Bona fide tax collection under a then-valid provision does not attract penalty when later rules are struck down.

Penalty under section 22(2) of the Tamil Nadu General Sales Tax Act was held unsustainable where tax had been collected under section 3B while that provision was still valid, and the later striking down of the deduction and computation rules did not retrospectively make the earlier collection unauthorised. The collection was treated as arising from a bona fide mutual mistake, so the penal provision for unauthorised collection was not attracted. The Tribunal's restoration of penalty was reversed and the revision was allowed.

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Issues: Whether penalty under section 22(2) of the Tamil Nadu General Sales Tax Act, 1959 was leviable on the assessee's collection of tax under section 3B of the Act for the relevant assessment year, when the collection was made under a then-valid provision and the computation rules were struck down later.

Analysis: The tax was collected when section 3B operated as a valid charging provision and, on the relevant date, there was no illegality in the assessee's conduct. The subsequent declaration that the deduction and computation rules were unconstitutional did not retrospectively make the earlier collection unauthorised for the purpose of penalty. On the facts, the collection was made under a bona fide and mutual mistake, and the case did not attract the penal provision invoked for unauthorised collection.

Conclusion: Penalty under section 22(2) was not sustainable and had to be set aside.

Final Conclusion: The revision was allowed and the Tribunal's restoration of penalty was reversed.

Ratio Decidendi: A collection made under a provision that was valid at the time cannot be treated as an unauthorised collection for penalty merely because the computation rules were later struck down; where the collection arose from a bona fide mutual mistake, penal action under section 22(2) does not arise.

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