Check-post detention and compulsory compounding are unsustainable absent prima facie taxable sale or purchase, with stock transfer documents supporting release.
Check-post detention under the Tamil Nadu General Sales Tax Act is confined to cases where documents or surrounding material prima facie indicate a taxable intra-State sale or purchase and possible tax evasion. On the facts described, the goods were supported as a stock transfer from West Bengal to Tuticorin through transit via Coimbatore, with way bills, despatch challans and transfer papers, so detention had no basis. A demand for advance tax could not stand without a prima facie taxable transaction, and compounding could not be forced because it is an elective option and the offence was not specifically identified. The detention and monetary demands were quashed and release ordered without conditions.
Issues: (i) whether detention of the consignment at the check-post was justified when the materials showed a stock transfer and no sale or purchase within the State; (ii) whether the demand for advance tax and compounding fee as a condition for release was sustainable.
Issue (i): whether detention of the consignment at the check-post was justified when the materials showed a stock transfer and no sale or purchase within the State.
Analysis: The power under section 42 of the Tamil Nadu General Sales Tax Act is confined to stopping vehicles, examining documents and detaining goods only when there is material to indicate sale or purchase liable to tax within the State and non-payment or improper accounting of tax. The documents produced showed movement of goods from West Bengal to Tuticorin on stock transfer basis, with intermediate transit through Coimbatore and supporting way bills, despatch challans and transfer papers. On those materials, there was no basis to infer tax evasion or a taxable intra-State sale.
Conclusion: The detention was unjustified and the consignment was liable to be released.
Issue (ii): whether the demand for advance tax and compounding fee as a condition for release was sustainable.
Analysis: A demand for advance tax could arise only on a prima facie finding that a taxable sale or purchase had occurred, which was absent. As to compounding, section 46 contemplates an option to compound an offence, and the nature of compounding makes it voluntary. The authority did not specify the offence under section 45, and no person can be compelled to compound by unilateral demand. The levy of compounding fee was therefore without authority.
Conclusion: The demand for advance tax and compounding fee was unsustainable.
Final Conclusion: The impugned detention and monetary demands were quashed, and the goods were directed to be released without conditions.
Ratio Decidendi: Check-post detention under the sales tax law is permissible only on a prima facie basis showing a taxable intra-State transaction or tax evasion, and compounding of an offence cannot be imposed unilaterally because it is an elective option of the person proceeded against.
TaxTMI 
AI Drafter ✕
TaxTMI 
