Penalty notice under sales tax law quashed after court applied hire-purchase principles and tax-liability timing rules.

A penalty notice issued under section 46(2) of the Bombay Sales Tax Act, 1959 was examined against the facts and the governing law on hire-purchase transactions and the stage at which sales tax liability arises. On that basis, the notice alleging unlawful collection of sales tax was found unsustainable and was quashed. The separate question whether the Revenue could forfeit the amounts collected, or whether refund could be claimed, was not decided and was left to assessment or refund proceedings.

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Issues: Whether the notice issued for imposition of penalty under section 46(2) of the Bombay Sales Tax Act, 1959 was liable to be quashed.

Analysis: The notice alleging collection of amounts by way of sales tax in contravention of the Act was examined on the facts of the case and in the light of the governing legal position relating to hire-purchase transactions and the earlier view on the stage at which tax liability arises. On that basis, the notice for penalty was found unsustainable. The separate question whether the Revenue could forfeit the amounts collected or whether refund could be claimed was not decided and was left to assessment or refund proceedings.

Conclusion: The notice for penalty under section 46(2) was quashed and that part of the challenge succeeded in favour of the assessee.

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