Tax collection on exempt sales does not breach collection rules where the transaction itself is outside tax liability.

A registered dealer's collection of amounts on transactions later found exempt from sales tax did not amount to a contravention of section 18(1) of the Mysore Sales Tax Act, 1957, because section 18(1) regulates tax collection only in relation to transactions exigible to tax. Section 18-A penalty is attracted only on breach of section 18(1) or 18(2); where the underlying sale is not taxable, an unjustified collection does not itself create statutory contravention. On that basis, penalty proceedings under section 18-A lacked jurisdiction and the impugned notice could not be sustained.

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Issues: Whether collection of amounts by a registered dealer on sales later held to be exempt from tax amounted to contravention of section 18(1) of the Mysore Sales Tax Act, 1957, so as to attract penalty under section 18-A of the Act.

Analysis: Section 18-A authorises penalty only where there is contravention of section 18(1) or section 18(2). Section 18(1) prohibits a registered dealer from collecting tax except in accordance with prescribed conditions, but where the underlying transaction is not exigible to tax, a collection made in relation to that transaction falls outside the scope of section 18. Such a collection may be unjustified, but it does not amount to a contravention of section 18(1). As the sale of chillies on behalf of grower principals was held not taxable under the Act, the statutory condition for invoking section 18-A was absent.

Conclusion: The impugned notice could not be sustained and the penalty proceedings under section 18-A were without jurisdiction.

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