(1) No person shall collect any sum by way of tax in respect of sale or purchase of any goods on which no tax is payable under this Act.

(2) No person, who is not a registered dealer and liable to pay tax in respect of any sale or purchase, shall collect on the sale or purchase of any goods any sum by way of tax from any other person and no registered dealer shall collect any amount by way of tax in excess of the amount of tax payable by him under this Act.

(3) If any person, or a dealer referred to in sub-section (1) and (2) contravenes any of these provisions he shall be liable to pay, in addition to any tax for which he may be liable, a penalty of an amount of five hundred rupees, or double the amount so collected, whichever is greater.

(4) If the Commissioner, or any person appointed to assist him under sub-section (1) of section 3, in the course of any proceedings under this Act or otherwise, has reason to believe that any person has become liable to pay penalty under sub-section (3), he shall serve on such person a notice in the prescribed form requiring him to show cause why a penalty as provided in sub-section (3) should not be imposed on him and there upon hold an enquiry and shall make such order as he thinks fit.