2015 (8) TMI 499 - HC - VAT and Sales Tax

Undervaluation of goods Seizure Petition was filed against seizure of undervalued goods, it was found that entire seized goods were auctioned and sold in public auction Whether order of seizure was proper Held that - after perusal of records, manner in which goods were seized and sold were highly improper power to seize was granted only when goods were without documents or were not supported by documents In present case documents were there admittedly, documents were not forged but according to State, value of goods given in documents was incorrect Officer did not at all consider fact that petitioner was manufacturer of goods and this was in sense case of stock transfer Seizure of goods was penal action and normally seizure should only be done where goods were not accompanied by any document or documents on face of it were forged Where only difference was with regard to value of goods, officer should not normally seize goods but should have directed driver not to sell them till verification of price was made Therefore action of seizure was based on no evidence and was totally illegal. Auction of Seized goods Whether seized goods were liable to be auctioned Held that - Rules of natural justice says that action which affects rights of any party cannot be taken unless notice has been issued to said party Therefore, before selling goods, officer-in- charge of check-post must issue notice to consignor or consignee Though Act and Rules do not provide for issuance of notice(s), but no penal action can be taken without notice to affected party Rule 71(5) clearly lays down that auction has to be conducted by Superintendent with previous sanction of Commissioner From records we could not find any material to indicate that sanction of Commissioner had been taken before putting goods to auction Therefore, auction was conducted without any proper sanction. Calculation of Reserve price Auction Whether amount, at which authorities auction seized goods, was justifiable Held that - According to petitioner, value of goods was ₹ 4,80,000 whereas officer-in-charge assessed value at ₹ 11,52,000 Formula that was used to discern reserve price was fixed by fixing three times rate of tax payable on price estimated by officer seizing goods plus five per cent. for overhead cost Finally goods amounting to ₹ 11,52,000 as per officials were auctioned for paltry amount of ₹ 1,76,000 Present auction, does not comply either with provisions of Act or Rules or even with any reasonable view which could be taken in such matter Rate at which oil was auctioned indicates that officer was not aware of market value of oil Therefore auction was totally arbitrary and unconscionable, liable to be struck down Petitioner was deprived of his goods and was paid nothing Therefore, State directed to pay to petitioner sum of ₹ 4,80,000 which was declared value of goods along with interest at 12 per cent after deducting amount of tax payable Decided in favour of Petitioner.

Summary

Issues Involved:
1. Legality of the seizure order dated December 18, 2008.
2. Legality of the auction of seized goods.
3. Compliance with the Tripura Value Added Tax Act, 2004 and Tripura Value Added Tax Rules, 2005.
4. Entitlement of the petitioner to compensation for seized goods.

Issue-wise Detailed Analysis:

1. Legality of the Seizure Order:
The petitioner-company transported 1,600 cartons of palmolein oil, valued at Rs. 4,80,000, from Guwahati to Agartala. The truck was stopped at Churaibari check-post, and the officer-in-charge seized the goods, alleging undervaluation based on the maximum retail price (MRP) of Rs. 72 per liter, which he calculated to be Rs. 11,52,000. The court found the seizure improper, stating that the value of goods is not solely determined by MRP and must consider factors like manufacturing, wholesaling, and retailing profits. The officer should have verified the value rather than seizing the goods immediately. The seizure was deemed illegal as it was based on no evidence and lacked proper justification.

2. Legality of the Auction of Seized Goods:
The seized goods were auctioned on February 25, 2009, for Rs. 1,76,000, significantly lower than both the declared value and the officer's assessed value. The court highlighted several procedural lapses:
- The auction was conducted without the required prior sanction from the Commissioner.
- The auction notice was published only three days before the auction, which is insufficient for potential buyers to arrange funds.
- The reserve price was set at Rs. 1,68,640 based on an arbitrary formula issued by the Assistant Commissioner, which the court found unjustifiable and shocking.
The court concluded that the auction process was arbitrary, unconscionable, and did not comply with the Act, Rules, or reasonable standards.

3. Compliance with the Tripura Value Added Tax Act, 2004 and Tripura Value Added Tax Rules, 2005:
The court examined Sections 67 and 68 of the Tripura Value Added Tax Act, 2004, and Rule 71(5) of the Tripura Value Added Tax Rules, 2005:
- Section 67(4) allows seizure only if goods are without documents, or documents appear false or forged. In this case, documents were present and not forged, making the seizure unjustified.
- Section 68(1) requires public auction of seized goods with proceeds used to pay tax and penalty. The auction must be conducted with the Commissioner's prior sanction and proper notice.
- Rule 71(5) mandates a proclamation for auction in a local newspaper and a minimum notice period, which was not followed.
The court found that the auction did not comply with these provisions, rendering it illegal.

4. Entitlement of the Petitioner to Compensation for Seized Goods:
The court directed the State to compensate the petitioner for the seized goods. The petitioner was entitled to Rs. 4,80,000 (declared value) minus the tax payable on this amount, with no penalty. Additionally, the State was ordered to pay 12% interest per annum from the date of seizure until payment, along with Rs. 20,000 in costs. The court emphasized the need for the State to act responsibly and fairly, ensuring such lapses do not occur in the future.

Conclusion:
The court declared the seizure and auction of the petitioner's goods illegal and arbitrary. The petitioner was awarded compensation for the seized goods, interest, and costs. The judgment stressed adherence to legal provisions and fair procedures in future cases.