Penalty under sales tax law cannot start before statutory default; payment within notice time avoids defaulter status.

Under the Mysore Sales Tax Act, 1957, an assessee is not treated as a defaulter merely because admitted tax is omitted from the return if payment is made within the time specified in the statutory notice in form 3. Penalty under section 13(2) arises only on default in making payment in the manner and within the time prescribed by section 13(1). The commentary also notes that rule 21(4b), to the extent it authorised penalty from the day after the return due date, was inconsistent with the Act because subordinate legislation cannot enlarge penal liability beyond the parent statute.

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Issues: (i) Whether an assessee becomes a defaulter under section 13(2) of the Mysore Sales Tax Act, 1957 merely because the admitted tax is not paid along with the return, though it is paid within the time specified in the notice in form 3. (ii) Whether the words in rule 21(4b) of the Mysore Sales Tax Rules, 1957 authorising levy of penalty from the day immediately following the due date of the return are ultra vires the Act.

Issue (i): Whether an assessee becomes a defaulter under section 13(2) of the Mysore Sales Tax Act, 1957 merely because the admitted tax is not paid along with the return, though it is paid within the time specified in the notice in form 3.

Analysis: Section 13(1) requires tax to be paid in the manner and within the time prescribed, and section 13(2) creates liability to penalty only on default in making payment in accordance with section 13(1). Rule 21(2) obliges the dealer to submit the return with payment of the admitted tax, while rule 21(4b) contemplates service of a demand notice in form 3 where the return is unaccompanied by payment. The governing principle applied was that, so long as payment is made within the time allowed by the statutory notice, default is not complete and the assessee does not become a defaulter merely because payment was not made on the date of filing the return.

Conclusion: The assessee did not become a defaulter under section 13(2) when the tax was paid within the time specified in form 3 notices.

Issue (ii): Whether the words in rule 21(4b) of the Mysore Sales Tax Rules, 1957 authorising levy of penalty from the day immediately following the due date of the return are ultra vires the Act.

Analysis: The rule was held to enlarge the statutory liability by permitting penalty to run from the return due date even though, under the Act, penalty arises only upon default in accordance with the prescribed payment mechanism. A subordinate rule cannot impose a penalty where the parent Act does not create liability, and the amended wording of rule 21(4b) was found inconsistent with section 13 of the Act.

Conclusion: The impugned portion of rule 21(4b) was held to be ultra vires the Act.

Final Conclusion: The writ petitions succeeded, and the revenue authorities were directed not to enforce the penalty demand.

Ratio Decidendi: Under a taxing statute that requires payment in the manner and within the time prescribed, penalty for default can arise only upon failure to comply with the statutory notice procedure, and a subordinate rule cannot extend penal liability beyond the parent Act.

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