2020 (1) TMI 1682 - HC - VAT and Sales Tax

Illegal attachment and withdrawal from bank account by respondents to recover the arrears of VAT dues of another company - recovery merely on the pretext that the proprietor of the petitioner was once an employee of M/s.Shree Ganesh Jewellery House Limited - HELD THAT - Admittedly, petitioner s proprietor had submitted another application under VAT Act for registration of the petitioner entity on 01-09-2009, which has been filed by 1st respondent himself showing that the proprietor of the petitioner is dealing with a separate entity and no longer with M/s.Shree Ganesh Jewellery House Limited - There is no material filed by 1st respondent to show that after the petitioner was released by M/s.Shree Ganesh Jewellery House Limited on 01-10-2013, he was associated in any way with the affairs of the said entity. There is no question of lifting the corporate veil treating that the proprietor of petitioner entity and the assessee M/s.Shree Ganesh Jewellery House Limited as one and the same or as entities which are connected or related - Without any material linking the proprietor of the petitioner with M/s.Shree Ganesh Jewellery House Limited, the bank account of the petitioner cannot be attached by the 1st respondent and the sum of Rs.4,31,210/-, which belongs to the petitioner entity, cannot be adjusted towards the VAT dues of M/s.Shree Ganesh Jewellery House Limited. This action of 1st respondent is patently arbitrary, illegal and violative of Article 300-A of the Constitution of India. The 1st respondent is directed to refund to the petitioner the sum of Rs.4,39,210/- with interest @ 9% p.a. from the date of such withdrawal till date of it s payment. The respondent Nos.1 and 4 shall also pay costs of Rs.20,000/- to the petitioner within four (04) weeks - The writ petition is allowed.

Summary

Issues:
Challenging the illegal attachment and withdrawal of funds, Corporate veil lifting, Violation of Article 300-A of the Constitution of India.

Detailed Analysis:

Challenging the illegal attachment and withdrawal of funds:
The petitioner, a proprietary concern, contested the respondents' action of attaching and withdrawing Rs.4,39,210 from its bank account to recover VAT dues of another company. The petitioner argued that there was no notice to them or their proprietor regarding the tax arrears of the other company. They contended that the attachment was arbitrary, illegal, and violated their rights. Despite the petitioner's explanations and requests to withdraw the notice, the respondents persisted in their actions.

Corporate veil lifting:
The 1st respondent claimed that the petitioner's proprietor was a "concerned person" for the other company and failed to disclose his resignation. They alleged a conspiracy to evade taxes between the petitioner and the other company. However, the court found that the petitioner had no ongoing connection with the other company after resigning in 2013. The court dismissed the notion of treating both entities as related and emphasized that the petitioner had registered a separate entity post-resignation.

Violation of Article 300-A of the Constitution of India:
The court noted that the tax dues being recovered were not of the petitioner but of the other company. The respondents' actions were deemed arbitrary and illegal, violating Article 300-A of the Constitution. The court ordered the 1st respondent to refund the withdrawn amount with interest and pay costs to the petitioner, emphasizing the lack of evidence linking the petitioner's proprietor to the tax dues of the other company.

In conclusion, the court ruled in favor of the petitioner, highlighting the lack of justification for the attachment and withdrawal of funds. The judgment emphasized the importance of evidence and legal basis for such actions, ultimately protecting the petitioner's rights and ordering restitution and costs to be paid by the respondents.