2011 (2) TMI 1334 - HC - VAT and Sales Tax

Seizure proceeding initiated under section 48(7) of the U.P. VAT Act - Held that - It would meet the ends of justice if the goods are allowed to be released on furnishing security equal to the amount of tax that is leviable on the goods seized and for the remaining amount upon furnishing security other than cash or bank guarantee to the satisfaction of the authority. It is further directed that so far as entry tax is concerned, the petitioner shall furnish security other than cash or bank guarantee to the extent of 20 per cent instead of 40 per cent as demanded by the authority. On such prayer being made it is provided that it will be open for the applicants to furnish bank guarantee in case it is not able to arrange for the security other than bank guarantee as directed above.

Issues: Seizure of Goods under U.P. VAT Act, Entry Tax Imposition

Seizure of Goods under U.P. VAT Act:
The judgment pertains to two revisions filed against a common order of the Tribunal affirming the seizure of goods and demand of VAT under the U.P. VAT Act. The applicants, a registered company and a partnership firm, were involved in transporting stainless steel goods. The seizure was initiated under section 48(7) of the U.P. VAT Act in the assessment year 2010-11. The goods were detained by the Mobile Squad in Uttar Pradesh, leading to the issuance of a show-cause notice. Despite the applicants' submissions, the seizure order was passed and upheld by the authorities and the Tribunal.

The applicants contended that the goods were being transported from Haryana to Uttarakhand, with accompanying documents verifying the consignment details and the intended destination outside Uttar Pradesh. They argued that the goods were not meant for sale within Uttar Pradesh, and therefore, no penalty or tax should have been levied on the transit of goods. They challenged the legality of the seizure and the imposition of entry tax at a rate of 40 percent, especially since the Entry Tax Act itself was under challenge before the court.

In response, the standing counsel for the respondent argued that the driver did not possess the required transit/declaration form as per the Commissioner's circular. The counsel highlighted the necessity of the declaration form being downloaded from the official website and accompanying the consignment within Uttar Pradesh. Due to the absence of this form, the seizure and the subsequent demand for security were deemed justified.

The counsel for the applicants emphasized that the provision under section 50 of the VAT Act only required the carrying of prescribed documents by the person in charge of the vehicle during transit through the state. They argued that the presumption of goods being meant for sale within the state was rebuttable, especially if the accompanying documents verified that the goods were in transit from outside Uttar Pradesh to a destination outside the state. They deemed the seizure based solely on the absence of the downloaded transit form as an arbitrary exercise of power.

The judgment referred to a previous decision of the court in the case of J.P. Drugs v. Commissioner of Commercial Tax, U.P., Lucknow, which emphasized the relevance of accompanying documents in determining the transit status of goods. The court directed the release of goods upon furnishing security equal to the tax leviable on the seized goods, with additional security to be provided to the satisfaction of the authority. The entry tax demand was reduced from 40 percent to 20 percent, with the option for the applicants to furnish a bank guarantee if unable to arrange alternative security.

In conclusion, the court allowed the release of goods on specified security terms, addressing the issues raised regarding the seizure under the U.P. VAT Act.

Entry Tax Imposition:
The judgment also addressed the imposition of entry tax at a rate of 40 percent, which was challenged by the applicants. The court directed the applicants to furnish security other than cash or a bank guarantee to the extent of 20 percent instead of the initially demanded 40 percent. The judgment provided flexibility for the applicants to opt for a bank guarantee if unable to arrange the specified security, thus resolving the issue of entry tax imposition in the case.

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