2000 (4) TMI 800 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of provisional assessment orders under Section 41B of the Gujarat Sales Tax Act.
2. Legality of levying tax, interest, and penalty on branch transfers treated as inter-State sales.
3. Vires of Section 47(4A)(b) of the Gujarat Sales Tax Act.
4. Bar of limitation under Section 42 of the Gujarat Sales Tax Act.
5. Appropriateness of invoking Article 226 of the Constitution of India.

Detailed Analysis:

1. Validity of Provisional Assessment Orders under Section 41B of the Gujarat Sales Tax Act:
The petitioner, a registered dealer under the Gujarat Sales Tax Act, challenged the provisional assessment orders for the years 1988 to 1992. The Sales Tax Officer invoked Section 41B, which allows provisional assessment if there is "reason to believe that the dealer has evaded the tax." The court found that neither the show cause notice nor the assessment orders provided reasons or grounds to conclude that the dealer evaded tax. The court emphasized that the expression "evasion of tax" implies mens rea, indicating an intentional act to avoid tax payment. The court cited the division bench decision in Natraj Rubbers v. Sales Tax Officer, Bhavnagar, to support its interpretation that evasion denotes an overt or covert act to avoid tax.

2. Legality of Levying Tax, Interest, and Penalty on Branch Transfers Treated as Inter-State Sales:
The petitioner argued that the branch transfers were inter-State works contracts and not sales, hence not liable to sales tax under the State or Central Sales Tax Act. The assessing officer, however, treated these transfers as sales and imposed tax, interest, and penalty. The court noted that the petitioner had a bona fide belief, supported by Full Bench decisions of the Punjab and Haryana High Court, that such transfers were not taxable. The court concluded that the provisional assessment under Section 41B was inappropriate as the officer lacked reasonable grounds to believe tax evasion occurred.

3. Vires of Section 47(4A)(b) of the Gujarat Sales Tax Act:
The petitioner questioned the validity of Section 47(4A)(b), which empowers assessing officers to levy a fixed interest rate of 24% per annum on unpaid tax. The court did not delve into this issue, as it resolved the case on the grounds of improper invocation of Section 41B. However, it granted the petitioner liberty to raise this issue during regular assessments.

4. Bar of Limitation under Section 42 of the Gujarat Sales Tax Act:
The petitioner also raised the issue of limitation under Section 42, arguing that the assessments were time-barred. The court did not address this issue directly, focusing instead on the improper use of provisional assessment powers. It allowed the petitioner to raise this contention in regular assessment proceedings.

5. Appropriateness of Invoking Article 226 of the Constitution of India:
The court addressed the preliminary objection that the petitioner should not seek relief under Article 226 due to pending appeals against the provisional assessment orders. The petitioner argued that the appeals were not admitted due to the onerous condition of paying the full tax amount. The court, citing the Supreme Court decision in Paradip Port Trust v. Sales Tax Officer, Cuttack, held that the alternative remedy was onerous and exercised its discretion to grant relief under Article 226.

Conclusion:
The court quashed the provisional assessment orders, allowing the Sales Tax Department to conduct regular assessments under Section 41 of the Gujarat Sales Tax Act. The petitioner was granted liberty to raise all other grounds and contentions in the assessment proceedings. The court awarded costs of Rs. 5,000 to the petitioner.

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