Please refer to Sec. 40(a)(ii) of IT Act, wherein it is specified that any Interest / Penalty / Fine etc for non payment or late payment of Income Tax is not deductible. This principle equally applies on the late payment of CST / VAT. Hence, the INTEREST ON DELAYED PAYMENTOF VAT/CST is not allowed under IT Act.
Further, refer to Section 37 of the ITAct, specifies any expense as allowable only if "Not incurred for any purpose which is any offence or Prohibition by ANY Law".
Here, the term ANY is of great significance and hence applies to "CST / VAT" as well.
Now, the "Interest" in your case specifies that it is paid for something which is against provisions of Section 37.
Hence, the said interest will not be allowed as deduction for calculating Business Income.