2014 (4) TMI 39 - HC - VAT and Sales Tax

Heavy condition of Security Genuineness of transactions Ab initio cancellation of registration - Held that - The only ground on which the authority imposed the heavy condition of security of Rs. 10 lakhs was that the assessee had certain transactions with the dealers whose registrations were cancelled ab initio From the record of this order it emerges that assessee did not indulge in any bogus billing activity - The assessee had no bogus dealing with such dealers in some of the cases dealers had also questioned the cancellation of their registration and that the assessee had never defaulted in filing returns or paying tax. Considering the turnover of the assessee and the probable tax liability condition of security deposit of Rs. 10 lakhs is too harsh in terms of section 28(2) of the VAT Act - Condition imposed by VAT authority is modified by requiring the assessee to give security of Rs. 2 lakhs - The appellant would have time upto 20.4.2014 to do so - Both the tax appeals allowed partly - No opinion expressed on the action of the authority in cancelling the registration ab initio for which separate proceedings parallely have gone on - It is further clarified that this order shall have effect only if such cancellation is set aside Decided partly in favour of Assessee.

Summary

Issues:
1. Registration under the Gujarat Value Added Tax Act
2. Imposition of security deposit of Rs. 10 lakhs
3. Dismissal of second appeals and revision petitions by the tribunal
4. Modification of the security deposit condition to Rs. 2 lakhs

Analysis:
1. The appellant, who was granted registration under the Gujarat Value Added Tax Act, faced challenges when the VAT authorities issued notices and eventually cancelled the registration due to transactions with dealers whose registrations were cancelled ab initio. The appellant appealed unsuccessfully to the Commissioner and the tribunal. Subsequently, the registration was cancelled ab initio on the grounds of dubious transactions. The appellant filed revision petitions against these decisions, which were consolidated and dismissed by the tribunal.

2. The main issue revolved around the imposition of a security deposit of Rs. 10 lakhs by the VAT authority. The appellant argued that there were no bogus dealings with the dealers in question, had no defaults in tax compliance, and had a legitimate turnover. The court found the security deposit amount to be excessive and modified it to Rs. 2 lakhs, giving the appellant time to comply with this requirement.

3. The tribunal's decision to dismiss the second appeals and revision petitions was challenged by the appellant in the present tax appeals. The court reviewed the circumstances and found the imposition of the original security deposit to be too harsh, considering the appellant's compliance history and turnover. The court allowed the tax appeals in part by modifying the security deposit requirement.

4. The court clarified that its order regarding the security deposit modification would only be effective if the cancellation of registration ab initio was set aside. The judgment focused on the specific issue of the security deposit and did not express an opinion on the separate proceedings related to the cancellation of registration ab initio. Both tax appeals were disposed of based on the modifications made to the security deposit condition.