Tax evasion and compounding notice: proposed levy invitation to object was not a demand notice, and suppression of turnover attracted evasion treatment.

A notice proposing tax and compounding action was not treated as an illegal demand notice because it only invited objections to the proposed levy, and the assessee's managing partner later accepted the proposal voluntarily. The absence of a prior assessment order therefore did not invalidate the notice. On the offence classification, inspection materials showed suppression of turnover and an attempt to evade tax on unrecorded sales, which was treated as tax evasion rather than a mere accounting irregularity. The conduct was held to fall within the provision for failure to pay or evade recoverable tax, not the residual offence provision, and the compounding amount based on double the tax recoverable was upheld.

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Issues: (i) Whether the notice dated 25 November 1991 was an illegal demand notice issued without a prior assessment order and notice; (ii) whether the offence committed by the petitioner fell under section 32(1)(a) or section 32(1)(b) of the Andhra Pradesh General Sales Tax Act, 1957.

Issue (i): Whether the notice dated 25 November 1991 was an illegal demand notice issued without a prior assessment order and notice.

Analysis: The notice called upon the petitioner to file objections to the proposed levy of tax and compounding action. It did not itself finally demand tax. The petitioner's managing partner thereafter voluntarily accepted the proposed tax and compounding fee. In these circumstances, the absence of a prior assessment order before the notice did not make the notice illegal.

Conclusion: The notice was not a demand notice, and the challenge on the ground of absence of a prior assessment order failed.

Issue (ii): Whether the offence committed by the petitioner fell under section 32(1)(a) or section 32(1)(b) of the Andhra Pradesh General Sales Tax Act, 1957.

Analysis: The materials found on inspection showed suppression of turnover and an attempt to evade tax on sales not accounted for in the books. That conduct was treated as evasion of tax, not merely an irregularity in accounting. Section 32(1)(a) applied where the offence consisted of failure to pay or evasion of tax recoverable, while section 32(1)(b) covered other cases. On the facts, the case was held to fall within section 32(1)(a).

Conclusion: The offence fell under section 32(1)(a), and the compounding amount based on double the tax recoverable was upheld.

Final Conclusion: The petitioner was held not entitled to relief, and the challenge to the tax collection and compounding fee failed.

Ratio Decidendi: A notice proposing tax and compounding action is not a demand notice where it invites objections and the assessee voluntarily accepts the proposal; deliberate suppression of turnover to evade tax attracts the offence-compounding provision for tax evasion rather than the residual provision for other offences.

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