Escaped turnover penalty under VAT law fails where no legally sustainable assessment and no unpaid balance remain.

Penalty under the Tamil Nadu Value Added Tax Act for wilful non-disclosure could not be sustained because the statutory precondition of escaped turnover was not established. The assessment records showed no original assessment accepting the return and no best judgment assessment on an incomplete or incorrect return, so Section 27(1)(a) was not properly triggered. Since the dealer had admitted the stock variation and paid the tax during inspection, no escaped turnover or unpaid balance remained to support penalty under Section 27(3). The Madras HC upheld the view that, without a legally sustainable assessment of escaped turnover, the penal provision could not be invoked.

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Issues: Whether penalty under Section 27(3) of the Tamil Nadu Value Added Tax Act, 2006 was sustainable in the absence of an original assessment and any escaped turnover.

Analysis: The assessment records showed no separate original assessment under Section 22(2) accepting the return and no best judgment assessment under Section 22(4) on the basis of an incomplete or incorrect return. The statutory scheme of Section 27(1)(a) applies only where turnover has escaped assessment, and the penal provision in Section 27(3) operates only when such escaped assessment is found to be due to wilful non-disclosure. On the facts, the dealer had admitted the stock variation and paid the tax during inspection itself, and therefore no escaped turnover or unpaid balance survived for penalty. The Tribunal's reasoning that the very precondition for invoking Section 27(3) was absent was upheld.

Conclusion: Penalty under Section 27(3) was not sustainable and the assessee was entitled to succeed.

Ratio Decidendi: Penalty for wilful non-disclosure under an escaped-assessment provision cannot be imposed unless there is a legally sustainable assessment of escaped turnover.

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