Exemption notification and refund mechanism: no interest or penalty arises absent express liability for delayed remittance.

An exemption notification under the Karnataka Value Added Tax Act, 2003 was read as preserving an industrial incentive through a refund-and-adjustment mechanism, requiring the unit to collect the tax, file returns, pay the net tax and then obtain refund within the stipulated time. The Court noted that this mechanism was procedural and intended to adjust the exempted amount against the unavailed concession, not to create an independent tax liability in the ordinary sense. Because the notification made interest payable only for delay in refund by the State and did not expressly impose interest or penalty on the assessee for delayed remittance, sections 36 and 72 could not be invoked merely for non-payment or late payment of the collected tax.

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Issues: Whether, under the exemption notification issued under section 5(2) of the Karnataka Value Added Tax Act, 2003, the petitioner was liable to pay interest under section 36 of the Karnataka Value Added Tax Act, 2003 for delayed payment or non-payment of the net tax collected, and whether penalty under section 72 of that Act could be levied for such default.

Analysis: The exemption notification continued the earlier industrial incentive and required the industrial unit to collect the tax applicable, pay the net tax along with monthly returns, and obtain refund of the amount paid within the stipulated time. The notification, read as a whole, showed that this mechanism was intended to account for and adjust the exempted amount against the unavailed quota of tax concession, rather than to impose an independent obligation to pay tax in the ordinary sense. Clause 5 also departed from the normal return-and-assessment scheme under the Act, indicating that the return filing and payment mechanism was only procedural and not the essence of the exemption. The notification made interest payable only on delay in refund by the State, and did not contain any stipulation making the assessee liable to interest for delayed payment or non-payment of the collected tax. On that basis, the statutory provisions relating to interest and penalty could not be invoked merely because the assessee did not remit the tax contemporaneously with the returns.

Conclusion: The petitioner was not liable to interest under section 36 of the Karnataka Value Added Tax Act, 2003 or to penalty under section 72 of that Act for delayed payment or non-payment of the collected tax under the exemption notification.

Ratio Decidendi: Where an exemption notification grants tax concession by a refund-and-adjustment mechanism and does not expressly create liability to interest or penalty for delayed remittance, the ancillary payment procedure cannot be treated as a mandatory tax liability attracting penal consequences.

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