Reasonable cause defeats VAT penalty for delayed tax deposit where bona fide explanation and interest payment were established.

Penalty for delayed deposit of admitted tax under the U.P. VAT Act was held unsustainable where the assessee showed reasonable cause. The delay was only two days, the assessee had no liquid funds, the explanation had already been accepted by the assessing authority for extension of time, and the tax was later deposited with interest. The Court held that penalty under a provision requiring failure to pay tax "without reasonable cause" is not automatic, and the existence of overdraft facilities does not by itself defeat a bona fide explanation because such facilities are not equivalent to available liquid funds. The revision was allowed and the penalty order was set aside.

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Issues: Whether penalty under section 54(1)(1) of the U.P. VAT Act could be sustained for a two-day delay in depositing admitted tax when the assessee had no liquid funds, the delay had been regularised by payment of interest, and the explanation for delay had been accepted earlier for grant of extended time.

Analysis: The delay in deposit was admitted, but the factual position that the assessee had no liquid funds in its bank account was not disputed. The assessing authority itself had accepted that explanation and granted an extension of time, which showed that the cause shown was genuine. The Court held that the levy of penalty under the provision was not automatic because the statutory language required failure to deposit tax "without reasonable cause". It further held that the existence of overdraft facilities did not by itself negate reasonable cause, as such facilities are contingent and not the same as readily available liquid funds. Since the tax was ultimately paid along with interest, the State's interest stood protected.

Conclusion: The assessee had shown reasonable cause for the delayed deposit, and the penalty was not sustainable. The question was answered in favour of the assessee.

Final Conclusion: The revision was allowed and the penalty order was set aside on the ground that discretionary penal provisions for delayed tax deposit require a proved absence of reasonable cause.

Ratio Decidendi: Penalty for delayed payment of tax under a provision conditioned by the phrase "without reasonable cause" cannot be imposed mechanically, and it must be declined where the assessee establishes a bona fide explanation and the revenue is compensated by interest.

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