Penalty cannot survive where sales tax is not legally due on hotel and restaurant receipts.

Penalty for non-payment of sales tax could not stand where the relevant legal position for the assessment year was that meals served in hotels and restaurants were not taxable. The dealer's returns may have shown a liability, but once the underlying sales tax was not legally due, there was no existing tax default on which penalty could be computed or imposed. The penalty was therefore unsustainable, and deletion of the penalty was upheld in favour of the dealer.

---

---

Issues: Whether penalty could be sustained where, for the relevant assessment year, no sales tax was legally payable on the dealer's restaurant and hotel receipts.

Analysis: The dealer had filed returns showing tax liability, but the governing legal position, as declared by the Supreme Court and accepted as applicable to the relevant year, was that meals served to visitors in hotels and restaurants were not taxable under the applicable sales tax law. On that footing, the dealer was not actually liable to pay sales tax for the assessment year in question. Penalty for default in payment is linked to an existing tax liability and cannot be computed or imposed where the underlying tax itself is not due.

Conclusion: Penalty could not be levied, and the deletion of the penalty was in law in favour of the dealer.

---