Penalty under Trade Tax law fails where full disclosure, voluntary tax payment, and no mens rea or revenue loss are shown.

Penalty under Section 4-B(5) of the Trade Tax Act was unsustainable where the assessee had voluntarily paid the differential tax and interest, made full disclosure, and no concealment, revenue loss or mens rea was shown. The Court noted that penalty proceedings are distinct from quantum proceedings, but they still require a substantive breach of the statutory condition and penal culpability. As the goods were ultimately used in the manufacture of finished goods sold within the State, initiation of penalty was found unjustified and was set aside.

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Issues: Whether penalty proceedings under Section 4-B(5) of the Trade Tax Act, 1948 could be sustained where the assessee had deposited the tax differential and interest, there was no concealment or revenue loss, and the matter in quantum was still pending.

Analysis: The assessee had obtained concessional tax benefit on raw material under the recognition scheme and the department alleged that the goods were used otherwise than for the certified purpose. The Court noted that the assessee had voluntarily deposited the differential tax before the penalty action, had also availed the State incentive scheme by depositing 10% of the interest, and had not suppressed any transaction. It further held that penalty proceedings are distinct from quantum proceedings, but a penalty under this provision still requires a substantive basis showing breach of the statutory condition and penal culpability. In the absence of concealment, revenue loss, or mens rea, and where the goods were ultimately used in the manufacture of finished goods sold within the State, initiation of penalty was held unjustified.

Conclusion: The penalty proceedings under Section 4-B(5) were not sustainable and were set aside in favour of the assessee.

Ratio Decidendi: Penalty under a fiscal statute is not leviable merely because a concessional tax condition is questioned; where the assessee has made full disclosure, voluntarily paid the tax differential and interest, and no mens rea or revenue loss is shown, penalty cannot be sustained.

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