2015 (5) TMI 296 - HC - VAT / Sales Tax

Provisional attachment of property - Excersice of power u/s 45 of the Gujarat Value Added Tax 2003 - Garnishee order - Held that - Against the estimated liability of the petitioners under the VAT Act of Rs. 4.5 crores the immovable property worth Rs. 5 crores is already under attachment. Under the circumstances the interest of the Government Revenue has been fully protected. Therefore thereafter there was no reason whatsoever for the respondent No.2 to pass the order under Section 45 of the VAT Act of provisional attachment of the bank accounts of the petitioners including the personal bank account of the petitioner No.2. Such an exercise of powers is absolutely illegal and most arbitrary which cannot be sustained. There is no justification pointed out to exercise powers under Section 45 of the VAT Act and passing the order of provisional attachment of the bank accounts of the petitioners including personal bank account of the petitioner no.2. There is no formation of opinion by the Commissioner that for the purpose of protecting the interest of the Government Revenue the impugned order of provisional attachment of the bank account of the petitioners including the personal bank account of the pet No.2 has been passed Impugned order of provisional attachment of the bank accounts of the petitioner including the personal bank account of the petitioner No.2 and the impugned garnishee notice served upon the respondent No.3-Punjab National Bank and the banker of the petitioners are absolutely illegal and most arbitrary. In the present case the exercise of powers by the respondent No.2 under Sections 45 and 44 of the VAT Act is nothing but an abuse of powers by the respondent No.2 and undue harassment to the petitioners. Under the circumstances this is a fit case to impose exemplary cost upon the respondent No.2 while allowing the present petition and quashing and setting aside the impugned orders. - Decided in favour of appellant.

1. ISSUES PRESENTED and CONSIDERED

- Whether the provisional attachment of the petitioners' bank accounts under Section 45(1) of the Gujarat Value Added Tax Act, 2003 (VAT Act) was justified and lawful, given that immovable property worth Rs. 5 crores had already been attached as security against the alleged tax liability of Rs. 4.5 crores.

- Whether the garnishee notice issued under Section 44 of the VAT Act directing the bank to make recovery from the petitioners' bank accounts was valid, considering that the assessment proceedings were pending and no tax liability had been crystallized or adjudicated against the petitioners.

- Whether the impugned provisional attachment of the personal bank account of the second petitioner was lawful, especially since it was not referred to in the provisional attachment order.

- Whether the exercise of powers under Sections 44 and 45 of the VAT Act by the revenue authorities amounted to abuse of power and undue harassment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality and Justification of Provisional Attachment of Bank Accounts under Section 45(1) of the VAT Act

Relevant Legal Framework and Precedents: Section 45(1) of the VAT Act empowers the Commissioner to provisionally attach any property belonging to a dealer during pendency of assessment or reassessment proceedings if the Commissioner forms the opinion that such attachment is necessary to protect the Government revenue. The proviso requires that such opinion be based on tangible material or objective facts, such as the dealer's past conduct or reliable information indicating likelihood of the dealer disposing of property to defeat revenue claims.

Court's Interpretation and Reasoning: The Court emphasized that mere pendency of assessment proceedings is insufficient to justify provisional attachment under Section 45(1). The Commissioner must form a subjective satisfaction on tangible and objective grounds that attachment is necessary to protect revenue interests. In the present case, the petitioners themselves offered immovable property worth Rs. 5 crores as security, which was provisionally attached by order dated 14.04.2015. The alleged liability was approximately Rs. 4.5 crores, thus the revenue was fully secured.

The Court found no material or opinion recorded by the Commissioner justifying the provisional attachment of the bank accounts, including the personal bank account of the second petitioner. The impugned orders lacked any rationale or formation of opinion that such attachment was necessary beyond the security already provided.

Key Evidence and Findings: The petitioners' undertaking and the attachment order of immovable property worth Rs. 5 crores were undisputed. The Revenue's representative conceded that the attachment of bank accounts and issuance of garnishee notice were not warranted given the security already in place.

Application of Law to Facts: Since the revenue interest was adequately protected by the attachment of immovable property exceeding the alleged liability, the further provisional attachment of bank accounts was unwarranted and arbitrary.

Treatment of Competing Arguments: The Revenue initially proceeded with the provisional attachment and garnishee notice but ultimately conceded the lack of justification. The petitioners argued that the attachment of bank accounts was illegal and arbitrary, which the Court accepted.

Conclusions: The provisional attachment of the petitioners' bank accounts under Section 45(1) was illegal, arbitrary, and unsustainable in law.

Issue 2: Validity of Garnishee Notice under Section 44 of the VAT Act

Relevant Legal Framework and Precedents: Section 44 of the VAT Act authorizes the Commissioner to issue a garnishee notice to any person holding monies for or due to a dealer to pay the amount due towards arrears of tax, penalty, or interest. Such notice presupposes that the dealer is in arrears of tax or other liabilities.

Court's Interpretation and Reasoning: The Court noted that as the assessment proceedings were pending, no liability had been crystallized or adjudicated against the petitioners. Therefore, the petitioners could not be said to be in arrears of tax, penalty, or interest. Consequently, issuance of garnishee notice under Section 44 was premature and contrary to the statutory mandate.

Key Evidence and Findings: No order of assessment determining tax liability had been passed. The Revenue's own concession confirmed the absence of any crystallized liability.

Application of Law to Facts: Since the petitioners were not in arrears, garnishee notice under Section 44 was without jurisdiction and illegal.

Treatment of Competing Arguments: The petitioners contended that garnishee notice was arbitrary and contrary to law; the Revenue failed to justify its issuance.

Conclusions: The garnishee notice issued under Section 44 was illegal, arbitrary, and unsustainable.

Issue 3: Attachment of Personal Bank Account of Petitioner No. 2

Relevant Legal Framework and Precedents: Provisional attachment under Section 45(1) must be justified with formation of opinion and relate to property belonging to the dealer. The attachment order must specify the property attached.

Court's Interpretation and Reasoning: The personal bank account of the second petitioner was attached without reference in the provisional attachment order. There was no justification or opinion recorded for such attachment. The Court found this to be arbitrary and illegal.

Key Evidence and Findings: The attachment order did not mention the personal bank account of the second petitioner, yet it was attached and subjected to garnishee notice.

Application of Law to Facts: The attachment of the personal bank account without proper order or justification was unlawful.

Treatment of Competing Arguments: Petitioners challenged the attachment as illegal; Revenue did not defend this action.

Conclusions: The attachment of the personal bank account of petitioner No. 2 was illegal and unsustainable.

Issue 4: Abuse of Power and Undue Harassment

Relevant Legal Framework and Precedents: Powers under Sections 44 and 45 of the VAT Act must be exercised reasonably and not arbitrarily or oppressively. Abuse of power and harassment in tax proceedings is impermissible.

Court's Interpretation and Reasoning: The Court observed that the impugned orders of attachment of bank accounts and issuance of garnishee notice, despite adequate security by attachment of immovable property, constituted an abuse of power and undue harassment of petitioners.

Key Evidence and Findings: The Revenue's concession and absence of justification for additional attachment supported this conclusion.

Application of Law to Facts: The arbitrary exercise of powers was held to be impermissible and liable to be quashed.

Treatment of Competing Arguments: Petitioners sought exemplary costs for abuse of process; the Court agreed.

Conclusions: The actions of the Revenue authorities amounted to abuse of power and undue harassment, warranting exemplary costs.

3. SIGNIFICANT HOLDINGS

"Section 45 of the VAT Act confers powers upon the Commissioner to pass the order of provisional attachment of any property belonging to the dealer during the pendency of any proceedings of assessment or reassessment of turnover escaping assessment. However, the order of provisional attachment can be passed by the Commissioner when the Commissioner is of the opinion that for the purpose of protecting the interest of the Government Revenue, it is necessary so to do. Therefore, before passing the order of provisional attachment, there must be an opinion formed by the Commissioner that for the purpose of protecting the interest of the Government Revenue during the pendency of any proceedings of assessment or reassessment, it is necessary to attach provisionally any property belonging to the dealer. However, such satisfaction must be on some tangible material on objective facts with the Commissioner."

"When by order of provisional attachment of the immovable property worth Rs. 5 crores during the pendency of the assessment proceedings has already been passed, the interest of the Revenue has been already fully protected. Therefore, as such, there was no reason at all for the respondent No.2 to pass the impugned provisional attachment orders to attach the bank accounts of the petitioners and even the personal bank account of the petitioner No.2."

"As on today, there is no order passed against the petitioners under the VAT Act and there is no tax liability and/or any further liability under the VAT Act against the petitioners. On fair reading of Section 44 of the VAT Act, garnishee order/notice can be issued under Section 44 of the VAT Act with respect to any amount due by which, the dealer is in arrears of tax, penalty or interest under the VAT Act. Under the circumstances, the impugned garnishee notice is absolutely illegal and most arbitrary which deserves to be quashed and set aside."

"In the present case, the exercise of powers by the respondent No.2 under Sections 45 and 44 of the VAT Act is nothing but an abuse of powers by the respondent No.2 and undue harassment to the petitioners."

The Court quashed and set aside the impugned provisional attachment orders of the petitioners' bank accounts, including the personal bank account of petitioner No. 2, and the garnishee notice issued under Section 44 of the VAT Act. The provisional attachment order relating to the immovable property worth Rs. 5 crores was upheld. The petitioners' undertaking to not transfer or encumber the attached property was accepted. Exemplary costs were imposed on the Revenue authority for abuse of power.

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