The discretionary nature of penalty imposition under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 and the importance of considering the bona fides of the assessee in such cases.

F.M. Ibrahim Kalifulla, J.

1. This Revision by the State arised on the following substantial question of law, viz., "Whether in the facts and circumstances of the case, the Tribunal is legally correct in having deleted the penalty levied under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 based upon the decision in 125 STC 505 while for the assessment year 1981-82 penalty is leviable under Section 12(5)(iii) of the Act for filing of incorrect and incomplete returns and therefore the said decision cannot be applied to this case ?

2. The short facts which are required to be stated are that the respondent is a cement manufacturing company. The assessment relates to the year 1981-82. This revision is confined to that part of the order of the Tribunal in having setting aside the penalty imposed on the respondent under Section 12 (5) (iii) of the Tamil Nadu General Sales Tax Act, 1959. The sale value of the cement bags manufactured by the respondent was determined by the cement control order. It is not in dispute that the said sale value is determined in the cement control order by including the freight and packing charges. Nevertheless, the respondent in the course of its sale also charged a further sum by way of freight and packing charges over and above the price fixed in the cement control order.

3. While submitting its returns, the respondent disclosed such freight and packing charges in the total turnover and thereby the same were not included in the taxable turnover. In support of its claim for its non-inclusion in the taxable turnover, the respondent places reliance upon the decision of this Court reported in (1982) 51 STC 171 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu). The said decision came to be reversed by the Honble Supreme Court in the decision reported in (1993) 88 STC 151 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu).

4. It is in the above stated circumstances, the impugned order of assessment came to be made, wherein, apart from the imposition of tax on the freight and packing charges, penalty also came to be imposed on the respondent by invoking Section 12(5)(iii) of the Act. The order of assessment was also confirmed by the First Appellate Authority viz., the Deputy Commissioner (CT), Chennai which was the subject matter of challenge before the Sales Tax Appellate Tribunal, Chennai at the instance of the respondent.

5. By the order impugned in this revision, the Tribunal while confirming the levy of tax, set aside the penalty imposed by holding that the respondent acted on a bonafide belief in the light of law laid down by this Court in the decision reported in (1982) 51 STC 171 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu), which came to be reversed by the Honble Supreme Court only in the decision reported in (1993) 88 STC 151 (Ramco Cement Distribution Co.(P.) Ltd. Vs. The State of Tamil Nadu).

6. We heard Mr. Haja Nazaruddin, learned Special Government Pleader (Taxes) appearing for the appellant and Mr. N. Inbarajan, learned counsel appearing for the respondent.

7. We are also convinced with the reasoning of the Tribunal while interfering with the levy of penalty. The imposition of penalty is prescribed under Section 12 (4) and (5) of the Act. While under Section 12(4), the circumstances in which penalty can be imposed is stipulated, under Section 12(5) the power to impose the penalty and the quantum of penalty that can be imposed is specified. Section 12(4) and (5) needs extraction which reads as under:

"Section 12 (4): Notwithstanding anything contained in sub-section (1), (2) and (3), the assessing authority may, if it is satisfied that the accounts maintained by a dealer are correct, assess such dealer on the basis of such accounts, if such dealer has:-

.(i) failed to submit the prescribed return; or

.(ii) failed to submit the prescribed return within such period as may be prescribed; or

(iii) if the