1992 (9) TMI 364 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the first proviso to Section 22(3) of the Rajasthan Sales Tax Act, 1954.
2. Legality of the search and seizure conducted by the tax authorities.
3. Effect of illegal search and seizure on the assessment of tax liability.
4. Legality of the retention of the seized account-books beyond the statutory period.
5. Legality of the transfer of the petitioner's case to another assessing authority.

Issue-wise Detailed Analysis:

1. Validity of the first proviso to Section 22(3) of the Rajasthan Sales Tax Act, 1954:
The petitioner challenged the validity of the first proviso to Section 22(3) of the Rajasthan Sales Tax Act, 1954, claiming it was ultra vires Article 19(1)(g) of the Constitution of India. The court referenced previous judgments (Nathulal Fatehpuria v. State of Rajasthan and Hiralal Chhaganlal v. State of Rajasthan) which upheld the validity of Section 22(3), stating that the provisions were enacted to prevent tax evasion and were in the general public interest. The court noted that the seizure of account books, although restrictive, was justified for collecting legitimate tax dues and preventing evasion. The necessity of recording reasons in writing was seen as a check against arbitrariness. Therefore, the validity of Section 22(3) was affirmed.

2. Legality of the search and seizure conducted by the tax authorities:
The petitioner argued that the search and seizure were illegal as they did not comply with the provisions of the Code of Criminal Procedure, specifically the requirement to involve two independent and respectable witnesses. The respondents contended that the action was a survey and inspection under Section 22(2) of the Act, not a search under Section 22(4). The court distinguished between survey/inspection and search/seizure, stating that while initial entry for inspection did not require compliance with the Code of Criminal Procedure, once the action turned into a search, the procedural requirements had to be followed. The court found that the authorities did not comply with these requirements, rendering the search and seizure invalid.

3. Effect of illegal search and seizure on the assessment of tax liability:
Despite the illegality of the search and seizure, the court held that the evidence obtained could still be used for assessing the tax liability of the petitioner. The court referenced previous judgments (S.G. Nadakattinavar v. Commercial Taxes Officer and Agrawal Engineering Stores v. State of Uttar Pradesh) which allowed the use of evidence obtained through illegal search in assessment proceedings. The court emphasized that deliberate evasion of sales tax is a public wrong, and such evidence can be used after giving due notice to the assessee.

4. Legality of the retention of the seized account-books beyond the statutory period:
The petitioner argued that the retention of account-books beyond three months was illegal as no reasoned order by the Commissioner was communicated. The court noted that the proviso to Section 22(3) required the Commissioner to record reasons for extending the retention period. The court found that no such reasoned order was placed on record by the respondents, rendering the retention illegal. The court referenced similar provisions under the Income Tax Act, which also required reasoned orders for extension of retention periods.

5. Legality of the transfer of the petitioner's case to another assessing authority:
The petitioner contended that the transfer of the case was illegal as their representation was not considered. The respondents provided evidence of notices given to the petitioner, allowing them opportunities to object to the transfer. The court found that sufficient opportunity was given to the petitioner to make a representation, and the transfer was made in compliance with Rule 52(1) of the Rajasthan Sales Tax Rules, 1955. Therefore, the transfer was deemed legal.

Conclusion:
The court concluded that while the search and seizure were illegal, the evidence obtained could still be used for assessing tax liability. The retention of account-books beyond the statutory period without a reasoned order was illegal, and the documents should be returned to the petitioner. The transfer of the case was legal. The petitioner was allowed to file an appeal against the assessment order within four weeks from the date of the court's order, with the delay being condoned due to the pending writ petition.