2016 (3) TMI 768 - HC - VAT and Sales Tax

Return of cheque of 12 lacs collected at the time of inspection - Difference in VAT paid and to be paid - Held that - the Court is not satisfied with the wording of the circular F. No. 7(3)/L&J/Circular/2016/270 dated 11th March 2016. It still leaves it open to VAT Authorities to collect tax either through the e-payment mode or the physical offline mode at the time of conducting a survey or an inspection of the business premises of a dealer. It is noted that despite the order of this court in the several cases that no dealer would be coerced by the officers of the DT&T to make payment of any amount either towards alleged tax dues or otherwise either by cheque or cash at the time of a survey or inspection or any other proceeding including proceedings under Section 60 of the DVAT Act, the department is doing so which is very disappointing. The Court expected a categorical instruction to be issued by the Commissioner, Trade & Taxes (CTT). Therefore, the directions are again issued to the CTT to comply by himself and would not be delegate this task to any other officer including any Special Commissioner who may be otherwise authorised to do so. - Petition disposed of

Summary

Issues:
1. Coercive actions by tax officials during inspection.
2. Collection of cheques for alleged tax dues.
3. Compliance with VAT collection procedures.
4. Issuance of clear instructions by tax authorities.

Analysis:

Issue 1: Coercive actions by tax officials during inspection
The petitioner, a registered dealer under the DVAT Act, faced coercive actions by the Additional Value Added Tax Officer (AVATO) during inspections. The AVATO demanded a cheque of Rs. 12 lakhs under the threat of sealing the business premises due to a difference in tax rates. Subsequently, another tax demand of Rs. 28.75 lakhs was communicated, leading to the petitioner depositing Rs. 5 lakhs online to avoid sealing of the premises. The High Court disapproved of such actions and directed the return of the cheque collected, emphasizing the illegality of coercive measures during inspections.

Issue 2: Collection of cheques for alleged tax dues
The Court highlighted the concerning trend of tax officials collecting cheques from dealers for alleged tax dues, as seen in previous cases. The judgment emphasized the impropriety of this practice and directed tax authorities to refrain from collecting cheques or cash on the pretext of tax dues during surveys or sealing proceedings. The Court insisted that tax payments should strictly adhere to the procedures outlined in the DVAT Act and Rules, emphasizing the need for compliance and proper collection methods.

Issue 3: Compliance with VAT collection procedures
In response to the judgment, the Commissioner of Trade and Taxes was directed to issue clear instructions to all officers regarding the correct mode of tax collection. A circular was issued, emphasizing that tax dues should only be collected through e-payment mode or physical offline mode after printing the challan from the department's website. However, the Court expressed dissatisfaction with the wording of the circular, as it still allowed tax collection through physical offline mode during inspections, contrary to the Court's expectations for strict compliance with electronic payment methods.

Issue 4: Issuance of clear instructions by tax authorities
Despite previous court orders and judgments, the Court noted the absence of clear and categorical instructions from the Commissioner of Trade and Taxes regarding the prohibition of coercive tax collection practices. The Court reiterated the need for unambiguous directives to prevent officers from coercing dealers into making payments through cheques or cash during surveys or inspections. Consequently, the Court issued detailed directions to ensure compliance with proper tax collection procedures and warned of disciplinary action for any violations.

In conclusion, the judgment addressed the issues of coercive actions by tax officials, improper collection of cheques for tax dues, the importance of compliance with VAT collection procedures, and the necessity for clear instructions to prevent unauthorized tax collection practices during inspections.