Sales tax assessment procedure invalidated where composite notice bypassed statutory stages and court-fee levy was treated as an unauthorized tax.

Tax liability for transactions concluded in Orissa was confined to sales completed within the State under the statutory definition, and the second proviso to section 2(g) was treated as omitted after constitutional adaptation. The court held that a levy described as court-fees on appeals, revisions and certified copies was in substance a tax and beyond the rule-making power, making the collection invalid and refundable. It also held that the composite Form VI notice and resulting assessment procedure were unlawful because the Act required separate statutory stages before best-judgment assessment or penalty could be considered. The assessment was therefore set aside and the matter left for fresh assessment under the Act.

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Issues: (i) Whether the assessee was liable to sales tax in respect of transactions concluded in Orissa and whether the second proviso to section 2(g) of the Orissa Sales Tax Act survived after the Constitution and the Adaptation of Laws Order; (ii) whether the levy of court-fees on appeals, revisions and certified copies under the sales tax rules was valid; and (iii) whether the composite notice in Form VI and the resulting assessment procedure were in accordance with law.

Issue (i): Whether the assessee was liable to sales tax in respect of transactions concluded in Orissa and whether the second proviso to section 2(g) of the Orissa Sales Tax Act survived after the Constitution and the Adaptation of Laws Order.

Analysis: For the post-Constitution period, only the State where delivery of goods took place pursuant to a concluded sale could levy sales tax under Article 286 of the Constitution of India. For the pre-Constitution period, assessment could rest on territorial nexus, but the second proviso to section 2(g) was treated as having been omitted by the Adaptation of Laws Order. The liability saved by section 6(c) of the General Clauses Act did not preserve an unascertained or merely contingent liability; liability to pay arose only after assessment under the Act. The proviso enlarging the concept of sale by including an agreement to sell was also treated as invalid.

Conclusion: The assessee was liable only for sales concluded in Orissa on the basis of the statutory definition of sale, and not under the second proviso to section 2(g) after the constitutional adaptation.

Issue (ii): Whether the levy of court-fees on appeals, revisions and certified copies under the sales tax rules was valid.

Analysis: The sales tax authorities were held not to be Courts within the meaning of the constitutional entries relating to court-fees. The rule-making power permitting fees incidental to disposal of appeals and revisions did not authorise a graded levy on the memorandum of appeal or revision itself, and a fee payable in court-fee stamps and merged with the Consolidated Fund bore the character of a tax rather than a fee. The levy on certified copies was also outside the power conferred.

Conclusion: The levy of court-fees was ultra vires and the amounts collected were refundable.

Issue (iii): Whether the composite notice in Form VI and the resulting assessment procedure were in accordance with law.

Analysis: The Act contemplated separate stages: notice for return, scrutiny of the return, opportunity to produce evidence, and only then best-judgment assessment or penalty. The composite notice assumed escaped turnover, wilful default in registration and liability to penalty before the statutory inquiry was completed, and thus short-circuited the procedure prescribed by the Act. The assessee was nevertheless directed to produce accounts so that lawful assessment could be made on transactions falling within the statutory definition of sale.

Conclusion: The composite notice and the assessment made on that basis were not in accordance with law.

Final Conclusion: The assessment was set aside, the demand for tax and penalty was withdrawn, the court-fees were ordered to be refunded, and the matter was left for fresh assessment in accordance with the Act.

Ratio Decidendi: Where a taxing statute prescribes sequential steps for assessment, a composite notice that assumes jurisdictional facts and penalty liability before inquiry is completed is invalid, and a levy described as a fee but collected as a general revenue exaction is a tax beyond the enabling power.

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