2025 (6) TMI 1349 - HC - VAT / Sales Tax

Competence of ETO to impound the Goods loaded vehicle when the vehicle Driver had complied with the provisions of the VAT Act sec 51 (2) (4)) and voluntarily submitted valid document i.e. invoice no-1033 dated 17.09.2005 and Form F - competence of ETO to detain the goods refer the case to AETC without recording the reasons in writing as required vide Punjab VAT Act Section 51(6) (a) - Levy of tax/penalty without there being any documentary evidence against Appellant - Competence of the AETC to impose penalty on the Appellant Consignee - Competence of AETC to hold juridical proceeding against the Consignee - parameters of provision of Revision under Section 34 of Act followed or not - liability faster follows the parameters of definition of Sales or not - levy of sales tax on mere assumption or personal knowledge of banking system without there being any transfer of property in goods. HELD THAT - A perusal of the record shows that 1000 Antenna systems worth Rs. 24, 90, 000/- were being supplied to the appellant as Branch Transfer. Appellant failed to produce any documentary evidence to prove the transaction to be Branch Transfer. Further Form F was to be issued by the transferee which was not issued - There is no provision in the agreement for repair during the use of goods atmospheric wear and tear or the otherwise depreciation of the material. Thus no effective control of property remains with original owner of the goods i.e. appellant while these may be in use by the customer. Therefore the amount charged as security would accordingly constitute sale price exigible to tax. There is further condition that in case the goods may not be returned after five years it would become the property of the customer which is correctly held to be a novel method of tax evasion. Goods are provided to the customers after describing the charges of Rs.2, 890/- to be security. This amount would remain with the supplier because logically after such a long time of five years the goods would not remain in running conditions for obvious reasons. Rent of Rs 500/- for five years period is being charged and VAT on this lease money was payable. Appellant did not even furnish any proof of payment of rent by the customers and further deposit of tax on the amount and to substantiate any of his other versions. Thus the learned Tribunal correctly held that the goods in question worth Rs.24 90, 000/- are to be actually sold in a manner that tax due to the State of Punjab would be evaded. Accordingly the documents covering the goods were not genuine and proper. Conclusion - The penalty has rightly been imposed upon the appellant and accordingly the substantial questions law are answered against the appellant and in favour of the revenue. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Court considered the following core legal questions:

(i) Whether the Excise and Taxation Officer (ETO) was competent to impound the goods loaded in the vehicle when the driver had complied with the provisions of the Punjab Value Added Tax Act, 2005 (VAT Act), specifically Sections 51(2) and (4), by voluntarily submitting valid documents including an invoice and Form 'F'.

(ii) Whether the ETO was competent to detain the goods and refer the case to the Assistant Excise and Taxation Commissioner (AETC) without recording reasons in writing as mandated under Section 51(6)(a) of the VAT Act.

(iii) Whether tax and penalty could be levied without documentary evidence against the appellant.

(iv) Whether the AETC had the competence to impose penalty on the appellant-consignee who had not prepared the allegedly non-genuine documents, was not the owner of the detained goods, and who would not benefit from any alleged tax evasion.

(v) Whether the AETC was competent to hold juridical proceedings against the consignee-appellant rather than the consignor, M/s Essel Agro Pvt. Ltd.

(vi) Whether the proceedings followed the parameters of revision under Section 34 of the VAT Act or whether the issues should have been tried under Section 17 related to reassessment, given that these issues were not part of the original assessment order.

(vii) Whether the liability to tax follows the parameters of the definition of "sale" under the VAT Act and related statutes.

(viii) Whether sales tax can be levied on mere assumptions or personal knowledge of the banking system without actual transfer of property in goods.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) and (ii): Competence of ETO to impound and detain goods

The legal framework involves Section 51 of the Punjab VAT Act, 2005, which governs detention and impounding of goods suspected to be involved in tax evasion. Section 51(2) and (4) require production of valid documents by the driver, and Section 51(6)(a) mandates recording reasons in writing for detention.

The Court examined whether the ETO acted within jurisdiction when detaining the goods despite the driver submitting invoice No. 1033 dated 17.09.2005 and Form 'F'. It was found that the Form 'F' was not duly issued by the transferee as required under the law, and reasons for detention were recorded, satisfying procedural requirements. The absence of a valid Form 'F' and suspicion of tax evasion justified the impounding of goods.

The Court held that the ETO was competent to detain the goods and refer the matter to the AETC, and the procedural safeguards were met.

Issue (iii): Levy of tax/penalty without documentary evidence against appellant

The appellant failed to produce any documentary evidence to establish the genuineness of the transaction as a branch transfer rather than a sale. The appellant's explanation that the goods were supplied against refundable security deposits for installation and rent was unsubstantiated by books of accounts or other evidence.

The Court noted that the appellant did not furnish proof of payment of rent by customers or deposit of VAT on rental amounts, undermining the claim that the transaction was not a sale. The absence of documentary evidence justified the imposition of tax and penalty.

Issue (iv) and (v): Competence of AETC to impose penalty on appellant-consignee

The appellant contended that as consignee and not owner or creator of documents, it was not liable for penalty. The Court analyzed the statutory provisions and found that liability for tax and penalty can extend to the consignee if the transaction results in tax evasion and the consignee benefits from the transaction.

Given that the appellant was the recipient and user of the goods and was responsible for VAT compliance, the AETC was competent to proceed against the appellant. The Court rejected the argument that only the consignor could be proceeded against.

Issue (vi): Competence of revision proceedings under Section 34 versus reassessment under Section 17

The Court observed that the issues raised were beyond the scope of the original assessment and revision proceedings and more suited for reassessment under Section 17. However, this procedural irregularity did not invalidate the substantive findings of tax evasion and penalty imposition.

Issue (vii) and (viii): Definition of "Sale" and levy of sales tax

The Court extensively analyzed the definition of "Sale" under Section 2(zf) of the Punjab VAT Act, 2005, Section 6A of the Central Sales Tax Act, 1956, and Rule 12(5) of Central Sales Tax (Registration & Turnover) Rules, 1957. The definition includes transfer of property in goods for cash, deferred payment, or other valuable consideration, and specifically includes transfer of the right to use goods for consideration.

The Court found that the transaction involved advance payment of Rs. 30,97,000/- for 1000 Antenna Systems, which established consideration and transfer of property. The appellant's claim of goods being supplied against refundable security deposit and rent was scrutinized and found to be a device to evade tax, as the so-called security deposit was non-refundable under specified conditions, and after five years, the goods became property of the customer.

The Court held that the arrangement effectively amounted to sale, and the amount charged as security constituted sale price exigible to tax. The VAT charged on rental amounts was not substantiated by evidence of collection or deposit. Thus, sales tax could be levied, and the penalty was justified.

3. SIGNIFICANT HOLDINGS

The Court held:

"The purchaser had made advance payment as consideration of purchase of 1000 Antenna System unit, therefore, the transaction was sale for all purposes, as per definition of sale referred to above."

"There is no provision in the agreement for repair during the use of goods, atmospheric wear and tear or the otherwise depreciation of the material. Thus no effective control of property remains with original owner of the goods i.e. appellant, while these may be in use by the customer."

"The amount charged as security would accordingly constitute 'sale price' exigible to tax."

"Goods are provided to the customers after describing the charges of Rs.2,890/- to be security. This amount would remain with the supplier, because logically after such a long time of five years, the goods would not remain in running conditions for obvious reasons."

"The learned Tribunal correctly held that the goods in question worth Rs.24, 90,000/- are to be actually sold in a manner that tax due to the State of Punjab would be evaded. Accordingly the documents covering the goods were not genuine and proper."

"Penalty has rightly been imposed upon the appellant."

The Court concluded that the appellant's appeal was devoid of merit and dismissed it, affirming the penalty imposed under Section 51(7)(b) of the Punjab Value Added Tax Act, 2005.