Penalty for tax collected from buyers fails without proof of actual recovery, while taxability issue was remitted for reconsideration.

Penalty for collection of tax not payable could not be sustained where tax was not shown separately in sale bills and the record only indicated an internal price breakup, because mere inclusion of a tax element in the sale price did not amount to recovery of tax from buyers. The penalty orders were therefore set aside on that footing. However, an intervening Supreme Court ruling on the taxability of iron and steel products required the underlying tax liability to be reconsidered, since taxability and penalty were interdependent. The matter was remitted to the assessing authority for fresh determination of tax liability and any consequential administrative relief.

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Issues: (i) whether penalty under section 46(1)(ii) read with section 56 of the Gujarat Sales Tax Act, 1969 could be sustained on the footing that the dealer had recovered tax from buyers; (ii) whether, in light of the intervening Supreme Court decision on the taxability of iron and steel products, the matters required remand for reconsideration of tax liability and consequential administrative relief.

Issue (i): whether penalty under section 46(1)(ii) read with section 56 of the Gujarat Sales Tax Act, 1969 could be sustained on the footing that the dealer had recovered tax from buyers.

Analysis: The appellant had not shown tax separately in the sale bills, and the record indicated only that the sale price was internally broken up in the sales register and the amount described as tax was later paid with the quarterly returns. On the reasoning earlier applied in analogous cases, the decisive question was whether any amount had in fact been recovered by way of tax from the buyers. Mere inclusion of a tax element in the sale price did not amount to recovery of tax so as to attract the statutory prohibition against collection of tax not payable.

Conclusion: The penalty orders could not be sustained on the footing adopted by the lower authorities, and section 46(1)(ii) had no application on that basis.

Issue (ii): whether, in light of the intervening Supreme Court decision on the taxability of iron and steel products, the matters required remand for reconsideration of tax liability and consequential administrative relief.

Analysis: The later Supreme Court ruling materially affected the understanding of the resale definition and, therefore, the underlying tax liability of the sales in question. Since the legality of the tax recovery and the levy of penalty were interdependent, the question of whether tax was lawfully leviable could not be isolated from the question of penalty. A fresh determination by the assessing authority was therefore necessary, including the question whether any administrative relief granted by the Government could be applied if tax was found leviable.

Conclusion: The matter was required to be sent back to the assessing authority for reconsideration of taxability and, if necessary, administrative relief.

Final Conclusion: The assessee succeeded to the extent that the penalty orders were set aside, but the controversy was not finally concluded because the question of taxability was remitted for fresh decision.

Ratio Decidendi: Penalty for collection of tax not payable cannot stand unless the amount is shown to have been recovered by way of tax, and where the underlying taxability is directly affected by a later binding decision, the penalty issue must be reconsidered with the tax question on remand.

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