Penalty for incorrect return fails where full turnover was disclosed and exemption was claimed in bona fide reliance on existing law.

Penalty under section 45A(1)(d) of the Kerala General Sales Tax Act was unavailable where the assessee had disclosed the full turnover in the returns and claimed exemption on a bona fide basis supported by then prevailing legal position. The later change in law, and payment of tax before assessment, did not make the original returns false or incorrect. As penalty provisions are strictly construed, the essential element for invoking penal liability was absent because there was no suppression of turnover or deliberate attempt to evade tax. The penalty was therefore held not exigible, and restoration of the penalty was unsustainable.

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Issues: Whether penalty under section 45A(1)(d) of the Kerala General Sales Tax Act, 1963 was sustainable when the assessee had disclosed the entire turnover in the returns and claimed exemption on a bona fide basis.

Analysis: Penalty under section 45A is attracted only when the assessee submits an incorrect or untrue return. The returns in question disclosed the full turnover, and the claim for exemption was made on the basis of then prevailing legal support. The subsequent change in legal position and the later payment of tax before assessment did not convert the original returns into false or incorrect returns. A penal provision of this nature is to be strictly construed, and the essential element required to invoke penalty was absent. The conduct disclosed no suppression of turnover and no basis for treating the claim as a deliberate attempt to evade tax.

Conclusion: The penalty was not exigible, and the order restoring the penalty was unsustainable. The assessee succeeded.

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