Automatic tax interest may be valid, but a belated demand raised after unreasonable delay can still fail.

Interest under section 8 of the U.P. Sales Tax Act, 1948 accrued automatically once statutory conditions for delayed tax payment were met, so no separate notice or fresh demand was required to levy it. However, where the interest was not included in the original assessment order, the demand still had to be raised within a reasonable time. On the facts, the demand made about four years after assessment was held inordinate and unsustainable. The levy principle was accepted, but recovery of the belatedly raised interest demand was disallowed.

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Issues: (i) Whether interest under section 8 of the U.P. Sales Tax Act, 1948 required a separate notice or demand before it could be levied and recovered; (ii) Whether the demand of interest raised nearly four years after the assessment was sustainable as having been made within a reasonable period.

Issue (i): Whether interest under section 8 of the U.P. Sales Tax Act, 1948 required a separate notice or demand before it could be levied and recovered.

Analysis: Interest on delayed payment of tax under section 8 is attracted by operation of law once the statutory conditions are met. The liability is automatic and does not depend upon a separate order or a fresh notice of demand for its creation. The Court relied on the statutory scheme of section 8 and the settled interpretation that interest forms part of the tax liability.

Conclusion: No separate notice or demand was as a condition precedent to the levy of interest; this contention was rejected.

Issue (ii): Whether the demand of interest raised nearly four years after the assessment was sustainable as having been made within a reasonable period.

Analysis: Although the liability to interest arises automatically, the demand for such interest must still be raised within a reasonable time where it was not included in the original assessment order. Here, the assessment related to assessment year 1977-78, the tax had already been paid, and the demand for interest was raised only in 1990, about four years after the assessment order. In these circumstances, the belated demand was held to be beyond a reasonable period.

Conclusion: The demand of interest was not sustainable because it was raised after an inordinate delay and was barred as not made within a reasonable period.

Final Conclusion: The challenge to the levy failed only on the ground of delayed initiation of the demand, and the assessee was held not liable to recoverable interest from the revenue authorities.

Ratio Decidendi: Interest that accrues automatically by operation of a taxing statute may still be unenforceable if the demand is first raised after an inordinate and unreasonable delay, especially where it was omitted from the original assessment order.

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