2010 (12) TMI 1110 - HC - VAT and Sales Tax

Whether the detention order has been made in accordance with law? Whether the authority, who passed the detention order, has got power and jurisdiction to do the same? Held that - A perusal of the statement recorded from a representative of the K.G.S. Scan would go to show that at the time of checking, the invoice regarding the sale made by the Siemens Limited to a company in Andhra Pradesh was very much produced. Therefore, when it was doubtless that the Siemens Limited was the original owner of the goods, who had sold away the goods to a company in Andhra Pradesh and thus, it was the consignor, there was no legal ground available for the respondents to pass the detention order. Thus, as rightly pointed out by the learned senior counsel appearing for the petitioners, the detention order is not only without jurisdiction and the same is void under law. Consequently, the order imposing compounding fees is also without jurisdiction and the same is liable to be quashed.

Issues:
1. Detention of goods by Assistant Commercial Tax Officer
2. Order for payment of tax and compounding fees
3. Jurisdiction of the authorities in passing the detention order and compounding fees

Issue 1: Detention of Goods by Assistant Commercial Tax Officer

The case involved the detention of goods by the Assistant Commercial Tax Officer on the grounds that the goods belonged to a casual dealer who had not paid the tax on the sale. The detention notice was issued under section 42 of the State Act, and the goods were detained pending further inquiries. The petitioners challenged this detention, arguing that the ownership of the goods had transferred to Siemens Limited after a resale by the K.G.S. Scan, and appropriate tax had been paid for an inter-State sale. The court found that the detention order was not sustainable as there was no tax due from Siemens Limited, the original owner, under the Central Act or the State Act. The detention order was deemed to be without jurisdiction and void under the law.

Issue 2: Order for Payment of Tax and Compounding Fees

The order dated July 7, 2005, directed the K.G.S. Scan to pay tax plus surcharge and compounding fees to get the goods released. The court determined that the K.G.S. Scan was not liable to pay any compounding fee as it was not established that the scan center was liable to pay tax under the State Act. The court emphasized that if there was tax evasion, proper proceedings should have been initiated by the commercial tax authorities, and demanding payment without following due process was not permissible. The order imposing compounding fees against the K.G.S. Scan was considered to be against the law and was quashed.

Issue 3: Jurisdiction of the Authorities in Passing the Detention Order and Compounding Fees

The court analyzed whether the authorities had the power and jurisdiction to pass the detention order and the subsequent order for compounding fees. It was concluded that since there was no tax liability on Siemens Limited, the detention order against the company was unsustainable. The court also rejected the argument that appropriate records were not available with the transporter during the check, stating that the invoice produced at the time of inspection clearly indicated Siemens Limited as the consignor. Therefore, the detention order was deemed to be without jurisdiction and void. The order for compounding fees was also set aside as it lacked legal basis.

In conclusion, the High Court of Madras allowed both writ petitions, quashing the impugned orders related to the detention of goods and the demand for payment of tax and compounding fees. The court granted liberty to the Commercial Tax Authorities to initiate proceedings against the scan center if there was evidence of tax evasion, emphasizing that any actions should be in accordance with the law and after providing the necessary opportunity for the scan center to respond. The court directed the return of the bank guarantee and personal bond, along with any refunded amounts, to the scan center.

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