Reasonable cause defeats sales tax penalty where REP licence taxability was unsettled before the Supreme Court ruling.

Penalty under section 11E(4) of the Bengal Finance (Sales Tax) Act, 1941 was attracted only on default in payment of tax without reasonable cause. Rule 54E likewise required the assessing authority to consider the dealer's cause shown before treating non-payment as penal default. Where West Bengal revenue authorities had not treated REP licences as taxable goods before the Supreme Court's ruling in Vikas Sales Corporation, and the legal position remained unsettled in the State, the dealer had reasonable cause for not paying tax on those sales during the relevant period. A contrary view taken by another High Court did not by itself require revision of returns or payment. Penalty was therefore not leviable for the period before the Supreme Court decision.

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Issues: Whether penalty under section 11E(4) of the Bengal Finance (Sales Tax) Act, 1941 could be imposed for non-payment of sales tax on sales of REP licences made before the Supreme Court's decision in Vikas Sales Corporation.

Analysis: Penalty under section 11E(4) is attracted only when a dealer defaults in payment of tax without reasonable cause. The governing rule, Rule 54E of the Bengal Sales Tax Rules, 1941, also proceeds on the basis that the assessing authority must be satisfied about the existence of such default and must consider the dealer's cause shown. On the facts, the commercial tax authorities in West Bengal themselves had not treated REP licences as taxable goods before the Supreme Court's ruling, and the legal position in the State remained unsettled until that decision. In that background, the assessee could not fairly be said to have lacked reasonable cause for not paying tax on those sales during the relevant period. The mere fact that another High Court had taken a different view did not, by itself, compel the assessee to revise its returns and pay tax when the local revenue authorities had not adopted or enforced that view.

Conclusion: Penalty was not leviable for the period prior to the Supreme Court's decision, and the orders imposing penalty on sales of REP licences were set aside in favour of the assessee.

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