(1) If a registered dealer fails, without any reasonable cause, to furnish a return, within the due date as provided in rule 7, the Commissioner may serve on such defaulting dealer a notice in form II calling upon him to show cause by a date to be specified in the notice why a penalty shall not be levied on him.

(2) If after considering the explanation of the dealer and giving him a personal hearing, if necessary, the Commissioner is not satisfied that default was due to reasonable cause he shall pass an order levying penalty and serve it on the dealer together with a notice of demand in Form VII :

Provided that the penalty shall be equal to one tenth per centum of the tax due or rupees ten for every day after the due date during which the dealer fails to submit the required return, whichever is higher.