2015 (11) TMI 355 - HC - VAT and Sales Tax

Challenge to coercive recovery of alleged Value Added Tax even before the assessments have been completed and liability ascertained - Held that - The petitioners are regularly assessed by the authority under the Value Added Tax Act, 2003. It is not the case of the respondents that regular returns are not filed by the petitioners. Undisputedly, however, for the year under consideration, no assessments have been framed by the adjudicating authority. Thus, the attempt on the part of the respondents to collect disputed tax would amount to recovery before adjudication. - The competent authority can take certain measures to protect the interest of revenue, even before liability has been crystallized by way of the assessment order. However, no provision is pointed out to us under which the department can recover disputed tax even before passing any order by competent authority - respondents are directed to return three cheques of HDFC Bank, Baroda to the petitioners and refund the amount of ₹ 5,51,187/and ₹ 6,84,747 - Petition disposed of.

Summary

Issues:
1. Coercive recovery of Value Added Tax before assessments completed.
2. Disputed handling charges and Value Added Tax liability.
3. Profit from RTO tax and its treatment.
4. Nonpayment of Value Added Tax on free spare parts replacement during warranty period.

Analysis:
The petitioners challenged the coercive recovery of alleged Value Added Tax before assessments were finalized. The respondents collected cheques under pressure for unpaid tax liabilities, prompting the petitioners to seek their return. The petitioners, as motor vehicle dealers, faced disputes regarding handling charges collected from customers, profit from RTO tax, and Value Added Tax on free spare parts replacement during warranty. The department argued that handling charges constituted part of the sale price, attracting Value Added Tax, while the petitioners claimed they were for services and subject to service tax. The profit from RTO tax was also contested, with the petitioners asserting it was part of handling charges. Regarding spare parts replacement, the petitioners argued no tax liability existed as they did not charge customers. However, no assessments had been made for the relevant period, leading to recovery attempts before adjudication, which the court deemed improper.

The court emphasized that recovery of disputed tax before assessment was impermissible. Referring to past cases, the court highlighted that tax dues could not be collected without a crystallized demand. The respondents were directed to return collected cheques and refund the amounts to the petitioners. The court stressed the need for assessments to be completed in accordance with the law. The ruling safeguarded the petitioners' rights while allowing the authorities to take necessary actions to protect revenue interests within legal bounds. The judgment underscored the importance of due process and proper assessment procedures in tax matters, ensuring fairness and adherence to legal principles.