2015 (9) TMI 1538 - HC - VAT and Sales Tax

Detention of goods - the consignee is not a registered dealer under the KVAT Act - demand of security deposit - petitioner claim that goods should not be detained for want of registration under the KVAT Act, as the petitioner is only a drug and food testing laboratory, which purchases goods from other States on the strength of online Form No.16, which itself proves that the goods are purchased by the petitioner for own use - Held that - this Court granted an interim direction to release the goods detained on executing a simple bond. Detention of goods - the item chemicals and process pumps are not considered for own use purpose under the KVAT Act - petitioner case is that they are only a drug and food testing laboratory, which purchases goods from other States on the strength of online Form No.16, which itself proves that the goods are purchased for own use - Held that - the officer in charge of the notified area or the empowered officer can detain the goods under transit covered by a certificate of ownership in Form No.16, if he has reason to suspect that the goods are transported into the State by persons other than registered dealers on the pretext of own use . When the 2nd respondent in these writ petitions has ample power by virtue of sub-section (2) of Section 47 of the KVAT Act to intercept the goods in transit and demand security, if he has reason to suspect that the petitioner is attempting to evade payment of the tax due under the said Act, the issuance of Ext.P4 detention notices cannot, in any way, be termed as an act done without any authority of law, warranting an interference of this Court under Article 226 of the Constitution of India. Merely for the reason that the goods are transported into the State on the strength of declarations made in Form No.16, the petitioner is not legally entitled for an order restraining the respondents and all check post authorities in the State from detaining such goods for want of registration under the KVAT Act. Therefore, the petitioner is not entitled for the reliefs prayed for in these writ petitions. Petition dismissed.

Summary

Issues Involved:
1. Detention of goods under Section 47(2) of the KVAT Act.
2. Requirement of registration under the KVAT Act for transporting goods.
3. Legality of demanding security deposit for suspected tax evasion.

Issue-wise Detailed Analysis:

1. Detention of Goods under Section 47(2) of the KVAT Act:
The petitioner, operating a drug and food testing laboratory, purchased chemicals and process pumps from Bangalore, which were transported to Kochi. The goods were intercepted by the Commercial Tax Check Post and detained under Section 47(2) of the KVAT Act. The reason for detention was that the petitioner was not a registered dealer under the KVAT Act, leading to a suspicion of tax evasion. The petitioner sought a writ of certiorari to quash the detention notices and a writ of mandamus to release the goods unconditionally.

2. Requirement of Registration under the KVAT Act for Transporting Goods:
The petitioner argued that as a drug and food testing laboratory, the goods were for own use, evidenced by the online Form No.16 certificate of ownership. The petitioner contended that the authorities should not detain goods for lack of registration under the KVAT Act. However, the court noted that Section 46 of the KVAT Act mandates that goods transported within the state must be accompanied by proper documents, including a certificate of ownership for non-registered dealers. The court held that the officer in charge has the authority to detain goods if there is suspicion that they are transported by non-registered dealers under the pretext of own use.

3. Legality of Demanding Security Deposit for Suspected Tax Evasion:
The court examined the provisions of Section 47 of the KVAT Act, which allows officers to intercept and inspect goods in transit to prevent tax evasion. If the officer suspects that the goods are not covered by genuine documents or that there is an attempt to evade tax, they can detain the goods and demand security. The court emphasized that the power to demand security under Section 47(2) does not require a positive finding of tax evasion, only a reasonable suspicion. The court distinguished this from the imposition of penalties under Section 47(6), which requires a finding of attempted tax evasion after an inquiry.

The petitioner cited the judgment in K.G. Thommen v. State of Kerala to argue that security deposits should only be collected in clear cases of tax evasion. However, the court clarified that the cited case dealt with penalty imposition, not the detention and security demand under Section 47(2).

Conclusion:
The court concluded that the detention notices issued under Section 47(2) were within the authority of the officer, given the suspicion of tax evasion. The petitioner was not entitled to restrain the authorities from detaining goods for lack of registration under the KVAT Act. The interim orders for releasing the goods on executing a simple bond were noted, but the challenge to the detention notices was rejected. The court directed the authorized officer to conduct an inquiry and pass final orders within three months, allowing the petitioner to submit objections within one week. The writ petitions were disposed of with no order as to costs.