Compensatory interest on admitted tax cannot be levied where the department already holds excess security against liability.

Interest under section 8(1) of the U.P. Sales Tax Act, 1948 is compensatory and applies only where there is default in payment of tax admittedly due, causing revenue loss from delay. Where a dealer had deposited security for release of goods, later adjusted that amount against admitted tax liability under the adjustment mechanism, and the penalty order that had prompted the security was subsequently set aside, the amount was treated as excess money already in the department's hands. In that situation, the tax could not be regarded as unpaid in a manner justifying compensatory interest, because no actual loss to the revenue arose from the alleged delay.

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Issues: Whether interest under section 8(1) of the U.P. Sales Tax Act, 1948 could be levied on tax admittedly payable when the dealer had earlier deposited security money, adjusted that amount against tax liability, and the underlying penalty order was later set aside.

Analysis: Interest under the Act is compensatory in nature and is attracted only where there is default in payment of tax admittedly due, so that the revenue suffers loss by reason of delay. The dealer had deposited Rs. 36,000 as security for release of goods and later adjusted that amount against admitted tax liability under the refund and adjustment mechanism in section 29. The subsequent setting aside of the penalty order meant that the security deposit was not lawfully exigible and the amount stood as excess money with the department. In such circumstances, the tax could not be treated as remaining unpaid in a manner that justified charging compensatory interest, because the revenue was already in possession of the amount from an earlier date.

Conclusion: Interest under section 8(1) could not be levied; the demand was unsustainable and was quashed in favour of the assessee.

Final Conclusion: The revisions succeeded, and the interest demand based on alleged delay in payment of admitted tax was held to be illegal in the facts of the case.

Ratio Decidendi: Where the amount sought to be adjusted against admitted tax is already lying with the department as excess security and no revenue loss is caused, compensatory interest for delayed payment of tax cannot be levied.

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