Penalty on exempt goods cannot stand; liability on taxable goods must be reassessed on remand.

Penalty cannot be sustained on the value of goods treated as exempt from sales tax, because exempt goods do not provide a lawful base for penalty computation. On that footing, the penalty relating to HDPE fabrics was set aside. For multifilament yarn, taxability was accepted and liability was conceded, but the quantum of penalty required fresh examination by the assessing authority in light of the limited taxable liability. The matter on multifilament yarn was remanded for reconsideration, with consequential release and adjustment of the security furnished.

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Issues: (i) Whether penalty could be sustained on HDPE fabrics treated as exempt from sales tax; (ii) whether the penalty relatable to multifilament yarn required reconsideration and remand.

Issue (i): Whether penalty could be sustained on HDPE fabrics treated as exempt from sales tax.

Analysis: HDPE fabrics were accepted as goods not liable to sales tax under the governing sales tax law, and once the goods were exempt, the value of such goods could not form the basis for imposing penalty. The penalty order, to the extent it proceeded on the taxable value of HDPE fabrics, was therefore unsustainable.

Conclusion: The penalty imposed in relation to HDPE fabrics was set aside in favour of the assessee.

Issue (ii): Whether the penalty relatable to multifilament yarn required reconsideration and remand.

Analysis: Multifilament yarn was accepted as taxable, and the assessee also conceded liability in that regard. However, the quantum of penalty had to be reconsidered by the assessing authority in the light of the findings on taxability and the limited liability admitted in respect of the taxable goods.

Conclusion: The matter relating to penalty on multifilament yarn was remanded to the assessing authority for reconsideration.

Final Conclusion: The decision afforded partial relief by annulling the penalty founded on exempt goods while leaving the liability concerning taxable goods to be freshly determined on remand, with consequential release and adjustment of the security already furnished.

Ratio Decidendi: Penalty cannot be levied on the value of goods that are exempt from tax, and where liability survives only for taxable goods, the penalty must be reassessed on that restricted basis.

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