Bona fide reliance on binding precedent can defeat penalty, and interest provisions cannot operate retrospectively without clear legislative intent

Penalty cannot be sustained where non-payment arises from a bona fide legal view supported by then-binding precedent, because such reliance constitutes reasonable cause under the penalty provision. The article also states that interest cannot be charged for a period when the Act contained no authorising provision, as a later interest clause operates prospectively and cannot create retrospective liability absent express or necessarily implied intent. The discussion therefore treats penalty and interest as impermissible for the relevant period when the taxpayer's conduct was consistent with the law as then understood and no statutory basis for interest existed.

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Issues: (i) Whether penalty could be levied for non-payment of sales tax on the freight element when the assessee acted on the basis of an earlier Supreme Court view later altered by a subsequent decision. (ii) Whether interest could be demanded for the period from 1 January 1970 to 1975 when the statutory provision for interest was introduced only from 1 April 1976.

Issue (i): Whether penalty could be levied for non-payment of sales tax on the freight element when the assessee acted on the basis of an earlier Supreme Court view later altered by a subsequent decision.

Analysis: The liability to penalty turned on the statutory requirement that the dealer must have failed to comply with the notice without reasonable cause. The assessee had relied on an earlier Supreme Court decision holding that freight did not form part of the sale price, and the later change in law arose only after a subsequent Supreme Court pronouncement. In that situation, the non-payment during the relevant period was attributable to a bona fide legal understanding derived from binding precedent. Such conduct constituted reasonable cause within the meaning of the penalty provision.

Conclusion: Penalty could not be sustained and was held to be inadmissible against the assessee.

Issue (ii): Whether interest could be demanded for the period from 1 January 1970 to 1975 when the statutory provision for interest was introduced only from 1 April 1976.

Analysis: The demand for interest related entirely to a period when there was no provision in the Act authorising levy or recovery of interest on delayed payment. The later insertion of the interest clause operated prospectively and, in the absence of express language or necessary implication, could not be applied retrospectively to create a liability for earlier years. A provision imposing an additional fiscal burden is substantive and must be construed strictly.

Conclusion: Interest for the period in question could not be demanded from the assessee.

Final Conclusion: The impugned demand for penalty and interest for the relevant period was set aside, and the petition succeeded.

Ratio Decidendi: Penalty cannot be imposed where non-payment occurs under a bona fide belief supported by then-binding precedent and therefore there is reasonable cause, and a taxing statute creating a new liability to interest cannot be applied retrospectively in the absence of express or necessarily implied legislative intent.

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