2013 (8) TMI 54 - HC - VAT and Sales Tax

Dishonor of the cheques issued during search proceedings - Action u/s 138 of the Negotiable Instrument Act - Search and seizure done u/s 45 - PD cheques issued as security - Held that - Goods were not seized at time of search, instead the security was taken for safe keeping of the goods in the shape of post dated cheques offered voluntarily - account books were not found at the place of business at the time of search. The petitioner no.1 knows the consequence of search and seizure, and if he signed five post dated cheques and had tendered the cheques along with a letter to the officers carrying out survey, it is difficult to believe that he was put under any pressure or coerced to part with security. The department may have acted in a haste at the instance of complainant but that they cannot be said to have acted arbitrarily or without any authority of law - Now since the Commercial Tax Tribunal has passed the order by which the security has been reduced and that the entire amount has been deposited, no useful purpose will be served in initiating proceedings under Section 138 of Negotiable Instrument Act - Decided in favour of assessee.

Issues:
1. Validity of notice issued under Section 138 of the Negotiable Instrument Act for dishonour of cheques.
2. Legality of actions taken by the authorities under the UP Value Added Tax Act.
3. Allegations of arbitrary action, lack of authority, and malafide intentions by the department.
4. Dispute over the seizure of goods and demand for security in the form of post-dated cheques.
5. Compliance with the orders passed by the Commercial Tax Tribunal.
6. Justification for initiating legal proceedings under Section 138 of Negotiable Instrument Act and Section 406 of Indian Penal Code.

Analysis:

1. The petitioners challenged a notice issued under Section 138 of the Negotiable Instrument Act for dishonour of cheques totaling Rs. 35 lacs. The cheques were post-dated as security during an inspection where goods were detained. The petitioners argued that the notice was arbitrary and lacked bonafide intentions, alleging pressure from a complainant and unauthorized actions by the department.

2. The legality of actions under the UP Value Added Tax Act was questioned, focusing on the search, seizure of goods, and demand for security through post-dated cheques. The authorities justified their actions under Section 45 of the Act, citing the absence of account books during the inspection as grounds for seizure and security measures.

3. Allegations of arbitrary action and lack of authority were raised against the department, emphasizing the rushed nature of the inspection, detention of goods, and issuance of notices. The petitioners contended that the department exceeded its powers by seizing goods and demanding security without proper procedures.

4. Dispute arose over the seizure of goods and the demand for security in the form of post-dated cheques. The petitioners argued that the actions were unjustified and conducted with malafide intentions, while the department defended its actions based on legal provisions and the absence of account books during the inspection.

5. Compliance with the orders of the Commercial Tax Tribunal was a key aspect of the case. The tribunal had partially allowed the appeal, reducing the security amount to the tax payable on goods. The petitioners complied with the order by depositing the required amount, leading to a resolution of the security issue.

6. The court considered the justification for initiating legal proceedings under Section 138 of the Negotiable Instrument Act and Section 406 of the Indian Penal Code. Given the compliance with the tribunal's order and the deposit of the reduced security amount, the court found no further need for such proceedings, directing that no action be taken based on the earlier notice or complaints made by the parties.

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