Upfront tax and penalty collection during inspection is unlawful without prior notice, hearing, and assessment.

Upfront collection of tax and penalty from a dealer during a surprise inspection was impermissible where no show cause notice had been issued and no assessment order had been passed. Section 73(10) of the Orissa Value Added Tax Act, 2004 requires opportunity of hearing and such further enquiry as may be necessary before penalty can be imposed, so collection at the inspection stage lacked authority of law. Reliance on the earlier sales tax provision was rejected because it operated in a different statutory setting. The dealer's alleged waiver was also not accepted, and the amount collected was directed to be refunded with applicable interest.

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Issues: Whether tax and penalty could be collected upfront from a dealer during a surprise inspection without issuing a show cause notice or passing an assessment order under Section 73(10) of the Orissa Value Added Tax Act, 2004, and whether the amount so collected was liable to be refunded.

Analysis: Section 73(10) of the Orissa Value Added Tax Act, 2004 authorises imposition of penalty only after giving the dealer an opportunity of being heard and after such further enquiry as may be considered necessary. The collection made at the time of inspection preceded any show cause notice and even preceded the assessment order. The comparison with Section 16-D(5) of the Orissa Sales Tax Act, 1947 did not assist the Revenue because that provision expressly contemplated assessment in the prescribed manner and operated in a different statutory setting. The earlier view that upfront collection without prior notice is impermissible was applied, and the demand that the dealer's statement amounted to a waiver was rejected.

Conclusion: The upfront collection of tax and penalty was without authority of law, and the amount collected was directed to be refunded with applicable interest. The assessee succeeded.

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