Penal interest could not be collected if the petitioner had completed payments in accordance with the government orders.

M.P. MENON, J.

These are cases where exaction of penal interest under section 23(3) of the Kerala General Sales Tax Act, 1963, is being challenged. Some of them relate to demands for penal interest made before 16th September, 1980, when alone sub-sections (4) to (6) were added to the section by the amending Act 19 of 1980. One of the contentions is that the provisions of section 23(3), as they stood before the aforesaid amendment, were invalid. Another contention is that no penal interest could be claimed at all, for non-payment of amounts due under provisional assessments, once final assessments are made; it is said that the provisional should be deemed to have merged with the final. There is also an attack against section 23(3), as it now stands. We are however of the view that instead of examining these questions in the abstract, the cases in this batch can be disposed of on their facts, particularly in the light of a circumstance to which it is convenient to immediately advert.

2. The law is that the liability to pay penal interest attaches automatically to the demand for tax, when default occurs in payment thereof, however erroneous the assessment be, and whether it is disputed or not. There was no provision, prior to Act 19 of 1980, even to make allowances for variation in the tax liability by appellate or revisional orders. The position, therefore, was that an assessing authority could assess a dealer according to his fancy and that even if the assessment was subsequently set aside, the liability of the dealer to pay penal interest under the arbitrary and illegal assessment would survive. The provisions of section 23(3) were, therefore, attacked before this Court in O.P. No. 2396 of 1978 and two other connected cases on the ground that they were opposed to articles 14, 19(1)(f) and (g) and article 31(1). When the cases came up for hearing before a Division Bench, the State conceded that the penal interest demanded in those cases would not be collected, apparently for the reason that there was difficulty in supporting the provisions, as they then stood. That was on 10th April, 1980, and it was thereafter that sub-sections (4) to (6) were added on 16th September, 1980. Could it be proper for the State to take a different stand in similar cases which are now before us, and can this Court permit the State to so pick and choose ? That is an aspect we will have to bear in mind when dealing with the individual petitions.

3. In O.P. No. 708 of 1981, the petitioner was paying tax under rule 21, for the year 1978-79, but the Government had issued an order of stay and permitted the petitioner to pay up the amounts in instalments. Penal interest was however charged in the final assessment order on the ground that despite the indulgence given by the Government, the liability had attached itself to the tax payable under rule 21. The petitioner approached the Deputy Commissioner and the Board of Revenue, but both of them followed the decision of this Court in Haridas v. Assistant Commissioner, Sales Tax [1979] 44 STC 26 and held that as the Government had no power under the Sales Tax Act to permit instalment payments, penal interest should be deemed to have accrued under section 23(3) from the date on which tax was statutorily due. The learned Government Pleader relies on this decision to support the order impugned. This is what this Court had said in Haridas' case [1979] 44 STC 26 :

"The learned Government Pleader is therefore right in his submission that, strictly, on the provisions of the statute, there is no provision enabling the Government to pass an order of the type exhibit P2. But the fact remains that such an order was passed and, for a period of 22 months, the assessee has been respecting that order and paying the instalments as required or permitted by the order. We cannot, especially in the absence of any counter-affidavit on the side of the department, easily take it that the department or the Sales Tax Officer