Entry tax penalty notice fails where intra-local-area sales carry no entry tax liability and no supporting material exists.

Penalty under section 12(5) read with section 8D(6) of the U.P. Entry Tax Act could not stand where the assessee had already been found not liable to entry tax on sales made within the same local area. The notice was based on alleged sales to unregistered dealers and non-collection of tax at source, but there was no material showing that the goods were sold outside the local area. With no underlying entry tax liability on intra-local-area sales, the foundation for penalty failed, and the penalty notice and proceedings were quashed as unwarranted in law.

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Issues: Whether the penalty notice issued under section 12(5) read with section 8D(6) of the U.P. Tax on Entry of Goods into Local Areas Act, 2007 was sustainable when the assessee had been held not liable to pay entry tax on sales made within the same local area.

Analysis: The assessee had already succeeded on the question of entry tax liability, and the Tribunal's finding that the sales were made at the factory premises within the local area had been upheld in revision. The notice itself proceeded on the basis that sales were made to unregistered dealers and that entry tax had not been collected at source. On the admitted facts, however, there was no averment or material showing that the sales were outside the local area. The absence of any entry tax liability on such intra-local-area sales meant that the foundation of the penalty notice failed. The matter was also treated as covered by the earlier decision holding that section 12 had no universal application to sales made within the same local area where there was no intention to take goods to another local area.

Conclusion: The penalty notice was held to be illegal and unwarranted in law and was quashed, along with the penalty proceedings.

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