Nil tax liability cannot support penalty where the reassessment removes the very basis of concealment allegations.

Penalty under Section 40(2) of the Jharkhand VAT Act could not survive after reassessment fixed the petitioner's tax liability at nil. The assessing authority later recorded that the petitioner was engaged in power transmission, that the purchased goods were capital goods for installation and transmission of electricity, and that they were never sold. Once the foundation for treating the purchases as concealed taxable transactions disappeared, the penalty calculated as three times the tax payable became unsustainable. The penalty order, appellate order, and tribunal judgment were set aside, and the statutory deposit was directed to be refunded with statutory interest.

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Issues: Whether penalty imposed under Section 40(2) of the Jharkhand Value Added Tax Act, 2005 could survive after the assessing authority, on reconsideration, fixed the petitioner's tax liability at Nil.

Analysis: The penalty had been imposed at three times the tax payable on the premise that the petitioner had concealed taxable purchases. During the pendency of the writ petition, the assessment was revisited and amended, and the assessing authority recorded that the petitioner was engaged in power transmission, that the goods purchased were capital goods for installation and transmission of electricity, that the goods were never sold, and that the tax liability was Nil. Once the very foundation for computing penalty disappeared, no penalty could be sustained on a nil tax base. The Court also relied on the principle that where there is no tax liability, penalty on unpaid tax cannot be levied.

Conclusion: The penalty order, the appellate order, and the tribunal's judgment were unsustainable and were set aside. The writ petition was allowed and the statutory deposit was directed to be refunded with statutory interest.

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