2009 (4) TMI 849 - HC - VAT and Sales Tax

Additional sales tax demanded - Held that - There is much force in the contention advanced by petitioner to the effect that the petitioner having disputed the computation of taxable turnover which is said to have been exceeded 40 crores as mentioned in the notice dated March 14 2000 the respondent ought to have passed an order of provisional assessment or final assessment and without resorting to such course of action the notices dated March 14 2000 and March 21 2000 were issued overlooking the procedure contemplated under the provisions of the local Act and the Central Act. Therefore this court has no hesitation to hold that the respondent had issued the impugned notices arbitrarily and mechanically without application of mind resulting in grave prejudice and injustice to the petitioner and as such the impugned notices are liable to be set aside. Accordingly the notices issued by the respondent dated March 14 2000 and March 21 2000 respectively are hereby quashed. In view of quashing of the impugned notices the petitioner is entitled to the refund of the amount of 15, 79, 415 paid under protest towards the additional sales tax pursuant to the said notices dated March 14 2000 and March 21 2000

Summary

Issues:
1. Liability to pay additional sales tax under the Central Sales Tax Act, 1956.
2. Validity of demand notices issued by the respondent.
3. Entitlement to refund of the amount paid under protest.

Analysis:

Issue 1: Liability to pay additional sales tax under the Central Sales Tax Act, 1956
The petitioner, a registered dealer under the Tamil Nadu General Sales Tax Act, 1959 and the Central Sales Tax Act, 1956, contested the demand for additional sales tax under the Central Act. The petitioner argued that their taxable turnover did not exceed Rs. 25 crores, making them exempt from additional sales tax. The court noted that the respondent wrongly invoked section 2(1)(aa) of the local Act, as the turnover did not exceed the threshold. The petitioner's detailed reply emphasized their non-liability, which the respondent ignored. The court held that the respondent erred in issuing demand notices without proper assessment, leading to the conclusion that the petitioner was not liable for the additional tax under the Central Act.

Issue 2: Validity of demand notices issued by the respondent
The court found that the respondent's actions were arbitrary and lacked proper application of mind. By issuing notices without considering the petitioner's contentions and without following the assessment procedures, the respondent acted unjustly. The court quashed the demand notices dated March 14, 2000, and March 21, 2000, due to procedural irregularities and directed the respondent to refund the amount paid under protest by the petitioner.

Issue 3: Entitlement to refund of the amount paid under protest
As a result of quashing the demand notices, the court ordered the respondent to refund the amount of Rs. 15,79,415 paid under protest by the petitioner. The court specified a timeframe for the refund and outlined the consequences if the refund was delayed. Additionally, the court emphasized that the respondent could pursue any legitimate claims for additional sales tax by following proper procedures and providing the petitioner with a fair opportunity to respond.

In conclusion, the court ruled in favor of the petitioner, declaring them not liable for the additional sales tax under the Central Act, quashing the demand notices, and ordering the refund of the amount paid under protest. The judgment highlighted the importance of following due process and providing a fair opportunity for assessment before issuing tax demands.