2023 (3) TMI 274 - HC - VAT and Sales Tax

Challenge to SCN before completion of enquiry - Proposal to levy tax under TNVAT Act - doctrine of mutuality - supply of liquor to the members of club - amounts to a transaction of sale of goods from one person to another attracting taxation under the TNVAT Act, or not - HELD THAT - The consistent legal position has been reiterated by the Hon ble Supreme Court of India in Union of India -vs- Kunisetty Satyanarayana 2006 (11) TMI 543 - SUPREME COURT that a charge memo or show cause notice cannot be challenged before the completion of enquiry and the proceedings cannot be interdicted till it reaches its logical conclusion. Having due regard to the aforesaid legal position, as there is nothing which precludes the Petitioner from raising the contentions in this Writ Petition in the reply to be submitted to the Respondents, who are bound to deal with the same before coming to any ultimate conclusion, there is no necessity for the Court to interfere at this pre-mature stage of the matter. It shall be incumbent upon the Petitioner to submit its explanation to the show cause notice, which is impugned in the Writ Petition, if not done already, to the concerned authority by 31.03.2023 - Petition disposed off.

Summary

Issues:
1. Challenge to notice for the proposal to levy tax under the TNVAT Act based on the doctrine of mutuality.
2. Whether a charge memo or show cause notice can be challenged before completion of enquiry.

Analysis:
1. The Writ Petition challenges a notice issued by the Respondents under the TNVAT Act, contending that the supply of liquor to club members does not constitute a sale attracting taxation due to the doctrine of mutuality. The Petitioner relies on the Supreme Court's decision in State of West Bengal vs. Calcutta Club, emphasizing the continued applicability of the doctrine to members' clubs even after constitutional amendments. The legal position is further supported by the Supreme Court's ruling in Union of India vs. Kunisetty Satyanarayana, stating that a charge memo or show cause notice cannot be challenged prematurely as it does not infringe any rights until a final adverse order is passed. The Court notes that the Petitioner can raise these arguments in response to the notice, and the authorities must consider them before reaching a conclusion. Hence, the Court decides not to interfere at this stage, allowing the Petitioner to submit its explanation to the notice by a specified date.

2. The judgment emphasizes that challenging a charge memo or show cause notice prematurely is generally not permissible, as it does not amount to an adverse order affecting rights unless issued without jurisdiction. While rare exceptions exist where such notices can be quashed if wholly illegal, the Court exercises discretion and refrains from intervening in this case. The Petitioner is directed to provide an explanation to the show cause notice, with the authorities conducting an enquiry if necessary and passing a reasoned order based on the contentions raised. The decision can be legally challenged if adverse, and the Court closes the related petitions without costs.