Penalty for unlawful tax collection reduced where refund was made, but non-compliance with notice-based record production still attracted liability.

Penalty for collecting tax on a turnover not exigible to tax was unsustainable once the amount was refunded to the purchaser, because the proviso to section 46A(1) protected against penalty based solely on unlawful collection. The monthly return was not untrue or incorrect in relation to the non-taxable turnover. However, separate penalty was justified for wilful failure to produce sale bills and connected records in response to repeated notices, as that non-compliance attracted section 45A. As there was no tax evasion on the colour cover turnover, the penalty could not be linked to evaded tax and had to be confined to the notice default, resulting in reduction of the penalty.

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Issues: Whether penalty imposed under section 45A of the Kerala General Sales Tax Act, 1963 was sustainable for collection of tax on a sale turnover not exigible to tax, non-production of records in response to notices, and whether the penalty required modification in view of the refund made to the purchaser.

Analysis: The dealer had collected tax on the entire sale bill, but the turnover relating to colour cover was found to be not exigible to tax at the dealer's hands. Once the collected amount was returned to the purchaser, the proviso to section 46A(1) applied and no penalty could be sustained merely on the footing of unlawful collection under section 22(2). The return filed for the relevant month was also not untrue or incorrect in relation to the non-taxable turnover. However, the dealer had failed to comply with repeated notices by not producing the relevant sale bills and connected documents for verification, and that default attracted section 45A. Since there was no tax evasion on the colour cover turnover, the case did not call for penalty measured by evaded tax, and the penalty had to be confined to the default of non-compliance with notices.

Conclusion: Penalty under section 45A was not fully justified on the basis of tax collection alone, but was maintainable for wilful non-compliance with notices; the penalty was therefore reduced to Rs. 10,000.

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