The judgment of the Court was delivered by

T. U. MEHTA, J. - This reference arises out of the assessment of sales tax for the calendar years 1965 and 1966. During the course of the said assessment, the sales tax authorities have imposed penalty under section 10A of the Central Sales Tax Act, 1956, which is hereinafter referred to as "the Act", on the footing that the applicant-assessee has failed, without reasonable excuse, to make use of the goods for the purpose mentioned in clause (b) of sub-section (3) of section 8 of the Act. The Tribunal has, in this reference, referred the following two questions for our opinion :

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was no reasonable excuse on the part of the applicant within the meaning of section 10(d) of the Central Sales Tax Act, 1956, and thereby confirming the imposition of penalty under section 10A of the Central Sales Tax Act, 1956, though the penalty was reduced to certain extent ?

(ii) Whether, on a true construction of section 10A of the Central Sales Tax Act, 1956, the Tribunal was justified in rejecting the contention of the applicant that the maximum penalty that could be levied under section 10A of the Central Sales Tax Act, 1956, was 3 per cent up to 30th June, 1966, and 4.5 per cent since 1st July, 1966 ?"

These two questions arise in the background of the following facts :

The applicant-assessee is a limited concern, whose main business is to manufacture and sell textile goods. During the calendar years 1965 and 1966, the assessee purchased dyes and chemicals in the course of inter-State trade and commerce against C form declarations. A small part of the goods, (working out at 2 to 3 per cent) out of the goods purchased against C forms, was utilised by the assessee in processing cloth of outside parties. The main bulk of the goods so utilised for the outside parties was for a sister concern of the applicant-assessee, namely, the Navsari Cotton and Silk Mills Ltd. The remaining quantity was used in the processing of cloth of Messrs. High Fashion Printers, Bilimora, and Messrs. Star Trading Corporation. While making the assessment for the calendar years 1965 and 1966, the Sales Tax Officer, Navsari, held that the assessee was liable for contravention of declarations in form C in respect of that part of dyes and chemicals which was utilised by the assessee in processing the cloth of outside parties. The said officer, thereupon, assessed the value of such goods and imposed penalty for the breach of the undertaking given in the C form, under section 10A read with section 10(d) of the Act, at the rate of 12 per cent of the estimated purchase value of the goods so utilised.

The contention which was raised by the assessee before the Sales Tax Officer was that a small portion of the goods purchased against C form was utilised for processing the goods of the outside parties for a "reasonable excuse" within the meaning of section 10(d) of the Act and, therefore, no penalty under section 10A was leviable.

Another contention which was raised by the assessee was that even if it is believed that there is no reasonable excuse for utilising the goods in question for the purpose of processing cloth of outside parties, the imposition of penalty at the rate of 12 per cent was unwarranted. In this connection, the contention of the assessee was, and is, that the penalty which is contemplated by section 10A of the Act is one and half times the tax which would be leviable under section 8(1) of the Act which contemplates the concessional rate of tax, and not of the normal tax which is leviable under sub-section (2) of section 8 of the Act. It should be noted here that so far as sub-section (1) of section 8 of the Act is concerned, tax of 2 per cent was leviable before 1st July, 1966, while the tax of 3 per cent was leviable with effect from 1st July, 1966. Therefore, according to the assessee, the penalty le