Consequential interest liability cannot survive once the underlying tax demand is set aside in earlier proceedings.

Where the principal tax liability for the relevant assessment periods had already been set aside in earlier proceedings, the consequential interest demand could not survive independently. The Rajasthan HC noted that the revenue could not dispute those prior orders, and therefore the rejection of waiver of interest could not be sustained once the underlying demand had ceased to exist. The challenge to the refusal of waiver succeeded because interest was entirely dependent on the existence of the principal tax liability.

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Issues: Whether the rejection of the application for waiver of interest could survive after the underlying tax liability for the relevant periods had been set aside in connected proceedings.

Analysis: The tax liability for the relevant assessment periods had already been taken away by earlier orders passed in the petitioner's favour, and the revenue could not dispute those orders. On that basis, the interest claim, being consequential to the tax liability, could not stand independently once the principal demand itself had ceased to exist.

Conclusion: The challenge to the rejection of waiver of interest succeeded, and the interest liability was held not to survive after the tax liability had been set aside.

Ratio Decidendi: Where the principal tax liability has been extinguished by judicial order, any consequential interest liability cannot survive independently.

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