Penalty for illegal tax collection fails where recoupment is separately invoiced and fully remitted to the treasury.

Penalty under Section 22(2) of the Tamil Nadu General Sales Tax Act, 1959 was confined to amounts illegally collected as tax or purporting to be tax and retained by the dealer. Where sales tax was charged at the prescribed rate, entry tax recoupment was separately shown in invoices, and the full amount was remitted to the treasury, there was no excess tax collection or retention. On those facts, the penalty levy was unsustainable and could not be maintained.

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Issues: Whether penalty under Section 22(2) of the Tamil Nadu General Sales Tax Act, 1959 was leviable where the dealer collected sales tax at the prescribed rate and separately recovered recoupment of entry tax, and remitted the entire amount to the treasury.

Analysis: The amount recovered towards recoupment of entry tax was shown separately in the invoices and did not form part of the sales tax collected at 8%. The record showed that the entire collection, including the recoupment amount, was remitted to the treasury. Penalty under Section 22(2) applies only where there is collection by way of tax or purporting to be by way of tax in contravention of the Act and the amount is illegally collected and retained. On these facts, there was no excess collection of sales tax and no retention of any amount so collected. The earlier decisions applying the same principle supported interference with the penalty order.

Conclusion: Penalty under Section 22(2) was not leviable, and the levy was unsustainable.

Ratio Decidendi: Section 22(2) is attracted only to amounts illegally collected as tax or purporting to be tax and retained by the dealer; amounts separately recovered and remitted to the State do not fall within its mischief.

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