Refundable security deposits are not tax collections; penalty for unauthorised tax collection could not be sustained.

Amounts collected from customers as expressly refundable security deposits against a contingent sales tax liability on freight and packing charges were not collections by way of tax. Because the invoices and trade circulars disclosed the amounts as deposits, refundable if the proposed levy was not upheld, and the sums were separately accounted for as contingent deposits, the penal provision for unauthorised tax collection was not attracted. The consequential penalty proceedings under section 22 of the Tamil Nadu General Sales Tax Act were unsustainable, and the writ petitions succeeded with the impugned proceedings quashed.

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Issues: Whether amounts collected from customers as refundable security deposits towards possible sales tax on freight and packing charges amounted to collection by way of tax so as to attract penalty under section 22 of the Tamil Nadu General Sales Tax Act, 1959.

Analysis: The amounts were collected with express intimation in the invoices and trade circulars that they were security deposits, refundable if the proposed levy of sales tax on freight and packing charges was ultimately not justified. The collections were separately accounted for as deposits and treated as amounts held for a contingency. On these facts, the receipts were not collections of tax or amounts purporting to be tax within the meaning of the penal provision. The liability under section 22(1) therefore did not arise, and the consequential penal proceedings under section 22(2) could not be sustained.

Conclusion: The collection was held to be a lawful refundable deposit and not a prohibited collection by way of tax; the penalty proceedings were unsustainable in favour of the assessee.

Final Conclusion: The writ petitions succeeded and the impugned penalty proceedings were quashed.

Ratio Decidendi: A refundable amount received under an express undertaking to repay it on the failure of a contingent tax liability is not a collection by way of tax and cannot be subjected to penalty under the provision prohibiting unauthorised tax collection.

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