(1) If a registered dealer, without sufficient cause, fails to pay the amount of tax due and the interest payable thereon alongwith return or revised return in accordance with rule 7, the assessing authority may, subject to sub-rule (3), direct him to pay, in addition to the tax and interest payable by him, a penalty at the rate of two per centum per month on the tax and interest so payable, from the date it had become due, to the date of its payment or to the date of order of assessment, whichever is earlier.

(2) If a registered dealer, without any sufficient cause, fails to furnish the proof of payment as required under rule 7, the assessing authority may, subject to sub-rule (3), direct him to pay, in addition to the tax, interest under sub-rule (1) of rule 8 and penalty under sub-rule (1) of this rule payable or paid by him, a penalty of a sum of rupees one hundred per each day of default, subject to a maximum of rupees ten thousand.

(3) Before imposition of penalty, the assessing authority shall serve on such defaulting dealer a notice in Form II-A calling him to show cause, within a period of fourteen days from the date of receipt of the notice as to why a penalty shall not be levied on him and consider the explanation given by the dealer, if any.

(4) The order imposing penalty under sub-rule (1) or (2) of this rule shall be served on the defaulting dealer together with a notice of demand in Form VII.