Interest and penalty under sales tax law depend on actual default and later non-declaration after the legal position changed.

Interest under section 23(3) of the Kerala General Sales Tax Act could be levied only where tax was actually in default, whether tax was payable under the return or became payable after assessment and notice of demand; if there was no proven default, no penal interest could be demanded. For purchase turnover not disclosed as taxable, the authority was directed to verify the returns, assessments and payments before sustaining any interest demand, and only the period of actual delay could attract interest. After the Supreme Court reversed the earlier exemption view, penalty under section 45A could be considered for later non-declaration, subject to statutory procedure and moderation to reflect delay in payment.

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Issues: (i) Whether interest could be levied under section 23(3) of the Kerala General Sales Tax Act, 1963 on tax relating to purchase turnover when the returns did not disclose taxable turnover under section 5A and the tax was paid after assessment or demand. (ii) Whether, for the period after the Supreme Court reversed the earlier view on exemption, the authority could consider penalty under section 45A of the Kerala General Sales Tax Act, 1963 for non-declaration of taxable purchase turnover.

Issue (i): Whether interest could be levied under section 23(3) of the Kerala General Sales Tax Act, 1963 on tax relating to purchase turnover when the returns did not disclose taxable turnover under section 5A and the tax was paid after assessment or demand.

Analysis: Interest under the provision is linked to default in payment of tax that is payable under the return or tax that becomes payable on service of a notice of demand after assessment, whether provisional or regular. On the materials placed, the court directed verification of the returns, assessments and tax payments to determine whether there was any actual default. If tax had not been shown as taxable in the returns, or if payment was delayed after demand, interest could be levied only for the period of default. If there was no default, no penal interest could be demanded.

Conclusion: Interest was not automatically payable; the demand had to be examined on the basis of the returns, assessment and actual default, and could be sustained only to the extent such default existed.

Issue (ii): Whether, for the period after the Supreme Court reversed the earlier view on exemption, the authority could consider penalty under section 45A of the Kerala General Sales Tax Act, 1963 for non-declaration of taxable purchase turnover.

Analysis: After the reversal of the earlier understanding by the Supreme Court, non-declaration of taxable turnover in respect of purchase turnover could justify consideration of penalty for the subsequent period. The court also indicated that any penalty, if proposed, could be moderated to the extent necessary to compensate the State for the delay in payment of tax after the law was declared by the Supreme Court.

Conclusion: The authority was permitted to consider penalty under section 45A for the subsequent period, subject to the statutory procedure and the above limitation.

Final Conclusion: The writ petition was disposed of with directions for verification and fresh consideration of the interest demand, while leaving open the possibility of penalty for the later period in accordance with law.

Ratio Decidendi: Interest for sales tax default can be demanded only when tax is actually in default under the return or after service of demand following assessment, and penalty for later non-declaration may be considered only after the governing legal position has been authoritatively settled.

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