Penal interest on self-assessed tax not leviable before demand notice, where revised return and payment preceded the later amendment.

Penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 was held not leviable on the facts, because the assessee's revised return and payment were made before service of any notice of demand and before section 23(3A) came into force. The court treated penal interest as arising only when tax becomes due on a valid assessment or return, and distinguished it from a penalty for defective or delayed filing. On that statutory footing, the demand for penal interest could not be sustained against the assessee.

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Issues: Whether penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 could be levied on the assessee on the basis of a self-assessed or revised return before service of a notice of demand.

Analysis: The liability to pay penal interest was considered in the light of the statutory scheme governing self-assessment, return filing, demand notice, and default. The relevant principle applied was that penal interest arises only when tax becomes due on a valid assessment or return and is not the same as penalty for failure to file or correctly file a return. As the revised return and payment were made before the introduction of section 23(3A) and the case was governed by the earlier position, the demand for penal interest could not be sustained on the facts found.

Conclusion: Penal interest under section 23(3) was not payable in the circumstances, and the assessee succeeded on this issue.

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