Interest for non payment or delayed payment of tax under Punjab VAT Act 2005

Tax under any act should be deposited with the exchequer within time prescribed under such act otherwise there is generally a provision for payment of simple interest along with the tax. Section 32 of Punjab VAT Act 2005 provides for payment of simple interest along with tax due  if there is non payment or delayed payment of tax under the Act. The provisions of section 32 can be discussed as follows:


Interest for delayed payment of tax: As per sub section 1 of section 32 of Punjab VAT Act 2005 If a person fails to pay tax as per the provisions of the Act, he shall be liable to pay simple interest on the amount of tax due from him at the rate of half percent per month from the due date of payment till the date, he actually pays the amount of tax.

Thus if a person fails to pay tax within the due date then interest @ half percent of the tax due will be payable in addition to the tax and penalty. For the purpose of calculation part of the month is considered as one month and the interest is levied in addition to the amount of tax or penalty..

Explanation to section 32(5) provides that if the payment of the amount of tax is made by any person through cheque and the same is dishonoured by the bank, it will amount to failure on the part of the person to pay the amount of tax.


Interest for non payment of tax: If any error or omission is ractified by any dealer u/s 26(4) of Punjab VAT Act, 2005, which results in higher payment of tax than the tax due as per original return then interest @ one and half percent per month is payable on such additional amount of tax payable from the due date for payment till the actual date of payment-[Section 32(2)]

Similarly where a person fails to declare the amount of tax in a return, which should have been declared, then simple interest at the rate of one and half percent per month from the due date of payment till the actual date of payment will be payable as pe provisions of section 32(3).

Interest when tax payable as per demand notice not paid:  Section 32(4) provides that If the amount of tax or penalty due from a person is not paid by him within the period specified in the notice of demand, or if no period is specified, within thirty days from the service of such notice, the person shall in addition to the amount of tax or penalty, be liable to pay simple interest on such amount at the rate of one and half per cent per month from the date immediately following the date, on which the period specified in the notice or the period of thirty days, as the case may be, expires till the date, he actually pays such amount of tax or penalty, as the case may be:
Where recovery of tax is stayed by an oreder of the court or competent authority even then interest is payable as per the proviso to section 32(4) which runs as under:
“Provided that where the recovery of any tax or penalty is stayed by an order of any competent authority or any Court, the amount of tax or penalty shall, after the order of stay is vacated, be recoverable alongwith interest at the aforesaid rate on the amount ultimately found to be due and such interest shall be payable from the date, the tax or penalty had first become due.”

For the purpose of calculation of interest u/s 32 part of the month is considered as one month and the interest is levied in addition to the amount of tax or penalty.

Some important case laws: Under the repealed PGST Act interest was charged under section 11-D of the said Act. Hnece some case laws relating to section 11-D of PGST Act, 1948 are also being provided herebelow.

For payment of simple interest no prior notice is required and it arises by operation of law. The liability to pay interest is automatic. The assessing authority is not under any obligation to issue a show cause notice before levying interest on the tax assessed as this view was taken in M/S Rama & Co. Vs. State (1979) 43 STC 510(AP)  and Royal Boot House Vs. State of J&K (1984) 56 STC 212 (SC).


No interest can be charged when cheque is not encashed by Department: It is admitted by the department that cheque for the due amount along with the returns were handed over to the concerned authority by the appellant against proper receipts. It was for the Department to get the cheques encashed. For the lapse of the Department, appellant cannot be held responsible. It is strange that cheques were not encashed and no proper explanation is available for the lapse. In these circumstances, I find that the provisions of section 11-D have been wrongly invoked and levy of the interest is, therefore, quashed- Passi Radio V. The State of Punjab STI(1990) (P& H Tri.) 175.  

No interest can be charged if the assessee has not committed any fault in depositing the amount of tax- M/S HMT Ltd. Vs. State of Haryana (1986) STI 24 (Pb. & Hr. Tri.)

Payment made by cheque in bank after 20 days but before 30 days of the end of the quarter. As the payment is made within thirty days although by cheque, no interest u/s 11-D of PGST Act can be charged.- M/S Swani Motors Ltd. V. State of Punjab (1997) 104 STC 341 (P & H).

:In Shri Jayalakshmi Bharat oil Mills V. Commercial Tax Officer (1973) 32 STC 269 (A.P). it was held that there is no difference between provisional assessment and final assessment. Therefore the liability for interest accrues irrespective of the fact whether the assessment is provisional or final.

Interest is not payable by the dealer in respect of a dispute such as dispute relating to classification of goods which is resolved only by the assessment- CST V Hindustan Aluminium Corporation [2003 STM-161 (SC)]

Principles laid down in J.K synthetics Ltd. V Commercial Tax officer, (1994) 94 STC 422 (SC) :

1.        If a registered dealer has filed his return of sales truly and bonafidely, there would
           be no default on his part to meet his statutory obligation and the Assessing officer     
           shall not be eligible to charge interest, if his turnover has been enhanced at the
           time of assessment.

  1. If the dealer has furnished full particulars in respect of his business, without willfully omitting or withholding any particular information which has a bearing on the assessment of tax, which he honestly believes to be correct and complete, it would be difficult to hold that the dealer had not acted bonafidely in depositing the tax due on that information before the submission of the return.

  1. The provisions relating to filing of return and deposit of tax according to return are in the nature of self assessment. The important requirement is that whatever be the amount of tax due on the basis of self assessment, it must be paid along with the filing of the return, which constitutes self assessment. The law doesnot envisage the assessee to predict the final assessment when he files the return and expact him to pay tax on that basis to avoid the liability to pay interest.

  1. Where the assessee had submitted returns accompanied by receipts evidencing the payment of tax on the basis of the returns by not including amount of freight charges realized in the quantum of taxable turnover, but later on, when the law was settled by the Apex Court holding that the freight charges are liable to be included in the turnover, he filed a revised return including freight charges in the quantum of turnover and also paid the additional tax, he is not liable to pay interest.



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