Rectified tax demand controls interest calculation and payment appropriation; collection charges are not recoverable on improper recovery action.

Once a rectified tax demand crystallised on 14.03.2013, interest could not be computed for any earlier period, and instalment payments had to be appropriated first towards interest and then towards principal in accordance with Section 55C of the Kerala General Sales Tax Act, 1963. The Department was required to recompute the dues on that basis and furnish a statement to the taxpayer. Collection charges were also found unrecoverable because the recovery process had been initiated without proper credit for payments already made and was later corrected; in those circumstances, the recovery action did not justify such charges.

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Issues: (i) Whether, after rectification of the assessment demand, interest could be computed for the period prior to 14.03.2013 and the payments made in instalments be appropriated in accordance with Section 55C of the Kerala General Sales Tax Act, 1963; (ii) Whether collection charges could be demanded in the facts of the case.

Issue (i): Whether, after rectification of the assessment demand, interest could be computed for the period prior to 14.03.2013 and the payments made in instalments be appropriated in accordance with Section 55C of the Kerala General Sales Tax Act, 1963.

Analysis: Once the demand was rectified, the liability stood crystallized as on 14.03.2013. The payments made pursuant to the earlier judgment had to be appropriated first towards interest and only thereafter towards the principal tax demand, as contemplated by Section 55C. At the same time, no interest could be calculated for any period prior to the date of the rectified order. The Department was, therefore, required to work out the amount due on that basis and furnish a statement to the petitioner.

Conclusion: The petitioner succeeded on this issue to the extent that interest prior to 14.03.2013 could not be charged and appropriation had to follow Section 55C.

Issue (ii): Whether collection charges could be demanded in the facts of the case.

Analysis: The earlier revenue recovery proceedings were found to have been set in motion in a situation where the petitioner had not been given proper credit for payments already made, and that mistake was later rectified. The subsequent instalment payments were made pursuant to the Court's directions after the demand was corrected. In such circumstances, the recovery proceedings could not be treated as proper so as to justify collection charges.

Conclusion: The demand for collection charges was held to be unsustainable and was disallowed.

Final Conclusion: The writ petition was disposed of with directions for fresh computation of the dues in accordance with the rectified demand and Section 55C, while excluding collection charges.

Ratio Decidendi: Where a tax demand is rectified and payments are made pursuant to judicial directions, appropriation must follow the statutory rule governing application of payments, no interest can be levied for a period anterior to the crystallized demand, and collection charges are not recoverable when the recovery action itself was founded on an or premature demand.

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