2013 (5) TMI 757 - HC - VAT and Sales Tax

Notice issued in Form U (Notice for recovery of money) attaching the Bank Account of the petitioner - alleged that the petitioner has claimed ITC wrongly due to E1 sales not proved, stock variation and stocks were kept in the un-registered godown - Held that - A spot inspection had been conducted by the 2nd respondent and his officials on 02.08.2012 and on the same day, a cheque for a sum of ₹ 3,75,699/- was collected from the assessee other than a sum of ₹ 2,000/- collected towards compounding fee. In fact, the 1st respondent is the original assessing authority. Though, it is the 2nd respondent who had conducted the spot inspection, after noticing the discrepancies in the books of accounts, etc., the 2nd respondent ought to have either issued a notice to the petitioner pointing out all the discrepancies or he should have intimated the discrepancies to the 1st respondent for further course of action. On the alleged discrepancies, either the 2nd respondent or the 1st respondent, should have heard the assessee and then pass an order demanding whatever be the tax due therefrom. Even after such a demand, if the assessee had not paid the tax due thereon, by all means, the authorities are empowered to take any action. But, in this case, a notice pointing out the discrepancies had not been issued to the assessee; no opportunity was afforded to the assessee to put forth its defence and no notice of demand of tax due was served on the assessee. Instead of doing all these things, the 1st respondent has cast a Notice in Form U (Notice for recovery of money) which is per se illegal and unsustainable and in violation of the principles of natural justice. Thus the impugned notice is set aside & writ petition is allowed.

Summary

Issues:
Challenge to notice for recovery of money issued before assessment completion.

Analysis:
The petitioner, a dealer in electrical components, challenged a notice issued by the 1st respondent attaching their bank account before the completion of assessment under the Tamil Nadu Value Added Tax Act 2006 and the Central Sales Tax Act. The petitioner alleged that enforcement officials collected taxes without a finalized assessment, leading to the issuance of the recovery notice. The petitioner argued that the officials had no jurisdiction to collect taxes before assessment completion, and the action of attaching the bank account was unwarranted. The power to conduct an inspection under Section 65 of the TNVAT Act does not include the authority to collect taxes during inspection.

The respondents justified their actions by stating that an amount was collected from the petitioner during inspection, but only a part was realized. The government advocate acknowledged that tax recovery should follow assessment completion and demand issuance. The petitioner's counsel emphasized that actions must adhere to due process, including assessment completion before tax demand. The court noted that while the authorities have powers for tax recovery, they must follow the due process, including issuing a demand notice post-assessment. In this case, a spot inspection led to tax collection without issuing a notice of discrepancies, denying the petitioner an opportunity to defend themselves.

The court referred to Sections 65 and 45 of the TNVAT Act, emphasizing the necessity of following due process for tax recovery. The court found the actions of the respondents in attaching the bank account before completing assessment and issuing a demand notice to be illegal and in violation of natural justice principles. Consequently, the impugned notice was set aside, and the writ petition was allowed. The court directed the 1st respondent to issue a notice, provide a hearing opportunity, and pass appropriate orders within eight weeks from the date of the order, ensuring compliance with legal procedures. No costs were awarded in the matter.