Penalty under the CST Act must be computed on the tax that would have applied absent misuse of C Forms.

Misuse of 'C' Forms under section 10(b) of the Central Sales Tax Act, 1956 attracts penalty under section 10-A, but the measure of penalty is the tax that would have been leviable had the offence not been committed. The phrase "if the offence had not been committed" controls the computation, so the higher tax rate linked to the misuse itself is not the correct base for applying the one-and-a-half-times ceiling. The Madras HC accordingly confined the penalty to the notional tax base and dismissed the revenue's revision.

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Issues: Whether, for the purpose of penalty under section 10-A of the Central Sales Tax Act, 1956, the tax base had to be taken at the higher rate applicable on misuse of 'C' Forms or at the rate that would have applied if the offence had not been committed.

Analysis: The misuse of 'C' Forms constituted an offence under section 10(b), but the concluding words of section 10-A required the penalty to be computed with reference to the tax that would have been leviable had the offence not occurred. The phrase 'if the offence had not been committed' was treated as controlling the measure of penalty, so the tax base for the one-and-a-half-times ceiling had to be determined on the footing of proper use of the forms, not on the footing of their misuse.

Conclusion: The penalty had to be restricted to one and a half times the tax that would have been leviable had the offence not been committed, and the revenue's revision was dismissed.

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