Penalty and interest on deferred tax were unwarranted where retrospective eligibility under an incentive scheme created a bona fide dispute.

Penalty and interest under the return-compliance provisions were considered in the context of non-payment of tax while an assessee's deferment eligibility under an incentive scheme was under challenge. The decisive factor was whether the default was without sufficient cause: the assessee had not paid tax because the eligibility certificate was pending, and it was later granted retrospectively for the same period. On that footing, the non-payment was treated as bona fide and not wilful or deliberate, so levy of penalty and interest was not justified where the tax position depended on a retrospective determination of entitlement.

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Issues: Whether penalty and interest could be levied for non-payment of tax during the period when the assessee's eligibility for deferment under the tax incentive scheme was under challenge and was later granted with retrospective effect.

Analysis: The relevant provisions imposed liability to interest and penalty where a dealer failed, without sufficient cause, to pay tax according to the return or to comply with the prescribed return requirements. The decisive consideration was whether the default was without sufficient cause. The assessee had not paid tax for the relevant period because the eligibility certificate for the deferment scheme was pending and was ultimately granted retrospectively for the same period. In these circumstances, the non-payment was not wilful or deliberate and was supported by a bona fide dispute regarding entitlement to deferment. The cited principle was that where a dealer acts bona fide and the tax position is governed by a retrospective determination, levy of penalty and interest is not justified.

Conclusion: Penalty and interest were not leviable, and the assessee succeeded.

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