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of <h1>Interest on overdue sales tax arrears: whether it is a penalty or compensation, appeal allowed for assessee</h1> Whether interest on arrears of sales tax is penal or compensatory for tax purposes was the dominant issue. The SC held that the HC erred in treating such ... Interest on the arrears of sales tax - HELD THAT:- The High Court has proceeded on the basis that the interest on arrears of sales tax is penal in nature and has rejected the contention of the assessee that it is compensatory in nature. In taking the said view. the High Court has placed reliance on its Full Bench decision in Saraya Sugar Mills P. Ltd.[1978 (5) TMI 22 - ALLAHABAD HIGH COURT]. Appellant-assessee states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni Engineering Works Ltd. [1983 (10) TMI 49 - ALLAHABAD HIGH COURT], wherein it has been held that interest on arrears of tax is compensatory in nature and not penal. This question has also been considered by this court in Civil Appeal titled Saraya Sugar Mills Pvt. Ltd. v. CIT. In that view of the matter, the appeal is allowed and questions are answered in favour of the assessee and against the Revenue. The Supreme Court allowed the appeal regarding interest on arrears of sales tax, ruling in favor of the assessee based on the compensatory nature of the interest. The High Court's decision was overturned. (Case Citation: 1997 (12) TMI 16 - Supreme Court)
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