R. JAYASIMHA BABU, J.

The assessee has challenged the order of the Tribunal, which has upheld the imposition of penalty. The assessee has also questioned his liability to purchase tax on the bottles in which I.V. fluids manufactured by the assessee are packed and sold.

This Court in the case of Appollo Saline Pharmaceuticals (P) Ltd., concerning the same assessee has held in the judgment dated September 14, 2001, that the sale of I.V. fluid in bottles is a composite sale and that the turnover relating to the bottles have to be, by virtue of the provisions contained in section 3(7) of the Tamil Nadu General Sales Tax Act, 1959, treated as the turnover relating to the I.V. fluids itself and in those circumstances, the bottles will have to be regarded as having been disposed of in a manner which would attract the levy of purchase tax, the bottles having been purchased from unregistered dealers and no tax having been paid on that purchase either by the seller or by the buyer. While so holding, this Court followed the law laid down by the Supreme Court in the case of Premier Breweries v. State of Kerala. The purchase tax therefore is payable by the petitioner.

Between December 3, 1979 and May 27, 1993 sub-sections (4) and (5) of section 12 were on the statute book which permitted levy of penalty even in cases of assessment under section 12(1). The penalty under section 12(3) could be levied only in cases of best judgment assessment. This Court in State of Tamil Nadu v. Indian Silk Traders, has held that the bona fides of the person, who is alleged to have withheld the tax is also a factor which the assessing authority must consider even in case where the tax is found to have been withheld. In so far as the assessments made under section 12(1) between December 3, 1979 to May 27, 1993, the levy of penalty being discretionary having regard to the use of the word "may" in section 12(4), that discretion is required to be exercised having regard to all the circumstances of the case including the bona fides of the assessee.In so far as the assessee's assessments for the years 1993-94 and 1994-95 are concerned, they are assessments made under section 12(1) as they are made on the basis of the return filed by the assessee and the accounts maintained by the assessee. The assessing authority has accepted the value of the bottles purchased and without making any further enquiry has merely included the turnover relating to the bottles in the taxable turnover for the I.V. fluids and has levied tax on the purchase of bottles under section 7-A.

The Supreme Court in the case of State of Madras v. Jayaraj Nadar & Sons after extracting section 12(2) of the Tamil Nadu General Sales Tax Act, 1959 which remains in the same form even now, observed thus :

"The question is whether penalty can be levied while making the assessment under sub-section (2) of the above section merely because an incorrect return has been filed. The High Court was of the view that it is only if the assessment has to be made to the beat of the judgment of the assessing authority that penalty can be levied. It seems to us that the High Court came to the correct conclusion because sub-sections (2) and (3) have to be read together. Sub-section (2) empowers the assessing authority to assess the dealer to the best of its judgment in two events : (i) if no return has been submitted by the dealer under sub-section (1) within the prescribed period, and (ii) if the return submitted by him appears to be incomplete or incorrect. Sub-section (3) empowers the assessing authority to levy the penalty only when it makes an assessment under sub-section (2). In other words, when the assessing authority has made the assessment to the best of its judgment, it can levy a penalty. It is well-known that the best judgment assessment has to be on an estimate which the assessing authority has to make not capriciously but on settled and recognised principles of justice. An element of guess-work is bo