1986 (6) TMI 240 - HC - VAT and Sales Tax

Summary

Issues:
1. Validity of compounding fee of Rs. 3,000.
2. Compliance with procedural requirements under Section 31 of the Act.
3. Alleged arbitrary collection of tax and composition fee.

Analysis:

The judgment by S.R. Rajasekhara Murthy, J., revolves around the petitioner, an assessee under the Karnataka Sales Tax Act, engaged in hulling paddy business in Mandya. The Commercial Tax Officer seized some books of accounts during an inspection on 26th January, 1983, and issued a show cause notice the next day. The petitioner, on 27th January, 1983, requested time to respond to the discrepancies noted in the notice. The petitioner alleged being coerced to pay Rs. 10,000 on the same day without being given a chance to explain or compound the offense.

The primary issue addressed in the judgment is the validity of the compounding fee of Rs. 3,000 imposed by the respondent. The petitioner had filed a reply on 31st January, 1983, explaining the discrepancies and seeking the return of the Rs. 10,000 cheque. Section 31 of the Act allows for composition of offenses after providing a reasonable opportunity to the individual to clarify the discrepancies. The respondent's hasty imposition of the compounding fee without the requisite time for explanation was deemed improper.

Furthermore, the judgment highlights the procedural lapses by the respondent in quantifying the tax and compounding fee before completing the assessment based on the alleged suppressed turnover. This premature collection of Rs. 10,000, comprising Rs. 7,000 as tax and Rs. 3,000 as compounding fee, was considered arbitrary and high-handed. The respondent's actions were found to be in violation of the statutory provisions governing the levy of composition fees under Section 31.

Consequently, the show cause notice was declared invalid and set aside for various reasons, including non-compliance with procedural requirements and arbitrary collection practices. The writ petition was allowed, directing the respondent to refund the entire amount of Rs. 10,000 to the petitioner, with interest at 6% within one month. The assessing authority retained the right to issue a notice for completing the assessment for the relevant period, ensuring due process in future proceedings.