2015 (9) TMI 1153 - HC - VAT and Sales Tax

Attachment of bank accounts provisionally - alleged huge tax liability - dispute is related to rate of tax on rigid frame steel structures - There was no dispute with the Revenue until the financial year 2010-2011. The Petitioner thereafter relying upon a judgment of the Rajasthan High Court started charging VAT at the rate of 5% and not 12.5% on rafters and rigid frame columns. - Held that - Learned Senior counsel for the Petitioner, on instructions, states that the Petitioner is ready and willing to make a statement that unless and until the proceedings under the Act including an Appeal preferred by the Petitioner is disposed of, it would not create any third party right, part with possession of the assets and properties including the above plant and machinery and building. However, that should not prevent the Petitioner from utilizing the same in the ordinary and normal course of business. We are of the opinion that the statements made by the learned Senior Counsel, on instructions, are enough to protect the interest of the revenue at this stage. There is no need of continuing the provisional attachment ordered by the Joint Commissioner vide Exhibit-A to the Petition. By accepting the statement made by the learned Senior Counsel as an undertaking given to the Court and directing that movable and immovable Assets and properties of the Petitioner shall not be disposed of, transferred and no third party interest of any nature created therein nor their possession shall be parted with during the pendency of the proceedings under MVAT Act, 2002, as noted above, we set aside the impugned order. Ordered accordingly. - The bank accounts and which are the subject matter of the provisional attachment order are forthwith released and defreezed. - Decided in favor of assessee.

Issues Involved:

1. Provisional attachment of bank accounts.
2. Validity and necessity of the provisional attachment order under Section 35 of the MVAT Act, 2002.
3. Adequacy of the Petitioner's cooperation and solvency.
4. Availability and adequacy of alternative remedies.
5. Petitioner's undertaking to secure the Revenue's interest.

Issue-wise Detailed Analysis:

1. Provisional attachment of bank accounts:

The Joint Commissioner of Sales Tax, VAT Administration, Pune Division, provisionally attached the bank accounts of the Petitioner for an alleged tax liability of Rs. 45,35,65,266/-. The order stated that the amounts would remain provisionally attached until further orders and any payments made in violation of this order would result in personal liability to the Commissioner of Sales Tax, Maharashtra State, Mumbai. The Petitioner was given 15 days to justify the withdrawal of the order, failing which the order would become absolute and remain in effect for 12 months, extendable up to two years.

2. Validity and necessity of the provisional attachment order under Section 35 of the MVAT Act, 2002:

The Petitioner argued that the order was arbitrary and illegal as it was passed without any extraordinary circumstances warranting such action. The Petitioner had been cooperating fully with the investigation and had sufficient assets to cover the tax liability. The Respondent contended that the provisional attachment was necessary to protect the Revenue's interest, as per Section 35 of the MVAT Act, 2002, which allows such actions during the course of inquiry or proceedings to protect the Revenue's interests.

3. Adequacy of the Petitioner's cooperation and solvency:

The Petitioner, a solvent company with substantial assets in Maharashtra, argued that there was no risk to the Revenue's interests. The Petitioner employs approximately 1200 persons and has been filing returns and discharging tax liabilities since 2007-2008. The Petitioner also pointed out that the disputed tax rate issue was based on a judgment of the Rajasthan High Court and that an appeal against the Commissioner's adverse order was pending before the Maharashtra Sales Tax Tribunal.

4. Availability and adequacy of alternative remedies:

The Respondent suggested that the Petitioner should be relegated to the remedy provided under subsection 5 of Section 35, which allows for an application to the Commissioner to modify or cancel the provisional attachment order. The court, however, noted that the existence of an alternate remedy is not an absolute bar against entertaining a Writ Petition under Article 226 of the Constitution of India. Considering the impact and drastic consequences of the impugned order, the court decided to exercise its discretion in favor of the Petitioner.

5. Petitioner's undertaking to secure the Revenue's interest:

The court found that the Petitioner was willing to make a statement that its factory building, plant, and machinery were unencumbered and that the assets' present value would be adequate to secure the Revenue. The Petitioner also offered to undertake not to create any third-party rights or part with possession of the assets until the proceedings under the MVAT Act, 2002, including the pending appeal, were disposed of. The court accepted this undertaking as sufficient to protect the Revenue's interest.

Conclusion:

The court set aside the provisional attachment order, accepting the Petitioner's undertaking to not dispose of or transfer any assets and properties during the pendency of the proceedings. The court directed that the bank accounts be released and defreezed, allowing the Petitioner to operate them in the ordinary course of business. The court clarified that this order would not prevent the Revenue from passing the assessment order or preclude the parties from raising all contentions in the pending appellate proceedings. The Writ Petition was allowed, and no order as to costs was made. The Revenue was directed to pass the requisite assessment order within three months, with the Petitioner cooperating fully.

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