1994 (8) TMI 273 - HC - VAT and Sales Tax

Issues Involved:
1. Misuse of power under section 16-A of the Orissa Sales Tax Act, 1947, and rule 94 of the Orissa Sales Tax Rules, 1947.
2. Unreasonable detention of goods and arbitrary collection of sales tax.
3. Validity of the officers' actions at check-posts or barriers.
4. Requirement of notice and recording of reasons before collecting sales tax.
5. Legality of collecting advance sales tax based on the undervaluation of goods in way-bills.

Issue-wise Detailed Analysis:

1. Misuse of Power under Section 16-A and Rule 94:
The petitioners, who are dealers in betel-nuts and other goods, argued that the officers-in-charge of the check-posts misused their power under section 16-A of the Orissa Sales Tax Act, 1947, read with rule 94 of the Orissa Sales Tax Rules, 1947. They claimed that even when goods were accompanied by proper documents, the officers detained the goods unreasonably and demanded sales tax arbitrarily. The court examined whether section 16-A and rule 94 justify such actions. It was noted that section 16-A empowers the State Government to establish check-posts to prevent tax evasion, and officers are allowed to detain vehicles, examine goods, and inspect records. Rule 94 outlines the powers of officers at check-posts, including the power to seize and confiscate goods not covered by proper way-bills.

2. Unreasonable Detention of Goods and Arbitrary Collection of Sales Tax:
The petitioners contended that the officers-in-charge detained goods and collected sales tax on the plea that the value of the goods was not correctly mentioned in the way-bills, leading to potential future tax evasion. The court found that the officers' actions were not justified based on the mere suspicion of undervaluation. The officers should not have concluded that the purchase price was deliberately shown as less to evade tax. The court emphasized that the officers acted on mere suspicion without reasonable apprehension, making their actions unauthorized and illegal.

3. Validity of the Officers' Actions at Check-posts or Barriers:
The court reviewed the officers' actions and found that they were not justified. The officers-in-charge of the check-posts acted on suspicion rather than reasonable apprehension. The court reiterated that the establishment of check-posts and levy of tax should be ancillary or incidental to the levy and collection of tax under the Act. The officers' actions were deemed unauthorized and illegal as they were based on mere suspicion of undervaluation without any material evidence.

4. Requirement of Notice and Recording of Reasons before Collecting Sales Tax:
The petitioners argued that before collecting sales tax, they were not given notice as required by rule 94, nor were reasons recorded for the apprehension of tax evasion. The court noted that rule 94 requires officers to record reasons for apprehension in writing before taking action. The officers' failure to provide notice and record reasons made their actions unauthorized and illegal. The court highlighted the importance of adhering to procedural requirements to ensure the legality of the officers' actions.

5. Legality of Collecting Advance Sales Tax Based on Undervaluation of Goods in Way-bills:
The court examined whether the insertion of the words "or apprehends, for reasons to be recorded in writing, that there is likelihood of evasion of tax" in rule 94 justified the officers' actions. The court found that the officers' actions of collecting advance sales tax at the check-posts were not justifiable. The officers should not have collected sales tax on the ground of undervaluation in way-bills, as this was based on mere suspicion. The court emphasized that in the case of registered dealers, the assessing authority could levy and collect proper tax during regular assessment.

Conclusion:
The court concluded that the power under rule 94 was exercised by the officers based on suspicion rather than reasonable apprehension. The actions of the check-post officers in collecting tax from the petitioners were unauthorized and illegal. The court allowed the petitions and declared the impugned actions of the check-post officers as illegal. Instead of ordering a refund, the court directed that the Sales Tax Officers should give credit for the amounts collected during regular assessment for the relevant years. The petitions were allowed with no order as to costs.

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