2016 (7) TMI 791 - HC - VAT and Sales Tax

Detention of consignment of betel nuts - proof of ownership of goods - Case of the petitioner is that the goods were in the process of transportation outside the State of Gujarat and that, therefore, no local tax was to be paid. The department, however, strongly refuted such averments and contended that the investigation reveals that the so-called sellers of Karnataka have denied having sold such goods to the petitioner. Inquiries with the dealers at Himachal Pradesh which were supposed to have received the goods also falsifies the claim of the petitioner. Held that - The contention that the petitioner cannot reclaim the goods as the petitioner s ownership is not established, need not detain us. Firstly, the goods were detained from the petitioner s custody. Secondly, there is no counter claim by any other agency staking claim of ownership over the goods. Thirdly, there is no police complaint alleging that the petitioner is in possession of stolen property. Lastly, the department s anxiety can be taken care of by directing the petitioner to indemnify the department against any claim. The Government Pleader also argued that such sales without payment of local tax might have taken place in the past also. If the department has an angle of seizure of goods for protecting the interest of Revenue, no such formal order has been passed. In absence of any such order, we cannot permit the department to continue to hold custody of the goods on mere apprehensions. Detention of goods for protecting interest of Revenue is a strong measure and can be permitted only on a formal order being passed so that the legality thereof can be examined when questioned. Goods to be released subject to conditions.

Summary

Issues:
Detention of goods under Section 70A of the VAT Act - Ownership of goods in transit - Dispute over payment of local taxes - Seizure of goods by authorities - Release of goods upon fulfillment of conditions.

Analysis:

Detention of Goods under Section 70A of the VAT Act:
The case involved the detention of goods by State VAT authorities under Section 70A of the VAT Act. The authorities passed an order detaining the goods stored in godowns at Ahmedabad, citing non-furnishing of necessary details by the petitioner and the godown owners. The petitioner, a transport company, argued that the goods were in transit from Karnataka to Himachal Pradesh and thus, no local tax was due. However, the department refuted these claims, alleging past breaches by the petitioner and questioning the ownership of the goods.

Ownership of Goods in Transit:
The department disputed the petitioner's ownership of the goods, citing insufficient documents to establish ownership. Despite this, the High Court noted that the goods were detained from the petitioner's custody, with no counterclaim of ownership by any other party. The court directed the petitioner to indemnify the department against any ownership claims, emphasizing that there were no allegations of stolen property or competing ownership claims.

Dispute over Payment of Local Taxes:
The department alleged that the petitioner may have engaged in sales without paying local taxes in the past. The court, however, highlighted the absence of a formal order authorizing the seizure of goods for revenue protection purposes. It emphasized that detention of goods for revenue protection required a formal order to ensure legality and prevent arbitrary actions based on mere apprehensions.

Seizure of Goods by Authorities - Release upon Fulfillment of Conditions:
After considering the arguments and perusing the documents, the High Court directed the authorities to release the goods to the petitioner subject to specific conditions. These conditions included the deposit of 5% tax on the goods' valuation, possible penalty payment, filing of an undertaking, providing an indemnity bond, and furnishing transportation details. The court ordered the release of goods upon fulfillment of these conditions, emphasizing compliance with formalities and deadlines.

In conclusion, the High Court disposed of both petitions, emphasizing the importance of fulfilling conditions for the release of detained goods and highlighting the necessity of formal orders for detention based on revenue protection concerns.