2014 (7) TMI 786 - HC - VAT and Sales Tax

Detention of goods - respondent No. 4 appeared before the first respondent and requested to release the goods bringing to his notice that the petitioner is a registered dealer and that the transactions in question are duly recorded in the books of accounts and the goods were being carried accompanied by all necessary documents - first respondent insisted upon payment of tax at five per cent. of the value of goods together with two times penalty alleging that the consignments were not covered by proper documents. As the goods are subject to natural decay, the petitioner was constrained to pay the tax and penalty as demanded and got the goods released - Assessee seek a declaration that the action of respondents 1 to 3 in collecting the tax and penalty is arbitrary, illegal and without jurisdiction - whether the assessing authorities and the officers of the vigilance wing at the time of inspection of the vehicles have power to resort to spot collection of the tax and compounding fee without passing any order as to the tax liability. Held that - it is not open to respondents 1 and 3 to arrive at a conclusion as to the petitioner s tax liability immediately after interception of the vehicles in question. The contention of respondents that the writ petitioner is a stranger to the transaction is untenable since the petitioner is the registered dealer and the burden is on the petitioner to prove that the transaction in question is not an inter-State sale and that the transaction is not liable to be taxed in terms of section 6A of the Central Sales Tax Act. Such liability can be determined only after complying the procedure prescribed under the Act and till such determination is made collection of tax and penalty is undisputedly without authority of law. Merely because respondent No. 4 paid the tax, it is not open to respondents Nos. 1 to 3 to contend that the petitioner is a stranger to the transaction, particularly in view of the admitted fact that respondent No. 4 is none other than the consignee. - The further contention advanced on behalf of the respondents that the tax and penalty was paid voluntarily by respondent No. 4 does not appear to be credible and is not at all convincing in the facts and circumstances noticed above and therefore we are unable to accept the said plea - respondents 1 to 3 and 5 are directed to refund to the petitioner the amounts collected while releasing the vehicles in question, together with interest at six per cent per annum within eight (8) weeks - Decided in favour of assessee.

Issues Involved:

1. Legality of tax and penalty collection without an order of assessment.
2. Validity of the documents accompanying the goods.
3. Authority of the vigilance and enforcement officers to collect tax and penalty on the spot.
4. The burden of proof in case of transfer of goods claimed otherwise than by way of sale.
5. The procedure for determining tax liability under the Central Sales Tax Act, 1956.

Issue-Wise Detailed Analysis:

1. Legality of Tax and Penalty Collection without an Order of Assessment:

The petitioner, a registered dealer, contended that the tax and penalty were collected arbitrarily and without jurisdiction by the respondents. The court referred to the Full Bench decision in *Ambica Lamp House, Rajahmundry v. Commercial Tax Officer (Int)-I Enforcement, Hyderabad* [2005] 142 STC 551 (AP) [FB], which clarified that no liability can be fastened on the dealer without an assessment. The Commercial Tax Department cannot collect tax/penalty/compounding fee by coercion at the time of inspection alleging suppression of turnover or other irregularities. The court concluded that the collection of tax and penalty without an assessment was without authority of law.

2. Validity of the Documents Accompanying the Goods:

The petitioner argued that the goods were accompanied by all necessary documents and were duly recorded in the books of accounts. However, the respondents alleged that the consignments were not covered by proper documents. The court found that the respondents failed to specify which documents were allegedly not produced at the time of the vehicle check. The burden of proof was on the petitioner to prove that the transaction was not an inter-State sale and was not liable to tax under Section 6A of the Central Sales Tax Act, 1956. The court noted that such liability can only be determined after following the prescribed procedure under the Act.

3. Authority of the Vigilance and Enforcement Officers to Collect Tax and Penalty on the Spot:

The respondents contended that the tax and penalty were paid voluntarily by the consignee (respondent No. 4). The court referred to the Full Bench decision, which stated that the officers of the Vigilance/Intelligence Wing can inspect business premises and records but cannot collect tax and penalty on the spot without passing an assessment order. The court held that the respondents' action of collecting tax and penalty on the spot was illegal.

4. The Burden of Proof in Case of Transfer of Goods Claimed Otherwise than by Way of Sale:

The petitioner claimed that the goods were transferred by way of stock transfer to its consignment agent (respondent No. 4) and not by way of sale. The court referred to Section 6A of the Central Sales Tax Act, 1956, which places the burden of proof on the dealer to furnish a declaration in form F to prove that the transfer was not a sale. The petitioner provided the form F certificate dated February 13, 2012, issued by respondent No. 4. The court found that the respondents could not determine the tax liability immediately after intercepting the vehicles and that the petitioner should have been given the opportunity to prove the nature of the transaction.

5. The Procedure for Determining Tax Liability under the Central Sales Tax Act, 1956:

The court emphasized that the procedure prescribed under the Act must be followed to determine tax liability. This includes granting the dealer sufficient opportunity to adduce evidence and complying with the procedural requirements for assessment and penalty proceedings. The court concluded that the respondents' action of collecting tax and penalty without following the due process was illegal.

Conclusion:

The court allowed the writ petitions, directing respondents 1 to 3 and 5 to refund the amounts collected while releasing the vehicles, together with interest at six percent per annum within eight weeks from the date of receipt of the order or to adjust the same against the petitioner's tax liability, if any, existing as of today. The miscellaneous petitions, if any, pending in the writ petition were also closed.

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