Coercive tax recovery at inspection stage is unsustainable without assessment, demand, or hearing; return of cheques followed.

Tax cannot be forcibly collected during inspection in the absence of an assessment order, lawful demand, or opportunity of hearing, and coercive recovery at that stage is unsustainable. The Madras High Court's discussion reflects that cheques taken under coercion and a frozen bank account should be restored when collection is made without due process, while preserving the Department's liberty to proceed according to law. On that basis, the text records direction for return of the cheques and de-freezing of the account, subject to a deposit condition.

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Issues: Whether tax amount could be collected and coercive action taken at the time of inspection without an assessment order or opportunity of hearing, and whether the cheques collected and the petitioner's bank account were liable to be returned and de-frozen.

Analysis: The petitioner's case was that the cheques were obtained under coercion during inspection and that no tax collection could be made before assessment. The Court accepted the settled position that, in the absence of an assessment order or demand and without hearing, tax cannot be forcibly collected at the stage of inspection. While recognising the petitioner's right, the Court also preserved the Department's liberty to proceed according to law. On that basis, it directed return of the cheques and ordered de-freezing of the bank account, subject to deposit of Rs. 35,000 within four weeks.

Conclusion: The petitioner succeeded in securing return of the cheques and de-freezing of the account, but only subject to the directed deposit, with the Department left free to take lawful action thereafter.

Ratio Decidendi: Tax cannot be forcibly collected at the stage of inspection without an assessment order or lawful demand, and coercive recovery taken in such circumstances is not sustainable.

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