Penalty remission under sales tax law turns on excess payment, doubtful taxability, and proven mitigation rather than ordinary financial strain.

Discretion to remit penalty under Section 36(3) of the Bombay Sales Tax Act, 1959 was to be exercised by treating excess tax payment, uncertainty over inclusion of deposits in turnover, and connected refund amounts as relevant mitigating factors. The penalty operated as compensation for revenue loss, so prior excess payment and unresolved taxability issues justified reduction for the first two periods. However, ordinary commercial difficulty, alleged credit squeeze, and unproved financial strain were insufficient without exceptional circumstances, so no further remission was warranted for the third period.

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Issues: Whether the penalties levied under Section 36(3) of the Bombay Sales Tax Act, 1959 deserved substantial remission for the first two periods on account of excess tax payment, uncertain taxability of deposits, refund due under sales tax proceedings, delayed realisation of sale proceeds, and claimed financial stress.

Analysis: The proviso to Section 36(3) confers discretion to reduce penalty where the circumstances justify remission. The excess amount already paid by the assessee was a relevant mitigating factor because the penalty functioned as compensation for the Revenue being out of pocket. The existence of a refund arising in connected sales tax proceedings was also relevant, even though it arose under the Central Sales Tax Act, because the practical fiscal burden remained with the same department. The legal position regarding inclusion of certain deposits in turnover was not free from doubt, and that uncertainty too weighed in favour of remission. By contrast, the alleged credit squeeze, the business model involving nominated purchasers, and the asserted lack of liquid assets were not established as sudden or exceptional factors sufficient to justify further relief for the third period.

Conclusion: The penalties for the first two periods were reduced to Rs. 20,000 each. No reduction was granted for the third period.

Final Conclusion: The appeals succeeded only to the extent of reducing the penalty for the first two periods, while the penalty for the third period remained unchanged.

Ratio Decidendi: While exercising discretion to remit a penalty imposed as compensation for tax default, the authority must treat excess payment by the assessee, unresolved taxability issues, and connected refund amounts as relevant mitigating circumstances, but ordinary commercial difficulty or unproved financial strain is not enough by itself to justify remission.

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