The main legal point established in the judgment is that the liability to pay penal interest under sub-section (3) of section 23 of the Act is attracted only if the tax demanded in the notice of demand is not paid, and not for failure to pay the tax and produce evidence along with the return as required by sub-rule (1) of rule 18.

MALIMATH, C.J.

The learned single Judge has referred this case to the Division Bench as it involves an important question of law. The question of law that arises for consideration in this case is as to whether a dealer under the kerala General Sales Tax Act (hereinafter referred to as the Act) incurs liability to pay penalty under sub-section (3) of section 23 of the Act on his failure to pay the tax amount on the basis of the return filed by him under sub-rule (1) of rule 18 of the Kerala General Sales Tax Rules (hereinafter referred as the Rules).

2. Sub-section (3) of section 23 of the Act which is relevant for our consideration, may be extracted as follows :

"If the tax assessed or any other amount due under this Act, or any installment thereof is not paid by any dealer or other person within the time specified therefor in the notice of demand or in the order permitting payment in instalments or within the time allowed for its payment by the appellate or revising authority or within the time specified therefor in this Act or in any rule made thereunder, the dealer or other person shall pay, by way of penal interest, in the manner prescribed, in addition to the amount due, a sum equal to -

(a) one per cent of such amount for each month or part thereof for the first three months after the date specified for its payment;

(b) two per cent of such amount for each month or part thereof subsequent to the first three months aforesaid."

It is clear from this statutory provision that it provides for levy of penal interest in circumstances specified therein. Penal interest at the rate specified in sub-section (3) of section 23 of the Act becomes payable if the conditions specified therein are satisfied, in addition to the liability specified therein. The liability to pay penal interest gets attracted if the following amounts are not paid within the date specified for its payment :

(i) tax assessed;

(ii) any other amount due under the Act; or

(iii) any instalments thereof.

The penal interest is attracted if the amount is required to be paid within the time specified in the notice of demand and the same is not paid. Liability to pay penal interest also gets attracted if payment by instalments is ordered or time for payment is granted either by the appellate, or the revisional authority and the same is not paid within the time allowed or within the time specified therefor in the Act or the Rules made thereunder.

3. The question that has arisen in this case is in regard to the levy of penal interest under sub-section (3) of section 23 of the Act for non-payment of the tax amount as per the return submitted by the dealer in accordance with sub-rule (1) of rule 18 of the Rules. Sub-rule (1) of rule 18 provides that;

"Every dealer liable to pay tax under the Act, irrespective of the quantum of his total turnover and every dealer whose total turnover for the year is not less than the minimum specified in section 5 or section 5A, shall, on or before the first day of May in every year, submit to the assessing authority of the area in which his principal place of business is situated, a return in form 8 showing the total turnover and taxable turnover for the preceding year, the amounts by way of tax or taxes actually collected during that year and the amounts by way of tax or taxes due on the taxable turnover during that year."

Sub-rule (3) of rule 18, which is relevant for our purpose, reads :

"Every dealer liable to submit a return in form 8 under sub-rule (1) or (2) shall submit along with the return a receipt from a Government Treasury (or at least note in the return the name of the treasury and the number and the date of the receipt, in which case he shall produce the receipt before the assessing authority whenever required to do so), crossed cheque or crossed demand draft in favour of the assessing authority for the full amount of tax or taxes due for the year on the basis of the return after deducting therefrom the provisional t