The Madras High Court while quashing the impugned order held that the recovery of tax in advance by inspecting officials is illegal.
Facts of the case:-
The Petitioner, M/s. Sri Ganesh Lubricants, challenged the demand of the Commercial Tax Officer calling upon the petitioner to pay a sum of Rs.21,33,005 towards dishonoured cheques totally amounting to Rs.21,33,005, which was issued by the petitioner in favour of the respondent authority, on the date of inspection, at their premises, by the Enforcement Wing Officials.
Interpretation of law:-
The primary ground for the challenge was that the spot collection of taxes is wholly illegal and unwarranted when the assessment for the respective year is still pending. The counsel, Mr. S. Rajasekar for the +petitioner contended that the notice of the demand is bereft of the legal sanctity. Further, coercive steps taken by the respondents for recovering the alleged tax due from the petitioner is illegal. According to him, without any assessment order, the same cannot be recovered from him.
The Special Government Pleader appearing on behalf of the respondents, on instructions, would also admit that till date no assessment order has been passed against the petitioner which is the subject matter of this Writ Petition.
The single-judge bench of Justice Abdul Qudhose clarified that It is settled law that recovery of tax in advance by inspecting officials (Enforcement Wing) is illegal.
The court observed that the respondent has admitted that four cheques given by the petitioner on the date of inspection were only towards the payment of tax even though in the impugned demand, they have mentioned that it is towards compounding fees. Since the collection of cheques from the petitioner is admittedly, towards payment of tax, as per the settled law, the said collection by the second respondent on the date of inspection from the petitioner is illegal without there being any assessment order.
However, liberty is granted to the respondents to complete the assessment against the petitioner in accordance with the law, and if it is found that the petitioner is liable to pay tax or penalty or other charges, the same shall be recovered from him after completion of the assessment proceedings in accordance with the law.