interest was held not leviable under either provision.

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Issues: Whether penal interest under section 23(3) or section 23(3A) of the Kerala General Sales Tax Act, 1963 could be levied where the assessee filed a return showing an incorrect lower rate of tax, but no turnover was omitted from the return and the tax was later paid on assessment.

Analysis: Interest under section 23(3) arises on default in payment of tax that has become due, and the scheme of self-assessment requires the tax shown in the return actually filed to be taken as the relevant basis. Where the assessing authority does not accept the return, the proper course is to make an assessment and raise the demand, and interest can follow only on failure to pay the tax so demanded within time. Section 23(3A) applies only where there is failure to include turnover in the return or where turnover has escaped assessment. A mere understatement of the rate of tax on disclosed turnover does not amount to omission of turnover or escapement of turnover.

Conclusion: Penal interest was not leviable under either section 23(3) or section 23(3A), and the levy of Rs. 9,926 was set aside in favour of the assessee.

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