1981 (12) TMI 146 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the permission granted under the Bombay Sales Tax Act after the enforcement of Rule 23A.
2. Imposition of penalty under section 36(3) of the Bombay Sales Tax Act read with section 9(2) of the Central Sales Tax Act.

Detailed Analysis:

Issue 1: Validity of the Permission Granted under the Bombay Sales Tax Act
The Tribunal was required to determine whether the permission granted to the assessee on January 4, 1967, to file six-monthly returns instead of quarterly returns remained valid after the enforcement of Rule 23A of the Bombay Sales Tax Rules on May 4, 1970. The Tribunal concluded that Rule 23A superseded the earlier permission, thereby requiring the assessee to file returns and pay tax by June 30, 1970. The High Court reframed the question to correct the date and chose not to answer it directly, as the resolution of the second issue made it unnecessary.

Issue 2: Imposition of Penalty under Section 36(3) of the Bombay Sales Tax Act
The High Court focused on whether the penalty imposed on the assessee for late payment of tax was justified. The assessee argued that it was under a bona fide impression that the previous permission was still operative and was not informed about Rule 23A. The Tribunal reduced the penalty but did not eliminate it, citing the assessee's bona fide misunderstanding.

The High Court emphasized that penalty provisions are quasi-criminal and should not be imposed unless the default was deliberate, contumacious, or dishonest. It cited the principles from the Hindustan Steel Ltd. v. State of Orissa case, stating that penalty should not be imposed merely because it is lawful to do so but should be based on judicial discretion considering all relevant circumstances.

The High Court noted that the Tribunal failed to apply the correct legal tests and did not consider whether the assessee had acted without reasonable cause. The Tribunal's finding that the assessee had a bona fide though wrong belief about the continued validity of the permission should have led to the conclusion that no penalty was leviable at all. The High Court found the Tribunal's decision inconsistent and ultimately ruled in favor of the assessee.

Conclusion:
1. Question 1: Not answered.
2. Question 2: Answered in the negative, in favor of the assessee and against the revenue.

The High Court concluded that the penalty was not justified as the assessee had a bona fide belief regarding the validity of the permission, and there was no deliberate defiance of law or contumacious conduct. The reference was answered accordingly with no order as to costs.