1987 (12) TMI 320 - HC - VAT and Sales Tax

Issues Involved:
1. Legality of the seizure order under section 28(3) of the Karnataka Sales Tax Act.
2. Whether the seizure was a result of inspection or search.
3. Compliance with sections 100 and 165 of the Code of Criminal Procedure.
4. Validity of the seizure without prior notice under section 28(1) of the Act.
5. Definition and implications of "due" tax under section 28(3) of the Act.

Detailed Analysis:

1. Legality of the Seizure Order under Section 28(3) of the Karnataka Sales Tax Act:
The petitioner, a public limited company, challenged the seizure order made by the respondent under section 28(3) of the Act. The respondent, an officer of the Commercial Tax Department, conducted an inspection based on credible information that the petitioner was evading Central Sales Tax by disguising inter-State sales as stock transfers. The respondent inspected the petitioner's premises and seized documents after recording reasons for the seizure. The court noted that the respondent was empowered under the Act to inspect and seize documents if there was suspicion of tax evasion.

2. Whether the Seizure was a Result of Inspection or Search:
The petitioner argued that the seizure was a result of an illegal search rather than an inspection. The court examined the distinction between "inspection" and "search," noting that inspection does not necessarily require prior notice and can be conducted to verify compliance with tax laws. The court concluded that the seizure was made after an inspection, not a search, as the officer had inspected the documents produced by the petitioner and then seized them.

3. Compliance with Sections 100 and 165 of the Code of Criminal Procedure:
The petitioner contended that the seizure violated the requirements of sections 100 and 165 of the Code of Criminal Procedure, which mandate specific procedures for searches. The court observed that these provisions apply to searches, not inspections. Since the court determined that the seizure was a result of an inspection, the compliance with sections 100 and 165 was not required.

4. Validity of the Seizure without Prior Notice under Section 28(1) of the Act:
The petitioner argued that the seizure was invalid as it was not preceded by a notice under section 28(1) of the Act. The court referred to previous judgments and noted that the power to inspect does not require prior notice. The element of surprise in inspections is essential to detect tax evasion effectively. The court held that prior notice is not mandatory for inspections under section 28(2) of the Act.

5. Definition and Implications of "Due" Tax under Section 28(3) of the Act:
The petitioner argued that no seizure could be effected as no tax was assessed as due. The court rejected this argument, clarifying that "due" tax under section 28(3) refers to the tax the petitioner is liable to pay under the Act, not just the amount determined after assessment. The court emphasized that the respondent had credible information about the petitioner's tax evasion practices and acted within his powers to seize documents related to suspected tax evasion.

Conclusion:
The court dismissed the writ petition, upholding the respondent's seizure order as a valid exercise of power under section 28(3) of the Karnataka Sales Tax Act. The court concluded that the seizure was made after an inspection, not a search, and did not suffer from any illegality. The court emphasized the importance of the power of inspection in tax enforcement and the necessity of surprise inspections to prevent tax evasion.

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