Bona fide belief and refund undertaking defeated penalty for excess tax collection under a concessional sales tax notification.
Penalty under section 18A of the Karnataka Sales Tax Act was considered in light of dealers collecting tax at the full rate while retaining only the concessional portion allowed under a notification issued under section 8A. The Court treated the statutory bar on excess collection and the penal consequence as relevant, but also held that penal liability should not be applied mechanically where the dealers acted under a bona fide belief that the concession was for their benefit and undertook to refund the excess collected. On those facts, the Court found the dealers' conduct material and held that penalty was not warranted.
Issues: Whether penalty under section 18A of the Karnataka Sales Tax Act, 1957 was attracted when the assessees collected tax at the full rate under section 5 but retained only the concessional portion under a notification issued under section 8A, and whether their bona fide belief and undertaking to refund the excess collection negatived the penal consequence.
Analysis: The notification granted a concession in the rate of tax payable by new industrial units, and the controversy turned on the effect of collection at the full rate and retention of the difference. The Court noted that the issue could be considered in the light of the statutory bar on excess collection and the penal consequence under section 18A, but also treated the conduct of the dealer as material. Relying on the principle that a penal provision is not to be applied mechanically where the dealer acted under a bona fide understanding and made a serious attempt to refund the excess collected, the Court held that the assessees' conduct was relevant. The Court accepted that the assessees had been led to believe that the concession was for their benefit and that they had undertaken to refund the excess to customers.
Conclusion: Penalty under section 18A was not warranted on the facts, and the assessees succeeded.
TaxTMI 
AI Drafter ✕
TaxTMI 
