Truthful disclosure in return defeats false-return penalty despite an unsustainable exemption claim

A return is not false where the dealer has fully and correctly disclosed the turnover and only advances an untenable legal claim for exemption. False return requires a false statement of fact; an unsustainable legal plea, even if previously rejected, does not change the truthful character of the factual disclosure. On that basis, penalty was not leviable under section 43(1) of the M.P. General Sales Tax Act, 1958, and the penalty orders were not sustained.

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Issues: Whether a return can be treated as a false return for attracting penalty when the dealer has correctly disclosed the turnover but has made an untenable claim for deduction or exemption on a legal ground.

Analysis: The return in question contained a correct disclosure of the sales made by the dealer. The only objection was to the legal claim that sales of cattle feed and poultry feed were not taxable because they fell within the expression "fodder" and were therefore exempt. A return is false when a statement of fact is falsely made. Where the material facts are fully and correctly disclosed, the mere raising of an unsustainable legal plea of exemption does not convert the return into a false return. The Court agreed with the view that the earlier disallowance of a similar claim did not change the character of the return, since the factual disclosure remained truthful.

Conclusion: The return was not false and penalty under section 43(1) of the M.P. General Sales Tax Act, 1958 was not leviable.

Final Conclusion: The reference was answered in favour of the assessee, and the penalty orders were not sustained.

Ratio Decidendi: Full and correct disclosure of facts in a return cannot be treated as a false return merely because the assessee advances an unsustainable legal claim of exemption.

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