Inspection powers cannot replace assessment procedure; same-day tax collection and compounding at the spot were held unlawful.

Under the Andhra Pradesh General Sales Tax Act, inspection powers allowed entry, search, seizure, stock verification and recording of statements, but not immediate levy and recovery of tax or compounding fee at the place of inspection. Tax became payable only through the statutory assessment process and the prescribed demand notice, with notice and opportunity where assessment was required. Composition likewise presupposed lawful establishment of the offence and could not be completed on the same day of inspection by bypassing these steps. The on-the-spot collection of tax and compounding fee, and the same-day compounding orders, were therefore held illegal and unsustainable.

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Issues: Whether the Vigilance/Intelligence Wing could collect tax and compounding fee on the spot during inspection without first completing assessment and issuing the prescribed demand notice, and whether same-day composition and collection were lawful.

Analysis: The statutory scheme under the Andhra Pradesh General Sales Tax Act, 1957 requires registration, filing of returns, assessment on the basis of those returns or by best judgment after notice and opportunity, and payment only pursuant to an assessment order or demand notice within the time prescribed. The inspection powers under section 28 permit entry, search, seizure, verification of stock and recording of statements, but do not authorize instant levy and recovery of tax or compounding fee at the place of inspection. Where suppression is noticed, the material must be placed before the assessing authority or the empowered officer must proceed only in accordance with the assessment procedure under section 14 or other relevant provisions. Composition under section 32 presupposes an offence established in accordance with law and cannot be forced or completed on the very day of inspection without the antecedent statutory steps. The Court also held that the earlier decisions relied on by the department did not authorize same-day collection on the spot, and that the statutory safeguards cannot be bypassed on the plea of voluntary payment when the procedure mandated by law is not followed.

Conclusion: The on-the-spot collection of tax and compounding fee without prior assessment or demand notice was illegal, and the same-day compounding orders could not be sustained.

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