2005 (1) TMI 632 - HC - VAT and Sales Tax

Court Invalidates Orders for Lack of Formal Assessments, Mandates Refunds and Procedural Compliance in Tax Disputes.

Ambica Lamp House Versus Commercial Tax Officer (Int) -I Enforcement, Hyderabad and another (and other cases)

Ambica Lamp House Versus Commercial Tax Officer (Int) -I Enforcement, Hyderabad and another (and other cases) - [2005] 142 STC 551 (AP) Issues Involved:1. Legality of the action of the vigilance wing of the sales tax department in collecting tax and compounding fee on the day of inspection.2. Compliance with the procedural requirements under the Andhra Pradesh General Sales Tax Act, 1957.3. Validity of the compounding fee collected without formal assessment.Summary:Issue 1: Legality of the Action of the Vigilance WingThe dealers challenged the action of the vigilance wing of the sales tax department, claiming that tax and compounding fees were collected on the day of inspection without framing necessary assessments or passing orders. The department allegedly coerced dealers into compounding the alleged offense and collecting fees through cash or post-dated cheques. The court found that the vigilance wing's actions were contrary to the provisions of the Act and illegal. The court emphasized that the vigilance officers have no power to collect tax or compounding fees on the spot and must follow the prescribed procedure.Issue 2: Compliance with Procedural RequirementsThe court examined the relevant provisions of the Andhra Pradesh General Sales Tax Act, 1957, including sections 12, 13, 14, 15, 16, 28, 30, and 32. The court noted that the Act provides a detailed procedure for assessment, including the submission of returns, provisional assessment, final assessment, and the imposition of penalties. The court emphasized that the assessing authority must issue notices, provide an opportunity for the dealer to explain, and pass an assessment order before any tax or penalty can be collected. The court found that the vigilance wing's actions violated these procedural requirements.Issue 3: Validity of Compounding Fee Collected Without Formal AssessmentThe court found that the compounding fee collected by the vigilance wing was almost equivalent to the alleged tax due on the suppressed turnover. The court held that such collection of compounding fees without formal assessment was contrary to the provisions of the Act. The court emphasized that compounding of offenses under section 32 of the Act requires a formal assessment and an order fixing the liability to pay the tax. The court directed that the amounts collected as compounding fees without formal assessment must be refunded or adjusted against any existing outstanding demands.Conclusion:The court allowed the writ petitions, setting aside the impugned orders where no assessments were made for the disputed turnover. The court directed the refund or adjustment of the amounts collected under the impugned orders. The court also issued several directions to ensure compliance with the procedural requirements of the Act, including the issuance of circulars by the Commissioner of Commercial Taxes to all concerned officers.Separate Concurring Judgment by L.N. Reddy, J.:Justice L.N. Reddy concurred with the views expressed by Justice S. Ananda Reddy and supplemented the judgment with additional observations. Justice L.N. Reddy emphasized the importance of following the procedural safeguards provided under the Act and reiterated that no authority of the commercial tax department is entitled to levy and collect tax on the spot. Justice L.N. Reddy also highlighted the need for a gap of at least one week between the date of an order of assessment or demand notice and an order compounding the offense.