2014 (7) TMI 929 - HC - VAT and Sales Tax

Recovery of tax - Crystallization of demand is pending - Held that - From the affidavit-in-reply filed by the respondents, we do not notice any ground permitting the respondents to start recovery at this stage. The insistence on collecting cheques from the petitioners, therefore, cannot be countenanced. Under the circumstances, the respondents shall return three cheques collected from the petitioner to them latest by February 28, 2014. This is without prejudice to the power of the competent authority to pass appropriate order, if so found necessary to protect the interest of the revenue - petition disposed of.

Summary

Issues:
1. Recovery of VAT on handling charges.
2. Coercive recovery without quantified demand.
3. Power for passing provisional attachment order.

Issue 1: Recovery of VAT on handling charges
The petitioners, authorized distributors of Maruti cars, contended that they do not need to pay VAT on handling charges recovered from customers as these charges are post-sales services and not part of the sale value of the car. The respondents conducted search operations and alleged non-payment of VAT on handling charges. The petitioners argued that without a final demand, coercive recovery was impermissible. The court noted that no assessment orders had been passed, and the petitioners were willing to participate in adjudication proceedings. The court restrained the respondents from encashing three cheques issued by the petitioners until further orders.

Issue 2: Coercive recovery without quantified demand
The petitioners claimed that they were coerced into making e-payments and issuing cheques totaling a significant amount. They emphasized the absence of any quantified demand or assessment orders, asserting that recovery without a finalized demand was not permissible. The court agreed with the petitioners, stating that recovery of tax dues required a crystallized tax demand. The court directed the respondents to return the three cheques collected from the petitioners by a specified date, highlighting that coercive recovery was not justified in the absence of a quantified demand.

Issue 3: Power for passing provisional attachment order
The Additional Government Pleader argued that the power for passing a provisional attachment order was not precluded. However, the court found no grounds in the respondents' affidavit permitting them to initiate recovery at that stage. The court deemed the collection of cheques from the petitioners unacceptable and ordered the return of the cheques by a specified date. The court clarified that this decision did not limit the competent authority's power to issue appropriate orders if necessary to safeguard revenue interests.

In conclusion, the court ruled in favor of the petitioners, emphasizing the necessity of a quantified demand before initiating recovery proceedings. The judgment highlighted the importance of due process and the prohibition of coercive recovery in the absence of a finalized tax demand. The court's decision to return the collected cheques underscored the principle of fairness and procedural regularity in tax matters.