2007 (12) TMI 418 - HC - VAT and Sales Tax

Whether the action of the STO in collecting tax on fish carried by the trucks of the petitioners from the State of Andhra Pradesh to the States of West Bengal or Bihar is contrary to law and not sustainable? Held that - The tax so collected by the STO at the check gate cannot be retained by the opposite parties without passing valid assessment order as provided under the Act allowing set-off of the said tax against determination of the actual tax liability. In the counter-affidavit filed by the opposite parties, nothing is mentioned about passing of any assessment order subsequent to collection of tax at the check gate from the petitioners. This being the factual position, the petitioners are entitled to get refund of the amount collected from them vide annexures 1 series, 2 series, 3 series and 4 series subject to production of any evidence to the effect that fish on which tax has been collected at the entry check gate, in reality, have passed through the exit check gate so as to reach the States of West Bengal or Bihar. In view of the discussions made above, rule 94(4)(a) is not ultra vires the Act and the amount collected at the check gate by the STO is refundable to the petitioners on their adducing evidence to the effect that the fish on which tax has been collected at the check gate in fact has crossed the border exit check gate so as to reach the destination outside the State of Orissa.

Issues Involved:
1. Legality of the STO's action in collecting tax on fish transported through Orissa.
2. Validity of rule 94(4)(a) of the Orissa Sales Tax Rules, 1947.
3. Entitlement of the petitioners to a refund of the tax collected.
4. Requirement of passing an assessment order for the tax collected at the check gate.

Detailed Analysis:

1. Legality of the STO's action in collecting tax on fish transported through Orissa:
The petitioners, truck owners transporting fish from Andhra Pradesh to West Bengal or Bihar, challenged the STO's collection of sales tax at the Unified Check Gate, Girisola, Orissa. They argued that the STO's action was contrary to law, as they were not conducting business in Orissa, and thus, the collection of tax was without authority. The STO justified the collection based on the suspicion that the goods might be unloaded within Orissa, evading tax. The court noted that the most important test for imposing tax on sale or purchase is whether the title in goods has passed for consideration and that the transaction of sale is complete. Since the fish was in transit and no complete sale had occurred in Orissa, the collection of tax was questioned. However, the court acknowledged provisions under section 16A of the Act and rule 94 of the Rules, which allow for ad hoc tax collection to prevent evasion, provided there is reasonable apprehension and recorded reasons.

2. Validity of rule 94(4)(a) of the Orissa Sales Tax Rules, 1947:
The petitioners argued that rule 94(4)(a) was ultra vires the Act and that tax could not be imposed based on the likelihood of evasion. The court referred to various precedents, including judgments from the Supreme Court, which upheld similar provisions aimed at preventing tax evasion. The court concluded that rule 94(4)(a) was within the legislative competency of the State Legislature under entry 54 of List II of the Seventh Schedule of the Constitution and was intra vires.

3. Entitlement of the petitioners to a refund of the tax collected:
The court held that while the STO had the authority to collect tax at the check gate under section 16A of the Act and rule 94 of the Rules, the tax collected could not be retained without passing a valid assessment order. The petitioners were entitled to a refund of the tax collected, provided they could produce evidence that the fish had indeed passed through the exit check gate and reached the destination outside Orissa.

4. Requirement of passing an assessment order for the tax collected at the check gate:
The court emphasized the necessity of passing an assessment order to justify the retention of tax collected at the check gate. The Act and Rules provide mechanisms for provisional or final assessment, including section 12B, which allows for the assessment of casual dealers. Since the counter-affidavit did not mention any assessment order being passed, the court directed that the tax collected should be refunded to the petitioners upon proof of transit through Orissa.

Conclusion:
The court concluded that the STO's action in collecting tax at the check gate was justified under section 16A of the Act and rule 94 of the Rules, provided there was reasonable apprehension of tax evasion. Rule 94(4)(a) was held to be intra vires the Act. However, the tax collected could not be retained without passing a valid assessment order. The petitioners were entitled to a refund upon proving that the fish had passed through Orissa to their final destination. The writ petition was disposed of with no costs.

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