Penalty for unlawful tax collection cannot stand where the amount was deposited and taxability of transactions was genuinely claimed.

Section 46 of the Gujarat Sales Tax Act, 1969 permits penalty only where tax is collected in contravention of Section 56, which bars collection when no tax is payable on the relevant sale. Here, the amount collected had already been deposited with the tax department, and the assessee had acted on the view that tax was exigible on the transactions. On those facts, the HC held that initiation and continuation of penalty proceedings were misconceived, and the penalty orders were unsustainable.

---

---

Issues: Whether penalty could be sustained under Section 46 of the Gujarat Sales Tax Act, 1969 for collection of tax when the amount collected had already been deposited with the tax department and the levy itself was found not exigible on the relevant transactions.

Analysis: Section 46(1) permits penalty only where a person collects an amount by way of tax in contravention of Section 56. Section 56(1) prohibits collection of tax only in cases where no tax is payable on the relevant sale. On the facts found, the collected amount had already been paid over to the department, and the petitioner's conduct was based on the view that tax was exigible on the transactions. In such circumstances, initiation and continuance of penalty proceedings were held to be misconceived.

Conclusion: The penalty orders were unsustainable and the challenge succeeded in favour of the assessee.

---