2014 (11) TMI 1063 - HC - VAT and Sales Tax

Imposition of penalty - Section 57(8)(ii) of VAT - Petitioner engaged in business of purchase and sales of food grains, oil seeds and edible oil etc - Tanker delivering the edible oil detained suspecting evasion of tax - Driver was made to sign the notice and same was treated to have been served upon the transporter - Held that - the concerned authority has acted in an arbitrary manner and in fact abdicated its authority in the matter of passing of order of penalty without enquiry and without adhering to the procedure as contemplated under Section 57(8) of the VAT. It is shocking to note that order imposing penalty has been passed in a printed format by showing the amount of penalty which at no stretch of imagination can be said to be an order required to be passed under Section 57(8) of the VAT. Such highhandedness and whimsical exercise of power by the concerned authority in the matter of imposing penalty upon transporter without even serving the transporter with notice much less affording an opportunity of hearing in the enquiry required to be held is depracated. There is nothing on record in support of conclusion drawn by the authority concerned that the documents produced were prepared by the same person. Mere self styled observations without anything more on record, it cannot be said that documents produced were false and forged. Therefore, the decision of concerned authority regarding imposition of penalty is wholly arbitrary and unsustainable in the eyes of law. Moreover, mere presumption that both documents are written by same person by itself do not tantamount that documents so produced were false or forged. Such slip showed consequences on the part of concerned authority, speaks volumes about vindictiveness in the matter of exercise of powers entailing penal consequences. Seeking release of tanker and amount of ₹ 1,68,679/- with interest deposited by the petitioner under coercion - Ownership of consignee - whether the goods dispatched by the petitioner/consignor while in transit, can be said to be the goods of the ownership of the consignee - Held that - the question whether a contract for the sale of goods does or does not pass the property in the goods from the buyer to the seller must in all cases be determined by the intention of parties to the contract, nature of transactions and terms and conditions of contract. Sale of Goods Act under various chapters and provisions contained thereunder deals with different situations to answer the aforesaid question, and therefore, by figment of thought to ascertain the ownership of goods which is involved in the realm of business transaction shall always be a dangerous phenomenon. Mere dispatch of goods by the seller therefore cannot lead one to form the opinion that the buyer has become owner of the goods as has been done in the instant case. This notion formed by the concerned authority suffers from misconception, lacking common sense and de hors the provisions of Sale of Goods Act. Therefore, the goods in transit in absence of any evidence as regards terms and conditions of sale for dispatch of the goods, cannot be said to be of the ownership of the consignee. Hence, the attachment of the tanker for the aforesaid reason is unsustainable in the eyes of law. Therefore, respondents are directed to release the tanker and also refund the amount of penalty so deposited by the petitioner. - Decided in favour of petitioner

Summary

Issues Involved:
1. Legality of the penalty imposed under Section 57(8) of the Value Added Tax, 2002.
2. Compliance with procedural requirements under Section 57 of the VAT.
3. Validity of the attachment of the tanker and goods under Section 147 of the MPLRC.
4. Entitlement to refund of the amount deposited under coercion.

Detailed Analysis:

1. Legality of the Penalty Imposed Under Section 57(8) of the VAT:
The court examined whether the penalty imposed on the petitioner was lawful under Section 57(8) of the VAT. The petitioner argued that the required documents were with the driver and were produced during the inspection. However, the penalty was imposed without issuing a proper notice or conducting an inquiry to verify if the documents were false or forged. The court found that the concerned authority did not follow the statutory procedure, as there was no evidence of an inquiry or reasons recorded in writing for the penalty. The penalty order was found to be arbitrary and issued in a cyclostyled format, which indicated a lack of application of mind and procedural fairness.

2. Compliance with Procedural Requirements Under Section 57 of the VAT:
Section 57 of the VAT outlines the procedure for inspecting goods in transit and imposing penalties. The court noted that the authority must record reasons in writing and provide a reasonable opportunity for the transporter to be heard. The court found that the authority failed to serve notice properly, did not conduct an inquiry, and did not record reasons for suspecting the documents were false or forged. The court emphasized that these procedural requirements are mandatory and essential for ensuring natural justice.

3. Validity of the Attachment of the Tanker and Goods Under Section 147 of the MPLRC:
The court addressed whether the attachment of the tanker was valid under Section 147 of the MPLRC, given that the consignee was in arrears of taxes. The court referred to the Sale of Goods Act to determine the ownership of goods in transit. It concluded that mere dispatch of goods does not transfer ownership to the consignee unless explicitly stated in the terms and conditions of the sale. Therefore, the attachment of the tanker on the grounds that the consignee owed taxes was deemed unsustainable in law.

4. Entitlement to Refund of the Amount Deposited Under Coercion:
The petitioner claimed that the amount of Rs. 1,68,679/- was deposited under coercion. The court found that the penalty was unjustified and the deposit was made without following due process. Consequently, the court held that the petitioner is entitled to a refund of the amount deposited.

Conclusion:
The court quashed the penalty order dated 26/7/2014, finding it arbitrary and in violation of Section 57 of the VAT. The court directed the respondents to release the tanker and refund the amount deposited by the petitioner within three weeks. The authority was advised to follow the proper legal recourse if necessary.