2020 (12) TMI 689 - HC - VAT and Sales Tax

Validity of demand raised - primary ground for challenge is that the spot collection of taxes is wholly illegal and unwarranted, when the assessment for the respective year is still pending - HELD THAT - It is settled law that recovery of tax in advance by inspecting officials (Enforcement Wing) is illegal. In the counter affidavit filed by the first respondent, in paragraph No.3, the first respondent has admitted that four cheques given by the petitioner on the date of inspection was only towards the payment of tax even though in the impugned demand, they have mentioned that it is towards compounding fees. Since the collection of cheques from the petitioner is admittedly, towards payment of tax, as per the settled law, the said collection by the second respondent on the date of inspection from the petitioner is illegal without there being any assessment order. It is also admitted fact that no assessment order has been passed pursuant to the impugned notice of demand, dated 17.04.2017. The impugned demand made by the respondent is illegal without there being an assessment order - Petition allowed - decided in favor of petitioner.

Summary

Issues:
Challenge to demand of payment based on dishonored cheques before completion of assessment.

Analysis:
The Writ Petition challenged the demand of ?21,33,005/- by the first respondent for dishonored cheques issued by the petitioner, contending that spot collection of taxes is illegal when assessment is pending. The petitioner argued that coercive recovery without an assessment order is unlawful, leading to the filing of the Writ Petition.

The first respondent, in their counter affidavit, claimed that the petitioner admitted the tax amount before issuing the dishonored cheques, justifying their right to recover the amount. The petitioner's counsel argued that the demand lacked legal basis as the cheques were intended for tax payment, not compounding fees as stated in the demand.

The Court noted that no assessment order had been issued against the petitioner till date, making the collection of cheques by the Enforcement Wing officials illegal. The respondent's admission that the cheques were for tax payment, not compounding fees, further supported the petitioner's argument against the demand without an assessment order.

Referring to a previous judgment, the Court concluded that the demand without an assessment order was indeed illegal. Consequently, the Court quashed the impugned demand dated 17.04.2017 and allowed the Writ Petition. However, the respondents were granted liberty to complete the assessment and recover any dues lawfully determined after assessment proceedings. No costs were awarded, and connected Miscellaneous Petitions were closed.