Penalty for bona fide tax belief not sustainable where tax and interest were paid and no contumacious conduct was shown.

Penalty under the Gujarat Sales Tax Act for the pre-Yasha Overseas period was held unsustainable where the assessee had paid the tax and interest and had acted under a bona fide belief that the exported goods were exempt. The Court found no deliberate defiance of law, contumacious conduct, dishonest intention, or conscious disregard of a statutory duty, noting that the transactions were recorded in the accounts. Because penalty proceedings are quasi-criminal and are not automatic on a technical breach or bona fide mistake, the penalty could not be imposed and was liable to be refunded.

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Issues: Whether penalty under Section 45(2)(c) and Section 45(6) of the Gujarat Sales Tax Act, 1969 could be imposed for the period prior to the decision in Yasha Overseas when the tax and interest had already been paid.

Analysis: The Court held that the assessee had been proceeding under a bona fide belief that the exported goods were exempt from sales tax until they were held taxable by the later Supreme Court decision. The relevant items were reflected in the assessee's accounts, and the default did not show deliberate defiance of law, contumacious conduct, dishonest intention, or conscious disregard of statutory obligation. Penalty proceedings, being quasi-criminal in nature, are not justified for a technical breach or where the breach flows from a bona fide belief. The Court relied on the settled principle that penalty is not automatic merely because it is lawful to impose it.

Conclusion: The penalty was not sustainable and was liable to be refunded to the assessee.

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