Compounding fee for transit document breaches upheld, but advance tax demand on goods in transit lacked statutory authority.

Goods intercepted in transit without the prescribed bills and delivery notes were held to involve a statutory contravention, and the prescribed authority was entitled to compound the offence; the demand for compounding fee was therefore sustained. By contrast, the demand and collection of advance tax as a condition for release of goods were invalid because tax can be levied only when authorised by law and referable to an actual taxable sale or purchase. The court held that preventive powers to check evasion could not be extended into a power to impose sales tax on goods merely because they were in transit, so the advance tax demand was struck down.

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Issues: (i) whether the demand of compounding fee for contravention of the document requirements governing transport of goods was valid; (ii) whether the demand and collection of advance tax as a condition for release of the goods in transit was authorised under the sales tax law.

Issue (i): whether the demand of compounding fee for contravention of the document requirements governing transport of goods was valid.

Analysis: The goods were intercepted while in transit without the prescribed bills and delivery notes. The omission was admitted on behalf of the petitioner. The statutory scheme treated such non-possession of required documents as a contravention punishable under the Act, and the prescribed authority was empowered to offer composition of the offence. The power to compound was considered a lawful statutory mechanism to deal with the offence without resorting to prosecution.

Conclusion: The demand of compounding fee was upheld and is against the assessee.

Issue (ii): whether the demand and collection of advance tax as a condition for release of the goods in transit was authorised under the sales tax law.

Analysis: A tax can be levied only under authority of law and only where the legislative field supports the levy. The demand was made when no completed sale or purchase was shown to exist. The power to prevent evasion of tax could not be expanded into a power to levy sales tax on goods merely because they were in transit. The demand for advance tax therefore lacked legal authority under the Act.

Conclusion: The demand and collection of advance tax were struck down and are in favour of the assessee.

Final Conclusion: The challenge succeeded only in respect of the advance tax demand, while the compounding fee demand was sustained; the writ petitions were therefore allowed only to that limited extent.

Ratio Decidendi: A statutory levy styled as advance tax cannot be sustained unless the taxing law authorises it and the charge is referable to an actual taxable sale or purchase, whereas composition of a duly constituted offence under the Act is permissible where the statutory conditions for compounding exist.

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