Penalty for entry tax breach quashed where no notice proposed penalty and no hearing was given.

Penalty under section 15 of the Tamil Nadu Tax on Entry of Motor Vehicles into Local Areas Act, 1990 could not be sustained because the assessee was not given a notice proposing penalty or an effective opportunity of hearing before its imposition. The notice issued concerned only tax liability, and the statutory requirement of hearing under section 15(1) was not complied with. The Court also noted that the assessee had treated the excavator as not requiring registration at the relevant time, and later clarification of the legal position negatived any deliberate intention to evade tax. The penalty was quashed, but the underlying tax liability was left undisturbed.

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Issues: Whether penalty under section 15 of the Tamil Nadu Tax on Entry of Motor Vehicles into Local Areas Act, 1990 could be sustained without notice proposing penalty and without affording an opportunity of hearing.

Analysis: Section 15(1) contemplates that the person proceeded against must be heard before penalty is imposed. The notice issued in the present case related only to tax payability and did not indicate any proposal to levy penalty. The Court also noted that the assessee had treated the excavator as not liable for registration at the relevant time and that the subsequent clarification of the legal position negatived any intention to evade tax. Since the procedural requirement of notice and hearing was not followed, and the non-payment was not shown to be deliberate, further enquiry on penalty was unnecessary. At the same time, the liability to pay tax itself was left undisturbed.

Conclusion: The penalty was quashed for breach of the statutory procedure and absence of deliberate evasion, while the assessee's tax liability remained intact.

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