Mutual mistake on tax rate defeated penalty for wrongful collection under the Tamil Nadu General Sales Tax Act.

Penalty under section 22(2) of the Tamil Nadu General Sales Tax Act, 1959 was treated as unwarranted where the assessee collected tax at 8% throughout the year and remitted it to the department, the immediately preceding assessment had accepted the same rate, and a later departmental clarification lowering the rate came only shortly before the assessment order. On those facts, the higher collection was regarded as having occurred under a mutual mistake about the applicable rate, so the penal provision for wrongful collection was not attracted and the penalty was cancelled.

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Issues: Whether the levy of penalty under section 22(2) of the Tamil Nadu General Sales Tax Act, 1959 was sustainable on the facts found.

Analysis: The assessee had collected tax at 8% on the commodity throughout the year and had remitted it to the department. The immediate preceding assessment had also accepted the same rate and had attained finality. The Commissioner's clarification fixing a lower rate was issued only shortly before the assessment order and after the assessee had acted on the common understanding of the applicable rate. In these circumstances, the collection of tax at the higher rate was treated as having occurred under a mutual mistake, and the facts did not justify penal consequences under section 22(2).

Conclusion: The levy of penalty under section 22(2) was not sustainable and was rightly cancelled.

Ratio Decidendi: Where both the assessee and the assessing authority proceed under a mutual mistake as to the applicable rate of tax, and the collection is consistent with the accepted position in the immediately preceding assessment, penalty for wrongful collection is not attracted.

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