2021 (9) TMI 945 - HC - VAT and Sales Tax

Upfront collection of tax and penalty - SCN was not issued - whether Sales Tax Officer (STO) can collect upfront tax and penalty from the Petitioner at the time of a surprise inspection undertaken of his business premises without passing any assessment order? - Orissa Value Added Tax Act, 2004 (OVAT Act) - HELD THAT - As explained in MG. GARMENTS VERSUS SALES TAX OFFICER, INVESTIGATION UNIT, BHUBANESWAR AND OTHERS 2008 (11) TMI 618 - ORISSA HIGH COURT , the penalty under Section 73(10) of the OVAT Act can be imposed only after giving the dealer an opportunity of being heard and after holding such further enquiry as the authorised officer concerns may consider necessary. In that case, the sum had been collected on 4th February, 2008 even before the Petitioner could reply to the show cause notice issued to it on 2nd February, 2008. In the Present case, the situation appears to be even worse while the collection of tax and penalty took place on 10th April, 2007, the assessment order itself was passed subsequently on 16th April, 2007. However, no show cause notice was issued to the Petitioner at any time prior to the collection of the above amount on a surprise inspection. It is plain from the second proviso to 16-D (5) of the OST Act that it envisages payment of the amount of tax by the person affected in respect of such goods to be assessed in the prescribed manner as well as the penalty equivalent to twenty per centum of the value of the goods seized as a condition of the goods seized - the question of first collecting the tax and penalty upfront under Section 73 (10) of the OVAT Act and then assessing the person from whom the amount was collected, is not permissible in law. The Court holds that the collection of the tax and penalty by the STO, Cuttack (Opposite Party No.3) from the Petitioner on 10th April, 2007 is without any authority of law. Accordingly, it is directed that the aforementioned sum of ₹ 3,29,787/- collected from the Petitioner will be refunded to him together with interest as applicable under the relevant rules within a period of four weeks from today. It is made clear that the interest will be continued to be paid till the date of actual refund - Petition allowed.

Summary

Issues involved:
Violation of Section 73(10) of the OVAT Act - Collection of tax and penalty upfront without assessment order.

Analysis:
The petitioner, a dealer registered under the Orissa Value Added Tax Act, 2004 (OVAT Act), questioned the Sales Tax Officer's (STO) authority to collect tax and penalty upfront during a surprise inspection without passing an assessment order. The petitioner, engaged in the jewelry business, alleged coercion by the inspecting party, leading to the payment of ?3,29,787 as penalty without proper documentation. Subsequently, the petitioner's revision petition was rejected, prompting the filing of the present petition seeking a refund of the amount collected illegally.

In the legal proceedings, the petitioner's counsel cited a previous judgment where upfront collection without a show cause notice (SCN) was deemed illegal under Section 73(10) of the OVAT Act, leading to a refund. The Revenue Department's counsel argued that the petitioner's admission of facts during the inspection negated the need for an SCN or assessment order, referencing a Supreme Court judgment. However, the court found a clear violation of Section 73(10) of the OVAT Act, emphasizing the necessity of giving the dealer an opportunity to be heard before imposing penalties.

The court distinguished the Revenue Department's reliance on a different provision from the Orissa Sales Tax Act, highlighting the mandatory nature of issuing an SCN under the OVAT Act before imposing penalties. The court concluded that collecting tax and penalty upfront, as done in this case, was unlawful, ordering the refund of the amount with applicable interest. The judgment clarified that the department could initiate fresh proceedings in compliance with the law. The writ petition was allowed without costs, and the revision petition record was returned to the Revenue Department.

This detailed analysis of the judgment showcases the court's interpretation of the legal provisions, application of precedents, and the decision's implications on the petitioner's case regarding the collection of tax and penalty without due process.