JUDGMENT T. L. VISWANATHA IYER, J. - This case was referred for decision by a Division Bench having regard to the importance of the question of law raised therein. The challenge is to the demand for penal interest made under section 23(3) of the Kerala General Sales Tax Act, 1963 ("the act"), in relation to the assessment year 1975-76. The original order of assessment which was made on the petitioner made a demand for an amount of Rs. 9,806.80 towards tax and Rs. 491.12 towards surcharge. This order of assessment dated December 20, 1976 and which was served on the petitioner-assessee on February 18, 1977, was modified in appeal by the Appellate Assistant Commissioner by his order dated December 30, 1980. Thereunder there was a reduction made in the quantum of addition made to the turnover and the assessing authority was directed to modify the assessment accordingly. The revised order of assessment is dated August 31, 1981. The demand for tax got reduced to Rs. 7,710.36 and surcharge to Rs. 386.27. Copies of the revised order of assessment and of the notices of demand consequent thereto, which were received by the assessee on October 30, 1982, are exhibits P2, P3 and P4 respectively. 2. After filing the appeal petitioner made an application to the Government for stay of the proceedings for recovery of the amount of tax and surcharge demanded under the original order of assessment. Government informed the petitioner by the letter, exhibit P1, dated March 8, 1977 that the Board of Revenue had instructions not to take coercive steps for recovery of the arrears of sales tax for the year till the disposal of the appeal filed before the Appellate Assistant Commissioner. Petitioner was directed to furnish security for the amount demanded. It is agreed before us that the security was furnished as directed in exhibit P1 on August 19, 1977. This stay enured pending disposal of the appeal by the Appellate Assistant Commissioner on December 30, 1980. 3. Subsequent to the passing of the revised order, exhibit P2, petitioner paid on amount of Rs. 4,000 on January 1, 1983 and the balance on January 17, 1983. This stay enured pending disposal of the appeal by the Appellate Assistant Commissioner on December 30, 1980. 3. Subsequent to the passing of the revised order, exhibit P2, petitioner paid on amount of Rs. 4,000 on January 1, 1983 and the balance on January 17, 1983. Petitioner was informed by the proceedings, exhibit P5, dated February 21, 1983 that he was liable for payment of penal interest for the arrears of tax due from the date of service of the original order of assessment at the rate of 1 per cent for the first three months and at the rate of 2 per cent per month for the subsequent period aggregating Rs. 8,866.50. Petitioner challenged this proceeding, exhibit P5, in revision before the Board of Revenue without success. The Board dismissing the revision petition by its proceedings, exhibit P6, dated June 14, 1985. Petitioner has filed this writ petition challenging exhibits P5 and P6 and the demand for penal interest made therein. 4. There is no dispute about the facts of the case. The recovery of the amount demanded as per the original order of assessment dated December 20, 1976, had been stayed by the Government as intimated in exhibit P1 subject to the petitioner furnishing security. The petitioner admittedly furnished security on August 19, 1977. Going by the terms of exhibit P1 there was thus an order of stay of recovery of the tax demanded under the assessment pending disposal of the appeal by the Appellate Assistant Commissioner. This is not a case where Government had granted the benefit of instalment payments to the petitioner, but a case where Government sought to stay the recovery of the amount demanded pending disposal of the appeal itself. The petitioner-assessee did not therefore have any occasion to move the Appellate Commissioner for stay of recovery of the amount of tax in view of the pending order to stay in his favour. It was thus that the recovery stood stayed till December 30, 1980. It is true that the Government does not under the provisions of the Act have the power to pass any order of stay, but then as stated by this Court in the decision in Aman Traders v. State of Kerala [1987] 66 STC 54 it will be arbitrary on the part of the Government to demand penal interest after having chosen to stay the recovery pending the appeal. As stated earlier, the petitioner had every reason to proceed on the basis that the recovery proceedings have been stayed and that he need not move the Appellate Assistant Commissioner under section 34(5) of the Act for stay having regard to the intimation that he received as per exhibit P1, which he complied with by furnishing security on August 19, 1977. In the light of these facts and having regard to the decision aforesaid it has to be held that the recovery of the penal interest for the period up to December 30, 1980, is not justified. The demand under exhibit P5 in so far as it related to this period has to be quashed. 5. So far as the subsequent period is concerned, the amount of sales tax got reduced to the amount mentioned in exhibit P3. Sub-clause (5) of section 23 which was introduced into the Act with effect from September 16, 1980 by Act 19 to 1980 lays down that where as a result of any order in appeal any tax assessed or any other amount due from any dealer has been reduced, the penal interest levied for the non-payment of such tax or other amount shall be proportionately reduced. The liability of the petitioner for payment of penal interest on the amount mentioned in exhibit P3 is therefore case by the provisions of sub-section (5) of section 23. The extreme contention raised by counsel for the petitioner that the petitioner is not liable to pay penal interest till revised order of assessment was passed and communicated to him is not sustainable in the light of the provisions contained in sub-section (5) of section 23. We have already indicated that what the Appellate Assistant Commissioner did in this case was only to direct a modification of the assessment in the light of the appellate order. The order of assessment was not set aside. Petitioner is therefore liable to pay penal interest on the reduced amount of tax from December 30, 1980, the date of the appellate order. The order of assessment was not set aside. Petitioner is therefore liable to pay penal interest on the reduced amount of tax from December 30, 1980, the date of the appellate order. Though in the normal circumstances he would have been liable for payment of penal interest on this amount from the date of the original order of assessment itself, there is no liability case so far as this case is concerned for the period up to December 30, in view of the fact that Government had stayed recovery of the entire amount of tax pending disposal of the appeal. The demand therefore stood suspended pending the appeal and therefore no liability for penal interest could accrue till December 30, 1980. The liability for payment of the penal interest on the amount mentioned in exhibit P3 arose on December 30, 1980 under the provisions of sub-section (5) of section 23. 6. Exhibit P5 making demand for penal interest right from February 20, 1977, on the entire amount demanded in the first instance and for the reduced amount subsequently is not sustainable. Petitioner's liability is only to the extent stated above. Accordingly we allow the writ petition in part and quash exhibits P5 and P6. The third respondent is directed to compute the amount of penal interest payable by the petitioner on the amount mentioned in exhibit P3 for the period from December 30, 1980 till date of payment. Since the petitioner has paid the entire amount demanded as per exhibit P5, the third respondent shall compute the amount payable by the petitioner by way of penal interest within a period of three months from the date of receipt of a copy of this judgment and refund the excess amount to the petitioner without any further delay thereafter. No costs. Writ petition partly allowed.