Penal interest on later-assessed sales tax is barred where return tax was already paid, and a later interest provision cannot operate retrospectively.

Penal interest under Section 23(3) of the Kerala General Sales Tax Act could not be levied on differential tax that arose only on completion of assessment for assessment year 1996-1997, because the dealer had already filed the return and paid the tax disclosed therein; the additional liability arose only after rubber cess was included in purchase turnover at assessment, and that provision did not permit penal interest on such later-assessed differential tax. Section 23(3A), introduced only from 1998, was held not to apply retrospectively to assessment year 1996-1997. The levy of penal interest was therefore unsustainable to that extent.

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Issues: (i) whether penal interest under Section 23(3) of the Kerala General Sales Tax Act, 1963 could be levied on the differential tax arising only on completion of assessment for assessment year 1996-1997; (ii) whether Section 23(3A) of the Kerala General Sales Tax Act, 1963 could apply to that assessment year.

Issue (i): whether penal interest under Section 23(3) of the Kerala General Sales Tax Act, 1963 could be levied on the differential tax arising only on completion of assessment for assessment year 1996-1997.

Analysis: The return had been filed and tax due on the declared turnover had been paid. The additional liability arose only when assessment was completed by including rubber cess in the purchase turnover. The binding principle applied was that liability to interest under Section 23(3) arises only when tax becomes due on assessment, and failure to include an item in the return may attract other consequences but not penal interest under that provision when the tax shown in the return has already been paid.

Conclusion: Penal interest under Section 23(3) could not be levied for the assessment year 1996-1997.

Issue (ii): whether Section 23(3A) of the Kerala General Sales Tax Act, 1963 could apply to that assessment year.

Analysis: Section 23(3A) was introduced only from 1998 and the Court treated it as not operating retrospectively to an earlier assessment year. The provision therefore had no application to a demand relating to assessment year 1996-1997.

Conclusion: Section 23(3A) was inapplicable to the assessment year 1996-1997.

Final Conclusion: The levy of penal interest on the assessee for assessment year 1996-1997 was unsustainable, and the assessment order was set aside to that extent with consequential action directed in accordance with the judgment.

Ratio Decidendi: Interest or penal interest under the KGST Act cannot be fastened on a dealer for differential tax that becomes payable only upon assessment when the tax declared in the return has already been paid, and a subsequently introduced interest provision cannot be applied retrospectively absent clear legislative intent.

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