TNVAT Act | Amendment Increasing Interest On Delayed Tax Payments To 2% Cannot Apply Retrospectively: Madras HC

The Madras High Court has held that the enhanced interest rate of 2% per month for delayed payment of tax under the Tamil Nadu Value Added Tax (TNVAT) Act, 2007, cannot be applied retrospectively to assessment orders passed before the amendment came into force.

Justice S. Raveekumar directed the State Tax Officer to recalculate the interest payable by the petitioner at the earlier rate of 1.25% per month instead of 2%.

The petitioner, K.C. Jothinathan, challenged proceedings dated November 12, 2022, demanding interest at 2% per month for the period from November 21, 2012, to October 18, 2021.

The petitioner submitted that the revised assessment order was passed on November 20, 2012, for the assessment year 2008-09, and the tax was paid in October 2021.

It was argued that, under Section 42(3) of the TNVAT Act as it stood at the relevant time, interest for delayed payment could be levied only at 1.25% per month.

The petitioner further contended that the demand for penalty was unsustainable and sought a refund of ₹85,552 paid towards penalty.

Opposing the plea, the Revenue submitted that interest under Section 42(3) was automatic and that the revised assessment order had attained finality, as it had not been challenged by the petitioner.

The Court noted that Section 42(3), as it stood before the amendment introduced by the Act 2013 with effect from May 29, 2013, prescribed interest at 1.25% per month on amounts remaining unpaid beyond the prescribed date.

The provision was subsequently amended to increase the rate of interest to 2% per month. However, the Court observed that the amendment did not provide for retrospective operation and was neither clarificatory nor declaratory in nature.

"..The amending Act did not give any retrospective effect to the amendment. The said amendment is neither clarificatory nor declaratory. Therefore, the said amendment is prospective in nature and cannot be applied to an earlier assessment year and to a case, where assessment order has been passed prior to the amendment..", it said.

Accordingly, the Court held that the amended rate of 2% could not be applied to an assessment order passed before the amendment. The assessing authority could therefore levy interest only at 1.25% per month for the relevant period of default.

The Court set aside the proceedings dated November 12, 2022, and remanded the matter to the State Tax Officer to recalculate the interest at 1.25% per month within four weeks from the date of receipt of the order.

However, the Court declined to examine the petitioner's challenge to the penalty of ₹85,552, observing that the underlying assessment order imposing the penalty had not been challenged in the present writ petition.

It therefore left the correctness of the penalty levy open for consideration.

For Petitioner: Advocate K.Venkatesan, 

For Respondent: Government Advocate B. Sivaraman