Penal interest cannot be levied on a return that was correct when filed, even if tax liability arose later from a change in law.

Penal interest under the KGST Act was held inapplicable where the return was correctly filed under the law prevailing on the filing date and the tax liability arose only after a subsequent change in law and later assessment. The Revenue could not treat a return that was neither false nor incomplete when filed as a basis for penal interest under section 23(3A), and section 23(3B) did not apply because there was no stay of demand relating to the assessment. The levy was therefore unsustainable when the liability emerged only from the later legal position.

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Issues: Whether penal interest under section 23(3A) of the KGST Act could be levied when the return was correctly filed according to the law prevailing on the date of filing, but the tax liability arose later because of a subsequent change in law and assessment.

Analysis: The return for the relevant assessment year had been filed on the basis of the then prevailing legal position, and the tax was paid accordingly. The later demand arose only after the legal position was altered by a subsequent decision and the assessment was completed in 2000. Interest under section 23(3A) was therefore sought to be applied to a return which was not false or incomplete when filed. The provision relied on by the Revenue did not justify penal interest in such a situation, and section 23(3B) was also inapplicable because there was no stay of demand in relation to this assessment.

Conclusion: Penal interest was not leviable on the appellant for a return that was correct on the date of filing. The levy was unsustainable and was set aside in favour of the appellant.

Ratio Decidendi: Penal interest cannot be imposed for nondisclosure of turnover where the return was correct under the law prevailing on the date of filing and the liability arose only from a subsequent change in law.

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