The main legal point established in the judgment is the applicability of S.23(3), S.34(5), and S.23(5) of the Kerala General Sales Tax Act, 1963 in determining the liability for penal interest in relation to the assessment year 1975-76.

T.L. Viswanatha Iyer, J.

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. Subsequent to the passing of the revised order, Ext. P2, petitioner paid an amount of Rs. 4,000 on January 1,1983 and the balance on January 17,1983. Petitioner was informed by the proceedings, Ext. P5, dated February 21, 1983 that he was liable for payment of penal interest for the arrears of tax due from the date of service of the original order of assessment at the rate of 1 per cent for the first three months and at the rate of 2 per cent per month for the subsequent period aggregating Rs. 8,866.50. Petitioner challenged this proceeding, Ext. P5, in revision before the Board of Revenue without success. The Board dismissed the revision petition by its proceedings, Ext. P6, dated June 14, 1985. Petitioner has filed this writ petition challenging Exts. P5 and P6 and the demand for penal interest made therein.

4. There is no dispute about the facts of the case. The recovery of the amount demanded as per the original order of assessment dated December 20,1976, had been stayed by. the Government as intimated in Ext. P1 subject to the petitioner furnishing security. The petitioner admittedly furnished security on August 19,1977. Going by the terms of Ext. P1 there was thus an order of stay of recovery of the tax demanded under the assessment pending disposal of the appeal by the Appellate Assistant Commissioner. This is not a case where Government had granted the benefit of instalment payments,to the petitioner, but a case where Government sought to stay the recovery of the amount demanded pending disposal of the appeal itself. The petitioner-assessee did not therefore have any occasion to move the Appellate Assistant Commissioner for stay of recovery of the amount of tax in view of the pending order of stay in his favour. It was thus that the recovery stood stayed till December 30, 1980. It is true that the Government does not under the provisions of the Act have the power to pass any order of stay, but then as stated by this Court in the decision in Ammn Traders v. State of Kerala [1987] 66 STC 54