Final tax assessment cannot be collaterally challenged in prosecution; financial difficulty alone is no reasonable cause for default.
A final assessment not challenged under the procedure prescribed by law could not be collaterally disputed in a prosecution for non-payment of sales tax. The court also treated "reasonable cause" for default as a cause connected with the payment process itself, and held that uncertainty of law, failure to realise tax from purchasers, or later financial difficulty did not by themselves excuse non-payment within time. On the facts, the acquittal was set aside, the respondents were convicted in appeal, and only a nominal penalty was imposed.
Issues: (i) Whether, in a prosecution under section 14(1)(a) of the U.P. Sales Tax Act, the respondents could contend that the goods sold were not liable to sales tax when the assessments had not been challenged in the manner provided by law; (ii) Whether the respondents' inability to pay the assessed tax because of uncertainty in law and straitened financial circumstances constituted reasonable cause for failure to deposit the tax within time; (iii) What penalty, if any, should be imposed.
Issue (i): Whether, in a prosecution under section 14(1)(a) of the U.P. Sales Tax Act, the respondents could contend that the goods sold were not liable to sales tax when the assessments had not been challenged in the manner provided by law.
Analysis: The assessments had been made and demand notices issued, but the respondents did not challenge those assessments under the procedure provided by the Act or any other applicable law. A defence going to the correctness or taxability underlying the assessment could not be raised collaterally in the prosecution after the assessments had become final.
Conclusion: The objection to the taxability of the goods was not open to the respondents in the prosecution and failed against them.
Issue (ii): Whether the respondents' inability to pay the assessed tax because of uncertainty in law and straitened financial circumstances constituted reasonable cause for failure to deposit the tax within time.
Analysis: The expression reasonable cause was held to mean a cause connected with the payment process itself, such as insufficient time after service of demand or a delayed notice leaving too little time to comply. A taxpayer's failure to realise tax from purchasers, misunderstanding of law, or later financial inability did not amount to reasonable cause for non-payment of an assessed tax within the period allowed.
Conclusion: The respondents had no reasonable cause for the default and their acquittal was unsustainable.
Issue (iii): What penalty, if any, should be imposed.
Analysis: Having regard to the circumstances, only a token penalty was considered sufficient to meet the ends of justice.
Conclusion: A penalty of Rs. 50 each was imposed.
Final Conclusion: The acquittal was set aside and the respondents were convicted in the appeals, with only a nominal penalty imposed in each case.
Ratio Decidendi: A final assessment that has not been challenged in the manner prescribed cannot be collaterally disputed in a prosecution for non-payment, and financial inability or uncertainty of law does not by itself constitute reasonable cause for default in payment of assessed tax within time.