Strict construction of sales tax penalty provision limits liability to non-use of declared goods, not alleged false returns.

Section 5(3-B) of the Karnataka Sales Tax Act is a penal provision and must be strictly construed. It applies only where goods purchased on declaration are not used for the declared manufacturing purpose without reasonable excuse. It does not extend to an allegedly or false return about the finished product. On the stated facts, the purchaser had used formaldehyde in manufacturing the declared end-product, so penalty under section 5(3-B) was not attracted; any issue with the return or classification of the finished goods was left to other remedies such as assessment correction or prosecution.

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Issues: Whether penalty under section 5(3-B) of the Karnataka Sales Tax Act, 1957 could be imposed when the purchaser used the goods bought under declaration for the declared manufacturing purpose, but treated the finished product as non-scheduled goods in its returns.

Analysis: Section 5(3-B) is a penal provision and must be strictly construed. Its language applies only where a purchaser, after making a declaration under section 5(3-A), fails without reasonable excuse to use the purchased goods for the declared purpose. The provision does not extend to the filing of an allegedly wrong or false return in relation to the end-product. On the facts found, the purchaser had in fact used formaldehyde in the manufacture of the declared end-product, synthetic resin or hardener. The correctness of the returns filed under section 12, and the treatment of the finished product as non-scheduled goods, may have relevance for other statutory remedies, including assessment correction or prosecution under section 29, but not for penalty under section 5(3-B).

Conclusion: Penalty under section 5(3-B) was not attracted, since the goods were used for the declared purpose; the conclusion was in favour of the assessee.

Ratio Decidendi: A penalty provision triggered by failure to use purchased goods for the declared purpose cannot be applied to cases of alleged or false returns where the goods were in fact used as declared.

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