Compensatory interest and payment appropriation under Kerala sales tax law upheld for omitted turnover and belated remittances.

Interest under section 23(3A) of the Kerala General Sales Tax Act was held payable on belated turnover tax attributable to the excise duty component of liquor sales, because the provision applies to omitted or short-paid turnover from the date tax ought to have been paid on a correct return and operates as a compensatory levy. The court also held that remittances made by the dealer could validly be appropriated first towards interest under section 55C, since the statutory order of adjustment applied to payments made after that provision came into force. The Tribunal's contrary view was set aside and the assessments levying interest were restored, subject to correction of any computational error.

---

---

Issues: (i) whether interest under section 23(3A) of the Kerala General Sales Tax Act, 1963 was payable on belated turnover tax attributable to the excise duty component of liquor sales; (ii) whether amounts remitted by the dealer could be appropriated first towards interest under section 55C of the Kerala General Sales Tax Act, 1963.

Issue (i): whether interest under section 23(3A) of the Kerala General Sales Tax Act, 1963 was payable on belated turnover tax attributable to the excise duty component of liquor sales.

Analysis: Section 23(3A) introduced a distinct scheme for levy of interest where a dealer omits turnover from returns or where turnover escapes assessment. The levy operates from the date on which tax ought to have been paid had the return been complete, and it is compensatory in nature. The provision is not confined to cases of assessed-and-demanded tax under section 23(3); it applies whenever there is short payment or non-payment of tax disclosed by the return. The dealer was liable to include the excise duty component in turnover from the relevant date, and failure to do so attracted statutory interest irrespective of pending litigation.

Conclusion: Interest under section 23(3A) was rightly leviable and the Tribunal's contrary view was unsustainable.

Issue (ii): whether amounts remitted by the dealer could be appropriated first towards interest under section 55C of the Kerala General Sales Tax Act, 1963.

Analysis: Section 55C authorised the department to adjust payments first towards interest and only thereafter towards tax. The remittances in question were made after the provision came into force, and the statutory order of adjustment applied. No legal basis was shown to displace that appropriation.

Conclusion: The first adjustment towards interest was valid.

Final Conclusion: The revisions succeeded for the Revenue, the Tribunal's orders were set aside, and the assessments levying interest were restored with liberty to correct computational errors, if any.

Ratio Decidendi: Interest under section 23(3A) is a compulsory compensatory levy on short-paid or omitted tax from the date tax ought to have been paid on a correct return, and statutory payments may be appropriated first towards interest where the governing provision so provides.

---