2015 (5) TMI 206 - HC - VAT and Sales Tax

Detention of goods - Unregistered dealer - Compounding notice - Held that - Consignee is an unregistered dealer is the only reason for detention of goods, based on which, the first respondent became suspicious about the transport of goods. The petitioner has clearly explained in its reply dated 24.10.2014, stating that M/s.Tansun Agency has applied for TNVAT registration and a copy of the acknowledgment has been annexed as Annexure-II. However, this has not been verified by the Authority till date and straight away, the impugned compounding notice has been issued. The other ground for detention, is that the goods will be released only after collecting tax and penalty. This observation made in the detention notice is contrary to the Circular issued by the Principal Secretary / Commissioner of Commercial Taxes, Chepauk, Chennai, dated 17.07.2014. Therefore, Ground No.(iv) of the detention notice is illegal. Consequently, the compounding notice demanding tax and compounding fee is held to be bad in law. - Decided in favour of assessee.

Summary

Issues: Challenge to compounding notice based on failure to consider objections and legality of detention notice grounds

Analysis:

1. Challenge to Compounding Notice:
The petitioner, a registered dealer, challenged a compounding notice issued by the first respondent regarding the transportation of goods to an unregistered dealer. The impugned notice demanded a specific amount including tax. The petitioner raised two primary grounds of challenge. Firstly, the petitioner contended that the first respondent did not consider the objection submitted, which included proof of the consignee's application for registration. Secondly, the petitioner argued that the condition for releasing the goods only after collecting tax and penalty, as mentioned in the detention notice, contradicted a circular issued by the Principal Secretary/Commissioner of Commercial Taxes.

2. Analysis of Detention Notice Grounds:
The detention notice provided four grounds for the detention of goods, out of which only Ground No. (ii) was considered as the valid reason for suspicion by the first respondent. This ground highlighted that the consignee was an unregistered dealer. The petitioner had responded with evidence of the consignee's application for registration, which the authority had not verified before issuing the compounding notice. The other ground, Ground No. (iv), stating that goods would be released only after tax and penalty collection, was deemed illegal as it conflicted with the circular issued by the Principal Secretary/Commissioner of Commercial Taxes.

3. Judgment and Conclusion:
Upon analysis, the Court found that the compounding notice and the detention notice were flawed. The compounding notice was quashed, and the proposal in the detention notice to demand tax and penalty was deemed illegal due to non-compliance with the circular. The Court directed the first respondent to verify the petitioner's claim regarding the consignee's registration application and instructed the release of the consignment if the claim was valid by a specified date. The judgment favored the petitioner, highlighting the importance of following legal procedures and circulars in such matters.

4. Final Decision:
The writ petition was allowed, the compounding notice was quashed, and the detention notice's proposal for tax and penalty collection was declared illegal. The first respondent was directed to verify the consignee's registration application, and if found valid, to release the consignment by a specified date. No costs were awarded, and the connected miscellaneous petitions were closed, concluding the legal proceedings.