Judicial discretion in penalty matters defeats mechanical levy where taxability was doubtful and collections were remitted to the State.

Penalty under section 22(2) of the Tamil Nadu General Sales Tax Act is not automatic and depends on the facts and circumstances of each case. The authority must exercise its quasi-judicial discretion judiciously, and a mechanical levy is unwarranted where taxability was doubtful at the relevant time and the assessee did not retain the collections but remitted them to the State. On those facts, penalty was held unjustified and the relief granted to the assessee was upheld.

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Issues: Whether penalty under section 22(2) of the Tamil Nadu General Sales Tax Act, 1959 was justified when the assessee had collected tax in a period of doubt as to taxability and had passed on the collections to the State.

Analysis: Penalty under section 22(2) is not automatic and depends on the facts and circumstances of the case. The authority must exercise its statutory discretion as a quasi-judicial authority in a judicious manner. Where taxability was doubtful at the relevant time and the assessee did not retain the collections but remitted them, a mechanical levy of penalty is not warranted.

Conclusion: The penalty was not justified, and the assessee succeeded on this issue.

Final Conclusion: The order levying penalty was properly interfered with, and no ground existed to upset the relief granted to the assessee.

Ratio Decidendi: Penalty provisions that depend on statutory discretion must be applied judiciously on the facts of each case and are not attracted automatically merely because collection of tax occurred in a doubtful situation.

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