Penalty for bona fide VAT error was unsustainable where tax liability was ambiguous and no intent to evade was shown.

Penalty under section 34(7) of the Gujarat VAT Act required an intention to evade or avoid tax, and the discretionary power under section 34(12) had to be exercised on relevant considerations. The assessee had sought clarification soon after the VAT regime changed, the liability position was capable of more than one interpretation, and the provisional assessment did not support a finding of tax evasion. Those circumstances indicated a bona fide error rather than a clandestine default, and the Tribunal's partial confirmation of penalty was unsupported by the record. The penalty was therefore not sustainable on the facts, and the Tribunal erred in sustaining any part of it.

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Issues: Whether penalty under section 34(7) and section 34(12) of the Gujarat Value Added Tax Act was justified on the facts, and whether the Tribunal was right in sustaining any part of the penalty despite the assessee's claim of bona fide error and absence of mala fide intention.

Analysis: The assessee had purchased Isabgul seeds in Gujarat, sent them for processing outside the State and sought clarification from the tax authority soon after the VAT regime came into force and relevant amendments were introduced. The statutory scheme had recently changed, the liability position was capable of more than one interpretation, and the provisional assessment itself did not treat the transactions as giving rise to the same tax demand. These circumstances showed that the default was not a clandestine attempt to evade tax. Penalty under section 34(7) required an element of intention to evade or avoid tax, and section 34(12) vested discretion in the authority to impose penalty, which had to be exercised on relevant considerations. The Tribunal's sustaining of a part of the penalty rested on assumptions unsupported by the record.

Conclusion: Penalty under section 34(7) and section 34(12) was not sustainable on the facts, and the Tribunal erred in confirming any part of it.

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