Penal interest cannot continue after strict compliance with a sanctioned instalment order under the sales tax law.

Penal interest under the Kerala General Sales Tax Act could be recovered only up to the date of the Government order granting instalment facility, because the assessee had not defaulted after being permitted to pay by instalments and had strictly complied with that arrangement. The Court followed the principle that, absent express statutory authority, interest cannot be levied beyond the period covered by a sanctioned instalment schedule. Section 23(3B) was inapplicable because it concerned assessments or proceedings finally determined in appeal, revision, or similar proceedings, which was not the factual position here.

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Issues: Whether penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963 could be demanded for the period after the Government order granting instalment facility, and whether section 23(3B) applied to the facts of the case.

Analysis: The liability to pay penal interest up to the date of the Government order was not in dispute. The assessment liability itself had not been challenged, and the assessee complied with the instalment order without default. Section 23(3) authorises penal interest for default up to the date of payment, but the earlier division bench ruling relied on by the Court indicated that, where an assessee strictly complies with a government-sanctioned instalment arrangement, penal interest beyond that arrangement cannot be enforced. Section 23(3B) was held inapplicable because it concerned cases where the assessment or other proceedings had been taken in appeal, revision or similar proceedings and the liability had been finally determined.

Conclusion: Penal interest was recoverable only up to 26 June 1995, the date of the Government order, and no interest could be demanded for the period thereafter, provided the instalment facility had been strictly complied with. Section 23(3B) did not apply.

Ratio Decidendi: Where an assessee complies fully with a government order granting instalment payment of a tax demand, penal interest cannot be levied for the period after the order unless the statute expressly authorises such levy in the applicable circumstances.

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