Penalty for collecting non-exigible sales tax was unsustainable where no tax was leviable on the sale.

A penalty for collecting sales tax on a transaction not exigible to tax was held unsustainable under section 18(1) of the Karnataka Sales Tax Act, 1957. The dealer had collected tax on iron and steel rails despite no liability arising on that sale, and the authorities had imposed a penalty equal to the collection. Applying the controlling principle that a sales tax law cannot compel remittance of amounts collected from purchasers where no tax is leviable, the Tribunal's decision to set aside the penalty was upheld. The revision petition therefore failed, and the cancellation of the penalty remained in force.

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Issues: Whether penalty could be levied under section 18(1) of the Karnataka Sales Tax Act, 1957, for collecting tax on a sale that was not exigible to tax.

Analysis: The revision arose from the dealer having collected sales tax on iron and steel rails even though, as the second dealer, it was not liable to tax on those sales. The earlier authorities had imposed a penalty equal to the amount collected for contravention of section 18(1), but the Tribunal set aside the penalty following binding precedent. The controlling principle, as reaffirmed by the Supreme Court authorities relied upon in the judgment, is that a sales tax law cannot compel payment over to the State of amounts collected from purchasers when no tax is in fact leviable on the transaction. Such a provision would amount in substance to an unauthorized levy rather than a permissible incident of the taxing power.

Conclusion: Penalty under section 18(1) could not be sustained, and the order of the Tribunal setting aside the penalty was correct.

Final Conclusion: The revision petition failed, and the dismissal left undisturbed the cancellation of the penalty imposed on the dealer.

Ratio Decidendi: A sales tax statute cannot validly require a dealer to remit amounts collected from purchasers where no tax is leviable on the sale, and a penalty founded solely on such collection is unsustainable.

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