2013 (1) TMI 351 - HC - VAT and Sales Tax

KVAT Act - Notices u/s 47(2)- Detention of goods - Evasion of tax - Demanding security deposit - Supply of goods - Erection and commissioning - Held that - whether there was any element of tax evasion is a matter to be brought to light in the course of appropriate adjudication proceedings. But, for that reason, the goods need not be detained any further and the same shall be released to the petitioners forthwith, on satisfying 1/3rd of the security deposit demanded

Summary

Issues:
Interception of goods in transit under Section 47(2) of the KVAT Act, doubt of tax evasion, demand for security deposit, existence of works contract element in purchase order, registration requirement under KVAT Act, release of detained goods.

Interception of Goods and Tax Evasion:
The petitioners placed a purchase order for goods, which were dispatched and intercepted during transit, leading to notices under Section 47(2) of the KVAT Act for suspected tax evasion. The respondents argued that the purchase order indicated an element of works contract due to payment terms related to erection and commissioning, necessitating registration under the KVAT Act. The court noted the absence of a statement of objection from the petitioners in response to the notices but emphasized that the determination of tax evasion required proper adjudication proceedings.

Works Contract Element and Registration Requirement:
The respondents contended that the purchase order implied a works contract element based on payment terms for erection and commissioning, necessitating registration under the KVAT Act. The court observed the payment terms in the purchase order but highlighted that the absence of registration of the consignor might not be consequential since the erection was to be carried out by the first petitioner's employees. The court emphasized the need for proper adjudication to ascertain the presence of a works contract element.

Release of Detained Goods:
After hearing both sides, the court ordered the immediate release of the detained goods to the petitioners upon satisfying 1/3rd of the security deposit demanded in the notices. The petitioners were required to provide the deposit in cash or through a bank guarantee and execute a 'simple bond' jointly without sureties for the balance amount. The release was granted without prejudice to the respondent's right to continue with adjudication proceedings, which were to be completed promptly according to the relevant legal provisions.

Conclusion:
The court disposed of the writ petition, directing the release of the goods to the petitioners while allowing for further adjudication proceedings to determine any tax evasion issues. The judgment emphasized the importance of completing the adjudication process expeditiously and upheld the petitioners' right to obtain the goods upon fulfilling the specified security deposit requirements.