2017 (1) TMI 687 - HC - VAT and Sales Tax

Encashment of Bank Guarantee - bank guarantee proposed to be kept alive, till appellate Tribunal dispose of the application that may be filed by petitioner for stay of the disputed tax demand, and in that event first respondent would not precipitate the matter - Held that - Till disposal of the said application, first respondent shall not encash the bank guarantee and in the event of cheque having been issued by second respondent Bank, same shall not be presented for its encashment - Writ petition stands disposed of by reserving liberty to the petitioner herein to file a second appeal before the Karnataka Appellate Tribunal, Bengaluru on or before 10.01.2017 - petition disposed off - decided in favor of petitioner.

Summary

Issues:
1. Quashing of notice seeking encashment of bank guarantee under KVAT Act and CST Act.
2. Appeal filed before Joint Commissioner of Commercial Taxes (Appeals) and subsequent orders.
3. Invocation of bank guarantee and request not to invoke it during appeal period.
4. Resolution sought in the High Court regarding the bank guarantee.

Analysis:
1. The petitioner, a company registered under the Companies Act engaged in manufacturing ATM spare parts, sought to quash a notice dated 12.12.2016 issued by the first respondent under the KVAT Act and CST Act, seeking encashment of a bank guarantee. The petitioner had received notices under Section 52(1) of the KVAT Act and Section 9(2) of the CST Act, leading to a demand of ?14,42,70,169 raised by the first respondent.

2. Displeased with the demand, the petitioner appealed before the Joint Commissioner of Commercial Taxes (Appeals) and deposited 30% of the total demand while seeking a stay on the balance disputed amount. The appellate authority granted a stay on the condition of furnishing an irrevocable local bank guarantee, which the petitioner complied with. Subsequently, the appeal was dismissed, prompting the petitioner to request the first respondent not to invoke the bank guarantee pending the statutory appeal filing.

3. Despite the petitioner's request, the first respondent invoked the bank guarantee on 19.12.2016, leading the petitioner to approach the High Court. During the hearing, the learned Additional Government Advocate assured that if the bank guarantee remained active until the appellate tribunal's decision on the stay application, the first respondent would not take immediate action. The petitioner's counsel also confirmed the issuance of the bank guarantee as per the submission made.

4. Considering the submissions, the High Court disposed of the writ petition, allowing the petitioner to file a second appeal before the Karnataka Appellate Tribunal along with a stay application for the disputed tax amount. The Court directed the tribunal to expedite the decision within four weeks from the specified date and ordered the first respondent not to encash the bank guarantee until the tribunal's decision, ensuring that any issued cheque would not be presented for encashment.

This detailed analysis covers the issues raised in the judgment comprehensively, outlining the legal proceedings and the resolution provided by the High Court.