Interest under voluntary compliance scheme must be computed on unpaid dues after crediting partial payments

A recovery notice under a voluntary compliance scheme was held unsustainable because interest had been computed on the full declared amount without crediting the petitioner's staggered payments. The governing scheme required interest to be worked out only on unpaid dues, so partial remittances had to be taken into account when recalculating liability. The notice was therefore quashed, and fresh computation of interest was directed after considering the payments made on different dates. The petitioner was also permitted to operate the bank account, subject to withholding of a limited amount pending reconsideration.

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Issues: Whether the recovery notice demanding interest under the voluntary compliance scheme was sustainable, and whether interest was required to be computed on the unpaid dues after taking into account the petitioner's partial payments.

Analysis: The petitioner had made payments on different dates towards the declared tax amount. On the material placed, the impugned recovery notice appeared to compute interest on the entire declared amount without giving credit to the partial payments already made. The governing scheme required the liability to be worked out with reference to the unpaid dues, and not on the full declared amount irrespective of subsequent remittances. Since the notice did not reflect consideration of the petitioner's staggered payments, it was found to be unsustainable.

Conclusion: The recovery notice was quashed, and the respondent was directed to recompute the interest after taking note of the payments made on various dates. The bank account was also allowed to be operated subject to withholding of Rs. 5 lakhs pending fresh consideration.

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