Bona fide reliance on binding precedent bars automatic penalty for return discrepancies under sales tax law.

Penalty under section 12(5)(iii) of the Tamil Nadu General Sales Tax Act could not be imposed automatically for excluding freight and packing charges from taxable turnover where the assessee had filed returns on time, disclosed the amounts in total turnover, and acted on a then-binding High Court decision supporting that treatment. The court held that the omission was not deliberate, intentional, or aimed at tax evasion, especially since the legal position was unsettled only later when the precedent was reversed by the Supreme Court. The discretionary penal power therefore could not be invoked mechanically, and deletion of the penalty was upheld.

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Issues: Whether penalty under section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 was leviable for filing returns which excluded freight and packing charges, when the assessee had acted on then-binding High Court precedent and asserted a bona fide belief.

Analysis: Penalty under section 12(4) is attracted where the return is found to be incorrect or incomplete, but the power to impose penalty under section 12(5) is discretionary and must be exercised on the facts of each case. The assessee had filed returns in time and had disclosed the freight and packing charges in the total turnover, excluding them from taxable turnover on the basis of a subsisting High Court decision which had supported that stand. The legal position was unsettled only later when that decision was reversed by the Supreme Court. In such circumstances, the omission could not be treated as deliberate, intentional, or made with a view to evade tax.

Conclusion: Penalty was not leviable. The deletion of penalty was upheld and the question of law was answered against the Revenue and in favour of the assessee.

Final Conclusion: The revision failed because the assessee's return position was supported by a bona fide interpretation of law prevailing at the relevant time, so the discretionary penal provision could not be invoked mechanically.

Ratio Decidendi: Penalty for an incorrect or incomplete return under section 12(5)(iii) cannot be imposed automatically where the assessee's return is based on a bona fide legal view supported by then-existing binding precedent and there is no deliberate intent to evade tax.

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