Bona fide tax dispute and prompt payment after Supreme Court ruling can defeat penalty for sales tax shortfall.

Penalty for short or non-payment of sales tax under Section 12 B(4) is discretionary and cannot be imposed mechanically. Where the assessee raised a bona fide dispute on taxability, pursued the issue through litigation up to the Supreme Court, and paid the tax promptly after the assessment order following the Supreme Court's declaration of law, the default is not properly characterised as deliberate, contumacious, dishonest, or in conscious disregard of the statutory duty. The authorities were required to give proper weight to the genuine legal controversy and the assessee's conduct before and after final settlement of the issue. On that basis, the penalty was held not sustainable and liable to be set aside.

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Issues: Whether penalty for short/non-payment of sales tax under Section 12 B(4) was justified when the assessee had a bona fide dispute about taxability, had carried the matter up to the Supreme Court, and paid the tax immediately after the assessment order was passed following the Supreme Court's declaration of law.

Analysis: Penalty under the Act is discretionary and is not to be imposed mechanically. The surrounding circumstances showed that the assessee had consistently disputed liability on the basis of earlier conflicting legal views, that the controversy was finally settled only by the Supreme Court, and that payment was made promptly after assessment pursuant to that decision. In such a setting, the default could not be characterised as deliberate, contumacious, dishonest, or in conscious disregard of the statutory obligation. The authorities failed to apply the settled principles governing penalty and did not give due weight to the bona fide nature of the dispute and the assessee's conduct before and after the Supreme Court's ruling.

Conclusion: The penalty was not sustainable and was liable to be set aside.

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