Unconditional tax payment extension bars penalty, but a conditional extension reserving penalty keeps liability alive.

Under the Bombay Sales Tax Act, an unconditional extension of time for payment meant that tax paid within the extended period was treated as timely, so no penalty could be levied under section 36(3). By contrast, where the extension or instalment order expressly reserved the right to impose penalty, the concession did not amount to a waiver of penal consequences, and liability under the penalty provision remained. The court accordingly distinguished between unconditional and conditional extensions, holding that penalty was barred in the first situation but valid in the second.

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Issues: (i) Whether penalty under section 36(3) of the Bombay Sales Tax Act, 1959, could be levied where time for payment of tax was extended unconditionally and the tax was paid within the extended period. (ii) Whether penalty under section 36(3) of the Bombay Sales Tax Act, 1959, could be levied where the extension of time was expressly made subject to penalty.

Issue (i): Whether penalty under section 36(3) of the Bombay Sales Tax Act, 1959, could be levied where time for payment of tax was extended unconditionally and the tax was paid within the extended period.

Analysis: An extension granted under the proviso to section 38(4) authorises payment within the extended time. Where the extension is unconditional, payment made within that period is treated as payment within the time required by the Act. In such a case there is no default attracting penalty under section 36(3).

Conclusion: No penalty was leviable for the quarter covered by the unconditional extension. The issue was answered in favour of the assessee.

Issue (ii): Whether penalty under section 36(3) of the Bombay Sales Tax Act, 1959, could be levied where the extension of time was expressly made subject to penalty.

Analysis: Where the order granting instalments or extension expressly preserves the right to levy penalty, the extension does not amount to a complete dispensation from the penal consequence of delay. Such a conditional extension does not establish that reasonable cause has been accepted so as to bar penalty. Payment within the extended time remains subject to the reserved penalty, and payment beyond that period is a fortiori so subject.

Conclusion: Penalty was rightly leviable for the quarters covered by the conditional extensions. The issue was answered in favour of the department.

Final Conclusion: The reference was answered by holding that an unconditional extension of time prevents levy of penalty, but a conditional extension preserving penalty does not.

Ratio Decidendi: An extension of time under the sales tax law prevents penalty only when it is unconditional and the tax is paid within the extended period; where the extension expressly preserves the right to levy penalty, the dealer remains liable under the penal provision.

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