Strict construction of tax penalties: missing challan and advance tax default did not attract penalty, and State machinery applied as then in force.

Penalty under the Madhya Pradesh General Sales Tax Act could not be imposed under section 17(3) merely because a return was filed without the treasury challan or because advance tax was not deposited before assessment, since that provision applied only to failure to furnish a return and penal statutes must be strictly construed in favour of the assessee. The Court treated section 22 as the specific provision for tax deposit and default after notice, and held the penalty order without jurisdiction. It also held that section 9(3) of the Central Sales Tax Act adopts the State assessment and collection machinery in force during the relevant assessment period, not only the State law existing when the Central Act commenced.

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Issues: (i) Whether penalty under section 17(3) of the Madhya Pradesh General Sales Tax Act could be imposed for filing a return without the treasury challan accompanying it and for failure to deposit advance tax before assessment; (ii) whether the machinery for assessment and collection under section 9(3) of the Central Sales Tax Act was confined to the State sales tax law in force when the Central Act came into force, or extended to the State law in force during the relevant assessment period.

Issue (i): Whether penalty under section 17(3) of the Madhya Pradesh General Sales Tax Act could be imposed for filing a return without the treasury challan accompanying it and for failure to deposit advance tax before assessment.

Analysis: Section 17(3) was held to apply only where a registered dealer fails to furnish a return. The statutory scheme distinguished between the return itself and the accompanying treasury challan required by the rules. Non-submission of the challan along with the return did not amount to non-filing of the return. The Court also read section 22 as the specific provision governing deposit of tax and penalty for non-compliance after notice, and not section 17(3). Penal provisions were required to be strictly construed, and ambiguity had to be resolved in favour of the assessee.

Conclusion: Penalty under section 17(3) was not leviable, and the assessment of penalty was without jurisdiction.

Issue (ii): Whether the machinery for assessment and collection under section 9(3) of the Central Sales Tax Act was confined to the State sales tax law in force when the Central Act came into force, or extended to the State law in force during the relevant assessment period.

Analysis: Section 9(3) was read as adopting the State machinery that was "for the time being" empowered to assess, collect and enforce payment under the State sales tax law. The definition of "sales tax law" in section 2(i) also referred to the law in force from time to time. The Court therefore rejected the argument that only the State law existing on the date of the Central Act's commencement could be used.

Conclusion: The applicable State machinery was that in force during the relevant assessment period, not only the law existing when the Central Act commenced.

Final Conclusion: The penalty orders were quashed and the writ petitions were allowed, with the assessee obtaining full relief against recovery of the penalties.

Ratio Decidendi: A penalty provision for failure to furnish a return cannot be extended by implication to cover mere defects in accompanying documents or advance deposit, and in tax statutes penal liability must be supported by clear language and construed strictly in favour of the assessee.

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