Penalty on tax-paid excess stock fails where no further tax liability exists under the Rajasthan Sales Tax Act.

Penalty under section 77(8) of the Rajasthan Sales Tax Act, 1994 was held unsustainable where the alleged excess stock consisted of sales tax paid goods and no further tax liability arose. The provision permits penalty for unaccounted goods by reference to the tax leviable on such goods or thirty per cent of their value, whichever is less; if the goods are already tax paid, the tax component is nil and the statutory basis for computing penalty fails. The Court also observed that stock worked out by deducting gross profit rate from sale value is only a broad estimate and is less reliable than physical verification. The penalty was set aside.

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Issues: Whether penalty under section 77(8) of the Rajasthan Sales Tax Act, 1994 could be imposed where the alleged excess stock related to sales tax paid goods and no further tax liability was attracted.

Analysis: Section 77(8) authorises penalty for possession of goods not accounted for, but the penalty structure depends on tax leviable on such goods or thirty per cent of their value, whichever is less. Where the goods are already sales tax paid goods, the tax component is nil, and the statutory basis for computing the penalty fails. The Court also noted that stock inferred by deducting G.P. rate from sale value is only a broad estimate and is not as precise as physical verification. The assessing authority and the Tax Board had not addressed the decisive question whether the goods were tax paid and therefore outside the practical reach of the penalty provision.

Conclusion: The penalty under section 77(8) was not sustainable and was set aside in favour of the assessee.

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