TaxTMI 
TaxTMI 
2005 (1) TMI 632
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....ing the tax liability or passing orders, coercing the dealers for compounding the alleged offence and collecting the compounding fee on the day of inspection either through payment of cash or through post-dated cheques, as illegal, and contrary to the provisions of law as well as the judgments rendered by this Court, and consequently sought for a direction to the respondents to refund the amounts collected from the dealers with interest. 2. According to the learned counsel for the petitioners the modus operandi adopted by the department, especially by the Intelligence Wing is that they will inspect the business premises of the dealer and on the alleged irregularities found in the course of inspection they used to obtain statements from the persons, who are available at the business premises at the time of inspection by force or coercion threatening to seize the stock or close down the business and thereupon collect the tax for the alleged suppression of the sales turnover and also demand for compounding the alleged offence on the very same day and creates the record as if a show cause notice was issued and a reply was given on the same date and also passing an order accepting th....
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....alers have come forward voluntarily and have agreed for settlement of the irregularities by getting the offence compounded, apart from paying the tax. Therefore, there is no illegality or irregularity. 4. When these matters came up before a division Bench for hearing, it was represented by the Members of the Bar that there are decisions taking different views. In view of the said representation, the division Bench felt that it is proper to have an authoritative pronouncement by resolving the conflict if any among the decisions of this Court. Therefore, the matter was placed before the honourable the Chief Justice for referring to a larger Bench. That is how the Full Bench was constituted to hear all these matters. 5. As the facts are different in each of the case, for convenience, we refer the facts that are available in W.P. No. 3253 of 2004. In this case, the petitioner is a registered dealer, engaged in the business of decorticating the groundnuts. According to the dealer, the said decorticating activity was carried on only for the benefit of the farmers, who were growing the groundnuts, and the petitioner charges only the commission or the charges for converting the groun....
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....04. It is stated that the authorities at the time of inspection asked one Krishna Murthy, who was found at the time of inspection, to produce the books of accounts or any other registers maintained for the stocks available in the business premises, but he failed to produce any of the books or registers. On the other hand, the said Krishna Murthy voluntarily gave a statement agreeing for compounding the offence by paying a sum equal to the tax. Therefore, the department has collected the said amount accepting the proposal for compounding the offence. It is also disputed that the departmental officials have obtained a statement by coercion or threat. Further, as it is a question of fact the same cannot be adjudicated upon in the present writ petition. It is also stated that the dealer has come forward offering to compound the offence, instead of prosecution, and the department has accepted the same. Therefore, it is not open to the petitioner to question the said action. 7. From the above facts, the issue to be considered is whether the action of the departmental officials in collecting the tax as well the compounding fee on the same day of the inspection is in accordance with the....
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....bsection (8) on the turnover that was not disclosed by the dealer in his return. (3) Where any dealer liable to tax under this Act- (i) fails to submit return before the date prescribed in that behalf, or (ii) produces the accounts, registers and other documents after inspection, or (iii) submits a return subsequent to the date of inspection, the assessing authority may, at any time within a period of six years from the expiry of the year to which assessment relates, after issuing a notice to the dealer and after making such inquiry as he considers necessary, assess to the best of his judgment, the amount of tax due from the dealer on his turnover for that year, and may direct the dealer to pay, in addition to the tax so assessed a penalty as specified in sub-section (8). (4) In any of the following events, namely, where the whole or any part of the turnover of business of a dealer has escaped assessment to tax, or has been under-assessed or assessed at a rate lower than the correct rate, or where the licence fee or registration fee has escaped levy or has been levied at a rate lower than the correct rate, the assessing authority ....
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.... the dealer to disclose the whole or part of the turnover or any other particulars correctly, or to submit the return before the prescribed date, was wilful; and (b) shall not exceed one half of the tax or the fee, due in a case where such failure was not wilful: Provided that where such failure occurred due to a bona fide mistake on the part of the dealer, no such penalty shall be levied. Explanation: The expression 'assessing authority' occurring in this section shall, in relation to licence fee or registration fee, be construed as referring to the licensing or registering authority, as the case may be, under this Act. Section 15. Provisional assessment of tax.-(1) The tax payable under this Act for each year may be provisionally assessed in advance during the year in monthly or other prescribed instalments on the basis of estimated or actual turnover of the dealer; and for that purpose a dealer may be required to submit a return or periodical return of estimated or actual turnover and pay the tax on the basis of such return or periodical returns, in such manner as may be prescribed. (2) If the assessing authority has re....
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....he return filed by him in case such return is not accompanied by the proof of payments of tax and it shall not be necessary to give minimum time of fifteen days for payment of tax as mentioned in this section; (2)(a) Notwithstanding anything contained in sub-section (1), on an application made by the assessee, the Deputy Commissioner may, by an order, allow extension of time for payment of any tax, penalty or other amount due under this Act, or permit the payment thereof in such instalments, within such intervals and subject to such conditions as he may specify in the said order, having regard to the circumstances of each case; (b) In every case where extension of time for such payment is allowed or where such payment in instalments is permitted, the dealer shall pay, in addition to such tax, penalty, instalment or other amount, interest at the rate of one rupee and fifty paise for every one hundred rupees or part thereof for each month or part thereof, from the date specified for its payment for the period so extended or on the instalments so permitted. (3)(a) If the tax assessed or penalty levied or any other amount due under this Act or any instalment ....
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....overnment in this behalf may for the purposes of this Act, require any dealer to produce before him the accounts, registers and other documents, and to furnish any other information relating to his business. (2) All accounts, registers and other documents maintained by a dealer in the course of his business, the goods in his possession, and his offices, shops, godowns, vessels or vehicles shall be open to inspection by such officer at any time during the business hours prescribed under the relevant law for the time being in force or where no such hours are prescribed at all reasonable times. (3) If any such officer has reason to suspect that any dealer is attempting to evade the payment of any tax or other amount due from him under this Act, he may, for reasons to be recorded in writing, seize such accounts, registers or other documents of the dealers as he may consider necessary and shall give the dealer a receipt for the same. The accounts, registers and documents so seized shall be retained by such officer only for so long as may be necessary for their examination and for any inquiry or proceeding under this Act: Provided that such accounts, registers ....
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....ilable; (b) search any person (other than a customer or a visitor) who has got out of or is about to get into, or is in, any building, vessel or vehicle, if the officer has reason to suspect that such person has secreted about any goods, accounts, registers or other documents. (6) Any such officer shall have power to seize and confiscate any goods which are found in any office, shop, godown, vehicle, vessel or any other place of business or any building or place of the dealer, but not accounted for by the dealer in his accounts, registers and other documents maintained in the course of his business: Provided that before taking action for the confiscation of goods under this sub-section, the officer shall give the person affected an opportunity of being heard and make an inquiry in the prescribed manner. Explanation.-It shall be open to the State Government to authorise different classes of officers for the purpose of taking action under sub-sections (1), (2) and (3). Section 30. Offences and penalties.-(1) Any person who- (a) fails to pay within the time allowed, any tax assessed on him or any penalty levied, or any fee d....
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....t offence or an offence falling under clause (b) involving an amount exceeding rupees one lakh with simple imprisonment which shall not be less than three months but which may extend to one year and with fine which shall not be less than five hundred rupees but which may extend to two thousand rupees. (4) Any person who after purchasing any goods in respect of which he has made a declaration under the proviso to sub-section (1) of section 5-B fails, without reasonable excuse, to make use of the goods for the declared purpose shall, on conviction, be liable to be punished if it is a first offence with fine which shall not be less than five hundred rupees but which may extend to two thousand rupees and if it is a second offence with simple imprisonment which may extend to one year and with fine which shall not be less than five hundred rupees but which may extend to two thousand rupees and if it is a third or subsequent offence with simple imprisonment which shall not be less than three months but which may extend to one year and with fine which shall not be less than five hundred rupees but which may extend to two thousand rupees. Section 32. Composition of offence....
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....articulars was wilful, which shall not be less than three times but which may extend to five times the tax or the fee due from the assessee. But, however, if such omissions had occurred due to the bona fide mistake on the part of the dealer, no such penalty shall be levied. Section 15 of the Act provides for provisional assessment. Under this provision, the tax payable for each year may be provisionally assessed in advance during the year in monthly or prescribed instalments on the basis of estimated or actual turnover of the dealer for which the dealer may be required to submit a return or periodical returns. The assessing authority has been given the power to vary the amount of tax payable under such provisional assessment. But, however, where there is an enhancement of the provisional assessment, the dealer is required to be issued a notice and the assessing officer is obligated to make an enquiry. If any dealer fails to pay the provisionally assessed tax, he shall be liable to pay penalty, which is to the extent of 30 per cent of thetax where the dealer has charged the tax from the purchaser; and in any other case 20 per cent of the amount of tax, and such penalty has to be lev....
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....he Act, require any dealer to produce the accounts, registers and other documents, and to furnish any other information relating to his business. Such officer has got the power at any time during the business hours prescribed or at all reasonable times, to enter the office, shops, godown, vessels or vehicles and inspect the accounts, registers and other documents maintained by the dealer in the course of his business. If such officer has reason to suspect that any dealer is attempting to evade the payment of any tax or other amount due under the Act may, for the reasons to be recorded in writing, seize such accounts, registers and other documents of a dealer and shall give the dealer a receipt for the same, and the officer can retain such seized registers, documents only for so long as may be necessary for their examination and for any inquiry, which shall not extend beyond 30 days. With reference to the residential accommodation of a dealer, only an officer of the rank of Deputy Commissioner or authorised by such officer alone having jurisdiction and all searches shall be in accordance with the provisions of the Code of Criminal Procedure, and the Rules made in that behalf. The....
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.... cash memo in respect of a sale, as prescribed under the provisions of the Act; or prevents inspection or examination or wilfully fails to produce documents or to give information as required by section 28, shall on conviction be liable to be punished, if it is a first offence with fine from Rs. 500 to Rs. 2,000; second offence-with simple imprisonment up to one year, in addition to the fine referred to earlier; third or subsequent or an offence falling under clause (b), involving an amount exceeding rupees one lakh-with simple imprisonment, which shall not be less than three months, but may be extended to one year together with fine, as referred to earlier. It is also provided that any person while purchasing goods makes a declaration under the proviso to sub-section (1) of proviso to section 5-B, fails without reasonable excuse to make use of the goods for the declared purpose, shall, on conviction, be liable to be punished in a similar way as referred to earlier. The owner or other person-in-charge of a boat or goods vehicle, who fails to carry with him any of the records or documents specified in sections 26 and 27, on conviction shall be liable to be punished with simple impri....
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....cing the dealers either at the threat of seizure of the stocks or closing the business, obtained the statements from the person available, whoever he may be, agreeing to compound the alleged offence, and also collecting the amounts not only towards the compound fee, invariably equivalent to the amount of tax, but also towards the tax either by cash, cheque, or even by way of post-dated cheques on the spot. According to the dealers, this action of the inspecting authorities is not preceded by the observance of the procedure sanctioned by law. It is also their contention that in many cases even after such action of collecting the compounding fee as well as the tax for the alleged irregularities, no orders are being passed. Therefore, such actions of the officials of the department of the Vigilance Wing have to be declared as illegal, apart from lack of jurisdiction, and the amounts collected by adopting such methods have to be directed to be refunded with interest as well as imposing exemplary costs. This stand of the dealers is opposed by the department stating that it is only the voluntary action of the dealers, which made the department to accept the compounding of the offence,....
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....ated cheques were collected is suggestive of some pressure tactics exerted on the petitioners. It may be that the respondents, who are connected with the Intelligence or Vigilance Department, can inspect the premises and record statements, but without following the procedure for assessment, it is not open to them to demand collection of tax on the alleged suppressed turnover then and there. The proper course would have been to send the statements to the assessing officer and to request him to initiate necessary steps for making the provisional or final assessments as the case may be, or to take such other steps as are open to the assessing authority to safeguard the interests of revenue pending such assessments. But, this procedure has been given a go-bye despite the deprecation of such practices by a division Bench of this Court in Annam Jewellers v. Deputy Commercial Tax Officer [1996] 102 STC 506." Holding so, the respondents were directed to return the postdated cheques collected from the petitioners. However, it was left open to the respondents to proceed against the petitioners in accordance with law. 13. This issue was considered again in Life Line Devices v. Commercia....
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....ng a letter to the assessing officer while furnishing the material gathered as a result of inspection and requesting him to take necessary action. In a more or less same situation, a division Bench of this Court to which one of us (P.V.R., J.) was a member, in Priyanka Wines v. Assistant Commissioner (C.T.) [1998] 110 STC 73 expressed its displeasure and condemned the practice of the Vigilance and Enforcement Officials pressurising the assessees to give the cheques on-the-spot towards the alleged tax due. The division Bench after referring to the above referred judgments, further made the following observations: "Despite the disapproval of the action of the Vigilance and Enforcement Officials in language as clear as it could be, the said officials have not learnt to obey the rule of law and the impact of the judgment of this Court has not been felt at all. The illegal and arbitrary action of collecting the post-dated cheques under pressure is persisting. We have to again condemn this action and further warn the concerned officials of the Vigilance and Enforcement Department or the Intelligence Wing that they should forthwith stop collecting the post-dated cheques or mon....
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....und that the same requires evidence to be recorded on both sides. Further, there is no presumption that just because the notice to compound emanated from the officer, there was duress, and therefore, the court refused to go into that question. 15. In Jyothi Chemicals v. Commercial Tax Officer (1976) 38 STC 52 a learned single Judge of this Court considered the validity of best judgment assessment. In this case, for the month of September 1972, the petitioner filed Central sales tax return, as required under rule 14-A(1) of the Central Sales Tax (Andhra Pradesh) Rules, 1957, before 25th October, 1972, showing the turnover of Rs. 3,62,378, and the tax payable thereon as Rs. 10,871. The return, however, was not accompanied by a receipt from a Government treasury or a crossed cheque in favour of the assessing authority for the full amount of the tax payable as per the return. The respondent issued a demand notice in form CST-VII, referable to rule 14-A(4) of the said Rules, on July 21, 1973, for the payment of the said amount within 21 days of the receipt of the said notice. The said action of the respondent was challenged in the writ petition. The contention of the petitioner was t....
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....dity of the said notice observed: "It may be pointed out that there is no statutory obligation upon the commercial tax authorities to make any offer to compound any offence punishable under the Act. The prescribed authority is only empowered by section 32 of the Act to accept from any person who has committed or is reasonably suspected of having committed an offence punishable under this Act, by way of composition of such offence, certain sums specified in clauses (a) and (b) of section 32 of the Act. That presupposes an offer by a person who has committed an offence before there is an acceptance by the prescribed authority. The statute does not contemplate an offer to proceed from the prescribed authority for composition of an offence." The learned Judge further observed,- "The dealer is given a chance to show cause that the returns submitted by him are correct and the turnover proposed to be included in the said return for the purpose of provisional assessment cannot be validly included. It is only after hearing the objections of the petitioner, could it be positively held that the petitioner had submitted an incorrect return. Before the completion of enquiry....
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.... under a duty to examine the matter and determine the question whether or not the sales are exigible to tax. Therefore there is no question of invoking the doctrine of estoppel." 19.. The other set of cases relied upon by the respondentdepartment, where the action of the department was sustained, are: In S.R. Traders & Bhavani Traders v. Assistant Commissioner of Commercial Taxes [1994] 92 STC 626; (1993) 17 APSTJ 125, a division Bench of this Court sustained the action of the respondents in collecting the tax at the time of inspection, based on the statements alleged to have been given by the dealers at the time of inspection, negativing the claim of the petitioners that such statements were obtained by coercion and duress. The relevant observations of the Bench are as under: "Further, we find from the statements filed by the petitioners that 'Further on verification of our books of accounts, you have noticed that we have recorded above transactions in our books of accounts, we have not reported in return and paid taxes to the department. The taxable rates as per our books of account is worked out as under: We are herewith pay the tax of Rs. 2,36,474 on a....
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....edings where it was alleged that such proceedings were under undue influence and coercion. In that case, the respondent-authorities collected Rs. 8,700 towards tax on the alleged stock variation of Rs. 6,210 kgs. of Pamolein oil. The authorities also further collected Rs. 17,400 under threat of arrest and imprisonment towards the compounding fees. The division Bench though noticed the bar of the civil courts jurisdiction to assail any order or proceedings of the authorities under the Act, but, however, observed that the bar of section 32 does not cover an order of the nature, where it was alleged that undue influence and coercion was exerted on the dealer to effect compounding of the offence, and therefore, a suit is held maintainable to the extent the collection of tax, which is allegedly done under undue influence or coercion and under threat of arrest and imprisonment. Observing so held that there is an alternative remedy to the petitioner, and therefore, the issue cannot be decided under article 226 of the Constitution of India. 22. In Bharat Metals v. Special Assistant Commercial Tax Officer [1999] 112 STC 63 (AP); (1998) 27 APSTJ 72 a division Bench of this Court had an oc....
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....n, who admitted that there are differences in the stock of their mill. The value of the above differences and the tax payable on the said differential turnover was Rs. 10,303. Accordingly, the petitioner paid Rs. 11,161 as tax and Rs. 22,325 as compounding fee. Though it was contended that the said amounts were collected basing on statement recorded under coercion and undue influence and threat, the division Bench negatived the claim of the petitioner that such statement was obtained as alleged. 24. A perusal of the scheme under the Act as well as the decisions of this Court clearly shows that both the assessing authorities as well as the officers of the Vigilance Wing have no power to resort to the spot collections either by way of cash, cheques or even by way of post-dated cheques. The Vigilance Officers of the department have got the power to enter the premises of the dealer to inspect not only the books of accounts maintained by the dealer, but also the verification of the stocks, etc. The said inspecting authorities may also have the power to record statements from the dealers, but thereafter there is no provision to make a demand for payment of the tax/penalty or compoundi....
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....t, as many other alternatives are provided under the provisions of the Act, not only to seal the premises but also to seize the goods if the circumstances warrant and justify, and if the department apprehends that the dealer may not be available to be proceeded with or to recover the tax that would become due. In such circumstances, the dealer is also provided a remedy to get the stocks released on furnishing security. Apart from the above, under the provisions of the Act, a minimum period of 15 days for payment of the demanded tax is provided, however, which can be reduced to seven days for the reasons to be recorded by the assessing authority, as is evident from the instances even considered by this Court. Invariably, the departmental authorities have violated the compliance of such requirement and made demands as well as collections almost on the spot, which resulted in creating a situation where serious allegations were made by the dealers against the department. The conduct of the authorities also had given scope for making such allegations, which were, in fact, found to be true in some of the cases. 26. Another peculiar feature of the alleged actions of the departmental of....
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....fee under such circumstances, the adjudication of the said disputes requires recording of evidence, which could not be gone into while exercising jurisdiction under article 226 of the Constitution of India. Further, it was expressed that there is no presumption that just because the notice to compound emanated from the officer, there was duress. Further it was also considered the prohibition contained under section 36 that the proceedings under the Act shall not be assailed before any authority or the court except as otherwise expressly provided under the Act. To be precise it would be relevant to refer to section 36 of the Act, which reads as under: "Save as otherwise expressly provided in this Act, no court shall entertain any suit, or other proceeding to set aside or modify, or question the validity of any assessment order or decision made or passed by any officer or authority under this Act or any rules made thereunder, or in respect of any other matter falling within its or his scope." 29. The division Bench of this Court though noticed that a suit or other proceedings are not maintainable either to set aside, modify or question the validity of any assessment order....
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....ed is equal to the tax without any assessments, in such cases, the compounding orders are also set aside and the fee collected is to be refunded to the dealers or adjusted if there are any existing outstanding demands. No costs. Separate concurring judgment by L.N. Reddy, J. 1. I had the advantage of perusing the judgment prepared by my learned Brother Justice S. Ananda Reddy. While agreeing with the views expressed by my learned brother, I intend to supplement the same with few more paragraphs. 2. Shorn of minute details, the common feature in this batch of writ petitions is that the business premises of the respective writ petitioners were inspected by the vigilance wing of the sales tax department, and taxes as well as compounding fee are said to have been collected on the spot by using threat and coercion. It is alleged that no formal orders of assessment were passed nor the procedure prescribed by law was followed. When the writ petitions came up for hearing before a division Bench, it emerged that different division Benches of this Court have taken conflicting views, as to the legality of the action of the authorities of the commercial tax department, in colle....
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....ted from the petitioners are liable to be refunded. 6. Learned Government Pleader for Commercial Taxes, on the other hand, submits that the Act empowers the authorities, at various levels, to inspect the records and account books, and it was during the course of such inspections, that the suppression of turnover, by petitioners, was noticed. He submits that once the violation on the part of the petitioners was pointed out during the course of inspection, they have voluntarily offered to pay the amount due towards tax as well as the compounding fee, obviously to avoid prosecution and other proceedings. He contends that the respondents did not commit any illegality in accepting the offer by the respective petitioners for compounding the offences. He too relies upon certain judgments rendered by this Court. 7. The scheme of the Act as well as the purport of the relevant provisions has been dealt with extensively by my learned brother Justice S. Ananda Reddy. Hence, it is not necessary to repeat the same. His Lordship has also referred to the decided cases on this aspect. From a perusal of the relevant provisions of the Act, and in particular sections 12 to 16 and 28 to 32, it is....
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....e correctness or otherwise of the deductions or exemptions, if any, wrongly allowed, (d) levy the licence fee or registration fee, wherever it is found to be payable, and, (e) to levy penalty as specified in sub-section (8). All this would be possible, if only the findings recorded during the course of inspection are put to the dealer, and he is given an opportunity to explain as to why the corresponding amount, be it, towards arrears of tax or penalty, be not levied, and an order of assessment is passed, after considering the explanation. No separate procedure is contemplated for action to be taken by the authority, empowered under section 28. 10.. After noticing the various provisions of the Act and the Rules, in several judgments, this Court held that no authority of the commercial tax department is entitled to levy and collect tax on the spot, that too in the form of cash or post-dated cheques. Such practice was deprecated. In Life Line Devices v. Commercial Tax Officer [2000] 119 STC 52, this Court expressed its concern over the continued infraction of the procedure, by the enforcing officials, and warned that such a practice is liable to be dealt with ....
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....the proceedings under article 226 of the Constitution of India. In Bharat Metals v. Special Assistant Commercial Tax Officer [1999] 112 STC 63 (AP); (1998) 27 APSTJ 72, an order of compounding, even if alleged to have been passed by using threat and coercion, was held to be not justiceable, for the reason that it is not a demand notice. In an unreported decision in W.P. No. 10668 of 1993, relied upon by the respondents, a division Bench of this Court refused to interfere in such matter on the ground that the statements said to have been recorded by the respondents did not contain averment to the effect that it was obtained under coercion or undue influence. It was nothing but begging the question. 13. While levy of tax is prerogative of the State, a citizen cannot be required to pay tax, except where a specific provision exists for levy of the same. Inasmuch as the States' prerogative to levy tax is almost unbridled, the only protection that can be accorded to a citizen is in the form of ensuring procedural safeguards. It is for this reason, that time and again courts insisted that the provisions of taxation statutes have to be construed strictly. The law in this regard was ....
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....s themselves have come forward with an offer to compound the offences. After referring to the manner in which the orders of compounding were passed, this Court took serious exception, to such practice, in Brugumalla Venkatappaiah Son & Co. v. Commercial Tax Officer [1973] 32 STC 34 (AP). Further, by its very nature, compounding of offences is a phenomenon, which comes into play only where it emerges that the concerned person has committed the offence. Section 32 of the Act deals with the composition of offences. It reads as under: "(1) The prescribed authority may accept, from any person who has committed or is reasonably suspected of having committed an offence under this Act, by way of composition of such offence- (a) where the offence consists of the failure to pay or the evasion of any tax, recoverable under this Act, in addition to the tax so recoverable, a sum of money not exceeding three thousand rupees or double the amount of the tax recoverable, whichever is greater, and (b) in other cases a sum of money not exceeding three thousand rupees. (2) Any order passed or proceeding recorded by the prescribed authority under sub-section (....
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....ch the order compounding the offence is passed. It is just unimaginable to think that, all the steps referred to above, starting from inspection of books and accounts, to collection of amount take place on the same day. 18. Therefore, the action of the respondents in demanding and collecting the amounts towards arrears of tax as well as compounding fee or penalty, as the case may be, on the same day is highly arbitrary, illegal and contrary to the provisions of the Act. In spite of remarks and observations having been made from time to time, by this Court, the practice has been continued. It only shows lack of regard on the part of the concerned respondents, to law. This Court cannot remain as a silent spectator for such blatant violations of the provisions of law. 19. For these reasons, the writ petitions are allowed. No costs. COMMON ORDER: (Per Court) 1. In the light of the two separate judgments prepared by Mr. Justice S. Ananda Reddy and Mr. Justice L. Narsimha Reddy, the reference is answered with the following observations and directions: (i) Under the provisions of the Act and the Rules, the Officers of the Vigilance/Intelligence Wing of the Department ....