Reasoned penalty orders under tax law are mandatory where discretion applies; a mechanical demand notice was quashed.

Penalty under section 90 of the Assam Value Added Tax Act, 2003 cannot be imposed mechanically. Where the provision requires a reasonable opportunity of hearing and confers discretion both on whether to impose penalty and on the quantum, the authority must record reasons showing application of mind. A coercive quasi-judicial penalty order must be a speaking order, and a notice that merely states penalty is imposed without explaining why penalty is warranted or how the amount was fixed is arbitrary and unsustainable. On that basis, the penalty order was quashed and the connected recovery proceeding could not survive.

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Issues: Whether penalty under section 90 of the Assam Value Added Tax Act, 2003 could be imposed mechanically without recording reasons and whether the impugned demand notice imposing penalty was sustainable.

Analysis: Section 90 authorises penalty for contravention or failure to comply with the Act or the rules, but only after giving a reasonable opportunity of hearing. The provision confers discretion on the authority both as to whether penalty should be imposed at all and, if so, the quantum of penalty. Such discretion must be exercised on relevant considerations and the order must disclose reasons so that application of mind is evident. An order imposing penalty is a coercive quasi-judicial order and must be a speaking order. The impugned notice merely stated that penalty was being imposed and did not indicate any reasons for deciding that penalty was warranted or for fixing the amount. It therefore reflected non-application of mind and arbitrariness.

Conclusion: The penalty order was unsustainable and was rightly quashed; the recovery proceeding based on it also could not survive.

Ratio Decidendi: Penalty under a taxing statute that confers discretion and requires a hearing cannot be imposed automatically; the authority must record reasons showing application of mind and justification for both the decision to penalise and the quantum imposed.

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