Penalty requires express statutory authority; surcharge and additional tax components could not be penalised without it.

Penalty cannot be imposed on surcharge, additional surcharge or additional sales tax unless a substantive statutory provision expressly authorises such levy. Applying the principle that penalty must rest on clear legal authority, the Madras HC treated the absence of such provision as fatal to the penalty demand. The court extended the earlier binding view on additional tax components to these levies and set aside the penalty as not legally sustainable.

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Issues: Whether penalty could be sustained on surcharge, additional surcharge and additional sales tax in the absence of a substantive statutory provision authorising such levy.

Analysis: Penalty had been levied on the tax difference as well as on surcharge, additional surcharge and additional sales tax. The governing principle applied was that penalty cannot be imposed unless the statute contains a substantive provision authorising such levy. Following the earlier binding view that additional tax components cannot be subjected to penalty in the absence of such authority, the same reasoning was held applicable to surcharge, additional surcharge and additional sales tax.

Conclusion: The levy of penalty on surcharge, additional surcharge and additional sales tax was not legally sustainable and was set aside.

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