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AJAY KUMAR (OFFICER) 30 July 2025

Interest on dues amount

I am a registered taxpayer in chhattisgarh. I had applied for entry tax exemption eligibility certificate for the period 2010 to 2015. Due to which, when the assessment for these years was done, a demand was issued on me because at that time I did not have the above eligibility certificate. In the year 2025, the department took a decision and my application was rejected.

Due to which I have to pay the outstanding amount from the year 2010 to 2015. My question is whether I will have to pay interest on the due amount and if I have to pay, then on which amount

(1) on the demand amount in the assessment order or

(2) excluding the amount deposited by me as pre-deposit while filing the appeal.

Please advise me with refrence to any judgement.

4 Replies

T. Kalaiselvan, Advocate (Advocate) 30 July 2025

You would have been served with a notice and the details of the payment including the interest on the outstanding or arrears of tax amount would have been clearly mentioned in the demand notice.

If you are not able to udnerstand the terminologies you may approach a tax consultant or a lawyer practising in that area to get the issues clarified because without knowing the details or persusing the notice, no concrete opinion can be rendered on the subject

Rama chary Rachakonda (Secunderabad/Telangana state Highcourt practice watsapp no.9989324294 ) 30 July 2025

1. Interest on Outstanding Amount:

According to the provisions of most state VAT laws (including Chhattisgarh VAT), interest is usually levied on the outstanding tax from the due date of payment until the actual payment is made.

In your case, the demand was raised for the period 2010–2015, and your application for the eligibility certificate was only rejected in 2025. This means that the interest would generally be calculated from the date the tax was due (typically when the return was due for the relevant period or when the demand for tax was raised) until the date the tax is paid.

2. Calculation of Interest: The key point to consider here is the treatment of pre-deposits made during the appeal: Pre-deposit during appeal: Pre-deposit, as the name suggests, is a payment made in advance to the tax authorities before your appeal is decided. This amount is typically not subject to interest until the final decision on the appeal is given. Interest on the outstanding demand: Interest is generally not levied on the amount that has already been deposited during the appeal process, unless the deposit was in lieu of the total demand or an interim order mandates it. Therefore, in your case, the interest will likely be calculated on the demand amount as per the assessment order, minus any pre-deposits made during the appeal, since the pre-deposit would typically be adjusted against the final outstanding dues once the decision was made.

3. Judicial Precedents and Principles: Supreme Court Judgement (State of Rajasthan vs. J.K. Synthetics Ltd.): The Supreme Court has held that interest is leviable on the delayed payment of tax even if the issue is under litigation, as the obligation to pay the tax is independent of the outcome of the case.

Therefore, interest would be applicable on the principal demand amount from the time it was due until it is paid. Interest Calculation on Pre-Deposit: Courts have clarified that interest should not be charged on amounts deposited as pre-deposits during appeal proceedings.

This is because the pre-deposit is considered as partial payment of the dues. Once the demand is finalized, if the pre-deposit exceeds the outstanding dues, interest is generally not charged on the amount already deposited. This was laid down in various cases, including decisions under VAT and Excise matters.

Interest on the Demand: You will have to pay interest on the outstanding amount in the assessment order for the period 2010–2015, calculated from the due date of payment (typically the due date of filing returns or the demand notice) until you pay the tax. Excluding Pre-Deposit: The pre-deposit made while filing the appeal is generally excluded from interest calculation, as it is treated as an advance payment. Therefore, the interest will be calculated on the demand amount minus the pre-deposit.

Recommended Steps:

Request the Department for Clarity: You may want to formally request a clarification or recalculation of interest, particularly in light of the pre-deposit made during the appeal.

Appeal for Relief: If you believe the interest amount is too high or unfair, you could potentially appeal to the higher authorities or seek judicial review, particularly referencing judgments related to pre-deposits.

P. Venu (Advocate) 30 July 2025

Which tax? Income tax, GST, VAT ....................?

R.K Nanda (Advocate) 30 July 2025

Consult tax lawyer.

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