ABRAHAM Vs. STATE OF KERALA

JUDGEMENT

(1.) THIS case was referred for decision by a Division Bench having regard to the importance of the question of law raised therein. The challenge is to the demand for penal interest made under S. 23 (3) of the Kerala general Sales Tax Act, 1963 ( "the act" ), in relation to the assessment year 1975-76. The original order of assessment which was made on the petitioner made a demand for an amount of Rs. 9,806. 80 towards tax and Rs. 491. 12 towards surcharge. THIS order of assessment dated December 20,1976 and which was served on the petitioner-assessee on February 18, i977, was modified in appeal by the Appellate Assistant Commissioner by his order dated December 30, 1980. Thereunder there was a reduction made in the quantum of addition made to the turnover and the assessing authority was directed to modify the assessment accordingly. The revised order of assessment is dated August 31, 1981. The demand for tax got reduced to Rs. 7,710. 36 and surcharge to Rs. 386. 27. Copies of the revised order of assessment and of the notices of demand consequent thereto, which were received by the assessee on October 30, 1982, are exhibits P2, P3 and P4 respectively.

(2.) AFTER filing the appeal petitioner made an application to the Government for stay of the proceedings for recovery of the amount of tax and surcharge demanded under the original order of assessment. Government informed the petitioner by the letter, Ext. P1, dated March 8,1977 that the board of Revenue had instructions not to take coercive steps for recovery of the arrears of sales tax for the year in question till the disposal of the appeal filed before the Appellate Assistant Commissioner. Petitioner was directed to furnish security for the amount demanded. It is agreed before us that the security was furnished as directed in Ext. P1 on August 19,1977. This stay enured pending disposal of the appeal by the Appellate Assistant Commissioner on December 30,1980.

(3.) SO far as the subsequent period is concerned, the amount of sales tax got reduced to the amount mentioned in Ext. P3. Sub-clause (5) of S. 23 which was introduced into the Act with effect from September 16, 1980 by Act 19 of 1980 lays down that where as a result of any order in appeal any tax assessed or any other amount due from any dealer has been reduced, the penal interest levied for the non-payment of such tax or other amount shall be proportionately reduced. The liability of the petitioner for payment of penal interest on the amount mentioned in Ext. P3 is therefore cast by the provisions of sub-section (5) of S. 23. The extreme contention raised by counsel for the petitioner that the petitioner is not liable to pay penal interest till revised order of assessment was passed and communicated to him is is not sustainable in the light of the provisions contained in sub-section (5) of Section 23. We have already indicated that what the Appellate Assistant Commissioner did in this case was only to direct a modification of the assessment in the light of the appellate order. The order of assessment was not set aside. Petitioner is therefore liable to pay penal interest on the reduced amount of tax from december 30, 1980, the date of the appellate order. Though in the normal circumstances he would have been liable for payment of penal interest on this amount from the date of the original order of assessment itself, there is no liability cast so far as this case is concerned for the period up to December 30,1980, in view of the fact that Government had stayed recovery of the entire amount of tax pending disposal of the appeal. The demand therefore stood suspended pending the appeal and therefore no liability for penal interest on the amount mentioned in Ext. P3 arose on December 30,1980 under the provisions of sub-section (5) of S. 23.