Bona fide exemption claim and full turnover disclosure defeated penalty where brand-name law remained unsettled.

Penalty under the Kerala General Sales Tax Act was held unsustainable where the assessee disclosed the full turnover in its return and claimed exemption on a bona fide understanding of the law governing brand-name sales. The court noted that the legal position on which of two permitted users would be treated as the brand-name holder had remained unsettled when the return was filed, and that penalty requires deliberate defiance, contumacious conduct, dishonest intent, or conscious disregard of statutory duty. A mere exemption claim, later examined in assessment, was not enough to establish an untrue return or evasion. The penalty order was therefore set aside.

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Issues: Whether penalty under Section 45A of the Kerala General Sales Tax Act, 1963 could be sustained where the assessee had disclosed the full turnover in its returns but claimed exemption on the basis of a bona fide understanding of the law regarding brand-name sales.

Analysis: The return disclosed the entire turnover and did not suppress sales. The controversy as to which of two permitted users of the brand name would be treated as the brand-name holder under Section 5(2) of the Kerala General Sales Tax Act, 1963 had remained unsettled for a long period, and the legal position was in flux when the return was filed. Penalty proceedings of this nature require more than an incorrect claim for exemption; there must be deliberate defiance of law, contumacious conduct, dishonest intent, or conscious disregard of statutory obligation. A mere claim of exemption, followed by assessment scrutiny, cannot by itself amount to furnishing an untrue return or evasion warranting penalty.

Conclusion: Penalty was not exigible, and the order imposing penalty under Section 45A could not be sustained.

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