Interest on overdue sales tax arrears: whether it is a penalty or compensation, appeal allowed for assessee

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 as penal by relying on an earlier Full Bench view that had since been overruled by a larger Bench, which held the interest to be compensatory in nature; the SC also noted its own consideration of the same question. Consequently, the appeal was allowed and the questions were answered in favour of the assessee and against the Revenue.

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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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