2006 (12) TMI 451 - HC - VAT and Sales Tax

Summary

Issues:
1. Detention of goods for alleged undervaluation and improper tax assessment.
2. Validity of penalty imposition without initiating penalty proceedings.

Analysis:
1. The petitioner, a registered dealer in granite, sold polished granite slabs to a buyer in Surat. The goods were being transported when intercepted by the first respondent, who alleged undervaluation based on the quantity and value discrepancy. The respondents claimed the material should be valued higher, resulting in a higher tax liability than declared by the petitioner. The first respondent detained the goods and demanded tax payment along with a penalty equal to twice the determined tax amount. The petitioner challenged this detention through a writ petition, arguing the action was arbitrary and contrary to the APVAT Act and Rules, 2005. The court, considering a previous decision, held that demanding penalty at the goods detention stage without initiating penalty proceedings is illegal. Consequently, the court directed the release of the goods and vehicle to the petitioner upon payment of the indicated tax amount, allowing the respondents to pursue penalty proceedings separately in accordance with the law.

2. The court's decision was based on the principle established in a prior judgment, Sujana Enterprises v. Assistant Commercial Tax Officer, which emphasized the illegality of imposing penalties at the goods detention stage without initiating formal penalty proceedings. The court found merit in the petitioner's argument that such actions are premature and contrary to legal procedures. As a result, the court disposed of the writ petition by ordering the release of the goods and vehicle to the petitioner upon tax payment, while permitting the respondents to pursue penalty proceedings separately in compliance with the law. This approach ensures procedural fairness and adherence to legal requirements in matters of tax assessment and penalty imposition, safeguarding the rights of the concerned parties and upholding the rule of law in tax matters.