Penalty under return-based sales tax assessment cannot stand where best judgment assessment is absent.

Penalty under section 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959 is not leviable where the assessment is completed on the basis of the assessee's returns and accounts under section 12(1), rather than by best judgment under section 12(2). The controversy arose from a claim of exemption for works contract turnover, but the turnover itself had been returned and the assessing authority relied on the books and returns. Applying the settled principle that section 12(3)(b) is attracted only to best judgment assessments, the penalty was held unsustainable and was set aside.

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Issues: Whether penalty under section 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959 could be sustained where the assessment was made on the basis of the returns and accounts maintained by the assessee and not on best judgment.

Analysis: The assessment year involved was 1993-94. The turnover had been returned, and the assessing authority proceeded on the basis of the books and returns, while the controversy arose only because exemption was claimed for the works contract turnover. The governing principle applied was that penalty under section 12(3)(b) is attracted only when the assessment partakes the character of a best judgment assessment under section 12(2), and not when the assessment is made under section 12(1) on the basis of returns and accounts. As the facts fell squarely within the earlier binding view that such return-based assessments do not justify levy of penalty under section 12(3)(b), the penalty could not be sustained.

Conclusion: The penalty under section 12(3)(b) was held unsustainable and was set aside in favour of the assessee.

Ratio Decidendi: Penalty under section 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959 is not leviable where the assessment is made on the basis of returns and accounts under section 12(1) and not on a best judgment basis under section 12(2).

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