Banamali Prusty vs Commissioner Of Sales Tax, Odisha, Cuttack And Others

Dr. S. Muralidhar, CJ

A short question is involved in the present petition filed by a dealer registered under the Orissa Value Added Tax Act, 2004 (OVAT Act). That question is whether it was open to the Sales Tax Officer (STO), Vigilance, Cuttack (Opposite Party No.3) to collect upfront the tax and penalty in the sum Rs.3,29,787/-from the Petitioner at the time of a surprise inspection undertaken of his business premises on 10th April, 2007 without passing any assessment order?

The facts in brief are that the Petitioner holds a valid VAT registration and an Entry Tax (ET) registration and is in the business of processing and sale of jewellery. On 10th April 2007, the STO accompanied by the DSP, Vigilance and other police personnel conducted a surprise check in the Petitioner's business premises. According to the Petitioner, the inspecting party insisted on his producing the books of account but these were not immediately available as they had been submitted to the STO, Jajpur Circle for the purpose of registration. The Petitioner's allegation is that he was made to sign on a statement under duress and coercion and under threat of being arrested by the police. In the said statement, he admitted to not maintaining proper books of account and to be conducting business without valid registration and offering to pay Rs.3,29,787/- towards penalty under Section 73(10) of the OVAT Act and Section 25 of the Orissa Entry Tax Act, 1999 (OET Act). He has enclosed a receipt of the collection of the above amount by the STO at Annexure-3.

Aggrieved by the action, the Petitioner filed a revision petition before the Commissioner of Sales Tax, Orissa, Cuttack under Section 79 of the OVAT Act. According to the Petitioner, without referring to the copies of the sales register, purchases register and stock register produced before him, the Special Additional Commissioner of Sales Tax, Cuttack (Opposite Party No.2) rejected the revision petition by an order dated 25th April, 2008.

Thereafter, the present petition was filed. One of the prayers in the present petition is for refund of the aforementioned sum, which according to the Petitioner was collected illegally from him.

This Court has heard the submissions of Mr. Tushar Kanti Satapathy, learned counsel for the Petitioner and Mr. Sunil Mishra, learned Additional Standing Counsel for the Revenue Department-Opposite Parties. It is also perused the original revision record containing all the relevant documents produced by Mr. Mishra, learned Additional Standing Counsel.

Mr. Satapathy, learned counsel for the Petitioner, points out that in an identical circumstances, this Court had in M.G. Garments v. Sales Tax Officer, Investigation Unit, Bhubaneswar and others, [2009] 19 VST 372 (Orissa) held that any collection of tax and penalty upfront without a show cause notice (SCN) would be violative of Section 73(10) of the OVAT Act. In that case too while holding the action of the Department to be illegal, it was held that the dealer was entitled to refund of the amount so collected.

In response, Mr. Mishra, learned Additional Standing Counsel, refers to the statement purportedly given by the Petitioner on his own accord on 10th April, 2007 to the Sales Tax authorities at the time of the surprise inspection. According to Mr. Mishra, since all the facts had been admitted by the Petitioner, there was no need even to go through the formality of a SCN or an assessment order. Mr. Mishra placed reliance on a judgment of the Supreme Court of India in Sales Tax Officers v. Dutta Traders (decision dated 18th September, 2007 in Civil Appeal No.7540 of 2001). It is accordingly submitted that no case is made out by the Petitioner for grant of the relief as prayed for.

Having considered the above submissions, the Court of the view that there was indeed a clear violation in this case the mandatory provision of Section 73(10) of the OVAT Act as pointed by this Court in its judgment in M.G. Garments (supra). Section 73(10) of the OVAT Act reads as under:

"73(10). The officer referred to in sub-section (8) may, after giving the dealer an opportunity of being heard and after holding such further enquiry as he may consider necessary, impose on him for the possession of goods not accounted for, whether seized or not under sub-section (8), a penalty equal to five times of the tax leviable or twenty percent of the value of such goods, whichever is higher, and such officer may release the goods, if seized, on payment of the penalty imposed."

As explained in M.G. Garments (supra), the penalty under Section 73(10) of the OVAT Act can be imposed "only after giving the dealer an opportunity of being heard and after holding such further enquiry as the authorised officer concerns may consider necessary." In that case, the sum had been collected on 4th February, 2008 even before the Petitioner could reply to the show cause notice issued to it on 2nd February, 2008. In the Present case, the situation appears to be even worse while the collection of tax and penalty took place on 10th April, 2007, the assessment order itself was passed subsequently on 16th  April, 2007. However, no show cause notice was issued to the Petitioner at any time prior to the collection of the above amount on a surprise inspection.

The reliance by Mr. Mishra on the judgment in Dutta Traders (supra), appears to be misplaced for more than one reason. First, the said decision concerns an action taken under Section 16-D of the Orissa Sales Tax Act, 1947 (OST Act). Secondly, Section 16-D of the OST Act is not identical to Section 73 (10) of the OVAT Act. Section 16-D (5) of the OST Act reads as under:

"16-D (5) The Commissioner shall have the power to seize any goods vehicle or seize and confiscate any goods of any transporter, bailee or the owner or lessee of a warehouse, which are found in any office, shop, godown, vehicle or vessel or any other place while on transit but not accounted for by the transporter, bailee or the owner or lessee of the warehouse, as the case may be, in his accounts, registers and other documents maintained in respect of such goods.

Provided that before taking action for the confiscation of goods under this sub-section, the Commissioner shall give the person affected an opportunity of being heard and make an enquiry in the prescribed manner.

Provided further that where the person affected makes payment to the Commissioner the amount of tax at the appropriate rate payable in respect of such goods to be assessed in the prescribed manner with a penalty equivalent to twenty per centum of the value of the goods seized, the goods and the vehicle seized as aforesaid shall be released."

It is plain from the second proviso to 16-D (5) of the OST Act that it envisages payment of the amount of tax by the person affected "in respect of such goods to be assessed in the prescribed manner" as well as the penalty equivalent to twenty per centum of the value of the goods seized as a condition of the goods seized. The words 'to be assessed' indicate the legislative intent that the assessment could follow the payment of the tax and penalty at the time of the seizure of such goods. However, under Section 73(10) of the OVAT Act, the issuance of a SCN prior to the action is mandatory. The language of the provision itself makes this abundantly clear that the action would be taken "after giving the dealer an opportunity of being heard and after holding such further enquiry....." Therefore, the question of first collecting the tax and penalty upfront under Section 73 (10) of the OVAT Act and then assessing the person from whom the amount was collected, is not permissible in law.

Consequently, the Court of the view that the decision in Dutta Traders (supra) is not applicable for the purposes of the present case.

For all of the aforementioned reasons, the Court holds that the collection of the tax and penalty by the STO, Cuttack (Opposite Party No.3) from the Petitioner on 10th April, 2007 is without any authority of law. Accordingly, it is directed that the aforementioned sum of Rs.3,29,787/- collected from the Petitioner will be refunded to him together with interest as applicable under the relevant rules within a period of four weeks from today. It is made clear that the interest will be continued to be paid till the date of actual refund. Further, as clarified in M.G. Garments (supra), it would be open to the Department if it so chooses to initiate fresh proceedings in accordance with law.

The writ petition is allowed in the above terms but in the circumstances, with no order as to costs.

The record of the revision petition has been returned to Mr. Mishra for the Department.

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