Strict construction of penalty provision bars levy where naphtha was used as an input for the declared manufacturing purpose.

A penal provision under section 46(2)(d) of the Kerala General Sales Tax Act had to be strictly construed, and penalty could be imposed only if the revenue proved that the purchaser failed without reasonable excuse to use naphtha for the declared purpose. The Kerala HC found that the assessee used naphtha as a basic input in manufacturing fertilisers, even if it was not traceable in the final product. The contemporaneous administrative view also supported treating naphtha as a component part for the declared use. On that basis, the assessee had not contravened the provision and no penalty was leviable.

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Issues: Whether the assessee, having purchased naphtha on a declaration in form 18, failed without reasonable excuse to use the goods for the declared purpose so as to attract penalty under section 46(2)(d) of the Kerala General Sales Tax Act, 1963.

Analysis: The declared purpose under the relevant provisions and form 18 was use of naphtha as a component part in the manufacture of chemical fertilisers for sale. The assessee in fact used naphtha in the manufacture of fertilisers. The revenue's case rested only on the contention that naphtha did not remain traceable as a component of the final product. The Court held that section 46(2)(d) requires proof that the purchaser failed without reasonable excuse to make use of the goods for the declared purpose, and that such requirement was not satisfied here. The assessee's explanation showed that naphtha was used as a basic input in the manufacturing process, and the contemporaneous view of the Board of Revenue supported the understanding that naphtha could be treated as a component part for the purpose of the Act. Since the provision is penal in nature, it had to be strictly construed and any doubt resolved in favour of the subject.

Conclusion: The assessee had not contravened section 46(2)(d) of the Kerala General Sales Tax Act, 1963, and no penalty was leviable.

Final Conclusion: The revision petitions were rejected, and the penalty orders did not survive.

Ratio Decidendi: A penal provision creating liability for failure to use goods for a declared purpose must be strictly construed, and penalty cannot be imposed unless the revenue proves a failure without reasonable excuse to use the goods for that declared purpose.

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