Detention of goods and immediate compounding fee demand cannot replace lawful assessment where tax liability is disputed.

Goods transported after resale under an inter-State sale, with invoice and transport documents available and tax already paid under the Central sales tax regime, were not liable to detention under section 42 of the Tamil Nadu General Sales Tax Act, 1959; detention in those circumstances was beyond jurisdiction. A direct demand for tax, surcharge and twice the tax as compounding fee under section 46(1)(a) could not be imposed without first following the statutory assessment process, including notice and opportunity to be heard; the compounding order was therefore without jurisdiction. The writ petitions succeeded, the impugned orders were set aside, and the authorities were left free to proceed afresh in accordance with law.

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Issues: (i) whether the detention of the goods under section 42 of the Tamil Nadu General Sales Tax Act, 1959 was lawful; (ii) whether the direction to pay tax, surcharge and compounding fee under section 46(1)(a) of the Tamil Nadu General Sales Tax Act, 1959 could be sustained against the person proceeded against.

Issue (i): Whether the detention of the goods under section 42 of the Tamil Nadu General Sales Tax Act, 1959 was lawful.

Analysis: The equipment had been resold and was being transported pursuant to an inter-State sale for which tax had already been paid under the Central sales tax regime. The admitted facts showed that the consignor was the purchaser who had become owner of the goods, and the invoice and transport documents were available. In those circumstances, there was no legal basis to treat the goods as liable to detention as if tax was due from the consignor or consignee, and the detention was beyond jurisdiction.

Conclusion: The detention order was unsustainable and liable to be quashed.

Issue (ii): Whether the direction to pay tax, surcharge and compounding fee under section 46(1)(a) of the Tamil Nadu General Sales Tax Act, 1959 could be sustained against the person proceeded against.

Analysis: Even if the authorities suspected that tax had escaped assessment on the earlier intra-State sale, the proper course was to initiate assessment proceedings after issuing notice and affording opportunity. A direct demand of tax, surcharge and twice the tax as compounding fee could not be fastened straightaway on the party proceeded against without following the statutory process. The impugned compounding order was therefore without jurisdiction.

Conclusion: The compounding-fee order was unsustainable and liable to be quashed.

Final Conclusion: The writ petitions succeeded, the impugned orders were set aside, and the authorities were left free to proceed afresh in accordance with law if any tax evasion material existed.

Ratio Decidendi: Where no tax is presently due and the statutory scheme requires assessment proceedings, detention of goods and immediate imposition of compounding fee cannot be used as a substitute for lawful adjudication.

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