Penalty during stay of tax recovery does not run where appellate or revisional orders suspend default under sales tax law.

Penalty under section 16(4) of the Bombay Sales Tax Act, 1953 is attracted only while a dealer continues in default in paying tax within the prescribed time. Read with the appellate and revisional scheme, a stay of recovery granted by the competent authority suspends coercive recovery for the covered period, and the dealer is not treated as continuing in default during that subsistence. On that footing, penalty does not run for the period covered by the stay orders. The contrary view treated the stay as affecting recovery only, but the stated ratio applies the broader construction in favour of the assessee.

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Issues: Whether penalty under section 16(4) of the Bombay Sales Tax Act, 1953, could be imposed for the period during which recovery of the tax remained stayed by the appellate and revisional authorities.

Analysis: Section 16(4) fastens penalty only when the dealer continues to make default in payment of tax within the prescribed time. The proviso to section 16(4) empowers the appellate or revisional authority, where an appeal or revision has been filed, to regulate the rate of penalty for any period of such default, while section 16(5) and section 16(6) deal with notice and recovery of unpaid tax. Reading these provisions with section 30(1) and rule 37, the majority held that a stay order granted by the appellate or revisional authority suspends the coercive recovery process and, for that period, the dealer cannot be said to be continuing in default so as to attract penalty under the main part of section 16(4). The dissenting view treated stay as affecting only recovery and not the running of penalty.

Conclusion: Penalty could not be imposed for the period covered by the stay orders, and the answer was returned in the negative, in favour of the assessee.

Ratio Decidendi: Where payment of tax is stayed by competent appellate or revisional orders, the dealer is not continuing in default for that period within the meaning of section 16(4), and penalty does not run during the subsistence of the stay.

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