Instalment repayment and binding government instructions barred penalty for sales tax arrears when no instalment default occurred.

Penalty under section 13(2) of the Karnataka Sales Tax Act could not be sustained where the assessee had been permitted to repay refunded tax in instalments and had complied with that order. The liability to penalty arose only on actual neglect to pay tax when due, and timely payment of each instalment meant there was no default attracting penalty. The Government circular, issued through the Commissioner, also indicated that no penalty was intended for arrears due before 1 September 1976, and subordinate officers were bound to follow such instructions under section 3-A. The penalty demand was therefore quashed.

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Issues: Whether a demand for penalty under section 13(2) of the Karnataka Sales Tax Act could be sustained when the assessee had been permitted to repay the refunded tax in instalments and had complied with that instalment order, in the light of the Government circular stating that no penalty should be imposed on tax arrears due prior to 1st September, 1976.

Analysis: The liability to penalty under section 13 arose only when the dealer neglected to pay tax when it became due. A direction permitting repayment in instalments protected the assessee so long as the instalments were paid as ordered, and the assessee in this case had discharged the entire amount within the period fixed by the Commissioner. The circular issued by the Commissioner pursuant to Government instructions further indicated that no penalty was intended for arrears due before 1st September, 1976. Section 3-A required subordinate officers to act in accordance with the Government's and Commissioner's instructions, and by the relevant date no arrears remained outstanding against the petitioner.

Conclusion: The penalty demand was unsustainable and was quashed.

Ratio Decidendi: Where tax is repaid in instalments under an authorised order and the instalments are duly honoured, penalty for default cannot be levied under section 13(2) unless there is an actual failure to pay an instalment when due, and binding governmental instructions under section 3-A must be followed.

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