Tax deferral agreements: penal interest runs only from cancellation date, not from the filing date of monthly returns.

For dealers covered by a tax deferral arrangement, penal interest on deferred arrears was held recoverable only from the due date for repayment or from the date the deferral agreement ceased to operate, not from the date monthly returns were filed. The Court followed the earlier Division Bench view that a departmental circular could not override the agreement's terms, and noted that the later single-judge decision had adopted the same principle. On that basis, computation of penal interest from the return-filing date was unsustainable, and the writ petitions were allowed.

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Issues: Whether, for a dealer covered by a tax deferral arrangement, penal interest on deferred arrears was payable from the date of filing monthly returns or only from the date on which the deferral agreement stood cancelled.

Analysis: The dispute turned on the proper starting point for levy of penal interest under the deferral arrangement. The Court followed the earlier Division Bench ruling in the same line of cases, which had held that a departmental circular could not override the terms of the deferral agreement and that penal interest was recoverable only from the due date for repayment, or from the date the agreement ceased to operate, and not from the date of filing returns. The Court also noted that the later single-judge decision had adopted the same view, and therefore the impugned rejection based on computation from the return-filing date could not be sustained.

Conclusion: The Department was not entitled to levy penal interest from the date of filing monthly returns. Penal interest was payable only from the date on which the deferral agreement was cancelled, and the writ petitions were allowed.

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