2013 (4) TMI 325 - HC - VAT and Sales Tax

Detention of medical equipment consignment - Proceedings initiated under section 47 KVAT Act - writ filed restraining the 1st and 2nd respondents from encashing Bank Guarantee furnished by the petitioner before expiry of 30 days from the date of service of any order imposing penalty on conclusion of the enquiry /adjudication - whether the waiting period of 30 days mentioned in section 47(8) is confined only to cases where the goods are seized? - Held that - subsection 8 of section 47 as provided in Rule 67(9) is unambiguous in its opening words that it contemplates a case where penalty has not been paid within the time limit under sub section 8 of section 47. Sub Rule 9 contemplates action under clause (a) and (b) only in a case where penalty is not paid within the time specified under subsection 8 of section 47. Learned Government Pleader does not have a case that any other time limit is mentioned in section 47(8) other than the period of 30 days. Therefore, the time limit of 30 days mentioned in 47(8) is imported into Sub Rule 9 of Rule 67 and the Rule maker contemplates that only if penalty is not paid within the time specified in Sub-Rule (8) can cash security which has been furnished be adjusted against penalty under Sub-Rule (a).Likewise under clause (b), if any other security or bond has been furnished, the Officer is to take steps for reaslising the amount from the security and adjust the same towards penalty, and expenses and incidental charges after the waiting period is over. Thus without waiting for the expiry of the period mentioned in section 47(8), even if the goods have not been seized, and on the other hand the goods have been released under section 47(2) on furnishing either cash security or any other security, the security can be enforced only after the expiry of 30 days. This is the unambiguous declaration of law, contained in the Rules. Therefore having regard to the stand taken by the learned Government Pleader also it becomes necessary to grant relief to appellant in this case directing that the security furnished in this case namely the bank guarantee can be realised or enforced and adjusted towards the penalty and expenses and incidental charges only if penalty is not paid within the time specified in subsection 8 of section 47 as provided in Rule 67(9) of the Rules.(30 days).

Issues Involved:
1. Legality of encashing/enforcing a bank guarantee furnished by the appellant before the expiry of 30 days from the date of service of any order imposing penalty.
2. Interpretation of Section 47(8) of the Kerala Value Added Taxes Act and Rule 67(9) of the Rules made under the Act.
3. The distinction between detaining and seizing goods under the Act.
4. The appellant's right to statutory remedies and interim orders during the appeal process.

Issue-wise Detailed Analysis:

1. Legality of Encashing/Enforcing Bank Guarantee:

The appellant, a manufacturer-cum-dealer of medical equipment, had its consignment detained under Section 47 of the Kerala Value Added Taxes Act. The appellant furnished a bank guarantee for the demanded security amount, leading to the release of the consignment. Subsequently, the appellant sought a writ of mandamus to restrain the respondents from encashing/enforcing the bank guarantee before the expiry of 30 days from the date of service of any penalty order upon conclusion of the enquiry/adjudication. The learned single Judge found this prayer untenable and dismissed the writ petition, stating it was premature to assume an adverse order and that the appellant could seek a stay from the appellate authority if needed.

2. Interpretation of Section 47(8) and Rule 67(9):

The appellant argued that under Section 47(8) of the Act, a waiting period of 30 days is mandated before enforcing the security if a penalty is imposed. The Government Pleader contended that this waiting period applies only when goods are seized, not when security is furnished. The Court examined Section 47(8) and Rule 67(9), concluding that the law clearly stipulates a 30-day waiting period before enforcing the security, regardless of whether the goods were seized or security was furnished. The Court emphasized that Rule 67(9) unambiguously imports the 30-day time limit from Section 47(8) and applies it to cases where penalty is not paid within this period.

3. Distinction Between Detaining and Seizing Goods:

The Court clarified that detaining and seizing goods are distinct concepts under the Act. Section 47(2) allows an officer to detain goods if there is suspicion of evasion of tax, and these goods can be released upon furnishing security. If security is not furnished within 14 days, the officer may seize the goods. The Court noted that the waiting period of 30 days applies even if the goods were detained and subsequently released upon furnishing security, reinforcing that the security can only be enforced after this period.

4. Appellant's Right to Statutory Remedies:

The Court dismissed the Government Pleader's argument that the 30-day waiting period would allow the appellant to delay the realization of the penalty by filing appeals and obtaining stays. The Court highlighted that the law permits the appellant to avail statutory remedies and that appellate authorities have the power to impose interim orders with appropriate conditions to protect the interests of both the appellant and the Revenue.

Conclusion:

The Court found merit in the appellant's contention and directed that the bank guarantee furnished by the appellant can only be enforced if the penalty is not paid within the 30-day period specified in Section 47(8). The judgment of the learned single Judge was set aside, and the respondents were restrained from enforcing the bank guarantee unless the penalty remained unpaid after the stipulated period. The Court also allowed the Officer to demand that the bank guarantee be kept alive for a necessary period if the penalty proceedings were not completed within the specified time.

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