2017 (4) TMI 10 - HC - VAT and Sales Tax

Lien over Bank account - ex parte reassessment order - territorial jurisdiction - The petitioner maintains its account with Khairtabad (Hyderabad) branch of Bank of Baroda, which is beyond the territorial limits of State of Karnataka. Hence the first respondent could not have exercised his authority and issued any notice to its banker - reliance placed in the case of 1989 (4) TMI 300 - KARNATAKA HIGH COURT where the recovery proceedings were stayed solely on the ground that the department has sought to recover the entire tax in dispute in the absence of any order being made by the appellate authority on the stay applications and coercive process is being taken to recover the disputed tax. Whether first respondent could issue recovery notices to the branch manager of the petitioner s bank situated beyond the State of Karnataka under the provisions of the KVAT Act and KTEG Act? - Held that - Attachment of a net enabled bank account stands precisely on the same footing as that of attachment and sale of shares in a company - both KVAT and KTEG Acts authorize recovery officers to demand money from any person and authorize recovery by attachment and sale of share in Companies. Hence, by natural corollary a tax recovery authority can lay its hands on the money in deposit in a bank account situated beyond its territory if the same is accessible online. Therefore applying effects doctrine , the recovery proceedings initiated by the first respondent under the provisions of the KVAT Act and KTEG Act are pre-eminently tenable. Whether first respondent could have issued notices whilst writ petitions filed by the petitioner and I. A.s for stay are pending consideration? - Held that - A careful perusal of the authority relied upon by the petitioner in the case of M. L. Narasimha Gupta shows that there is a classic difference between the two cases. In the said case, this court was concerned with an I. A. for stay to be considered by an appellate authority in a statutory appeal. In contrast, the case on hand is a writ petition wherein, the petitioner has challenged the vires of the Act and incidentally challenged the tax liability. Therefore, the immunity from recovery argued by the learned counsel for the petitioner is misconceived. Petition dismissed - decided against petitioner.

Summary

Issues Involved:
1. Territorial jurisdiction of the first respondent to issue recovery notices to a bank situated outside Karnataka.
2. Legality of issuing recovery notices while writ petitions and interim applications for stay are pending.

Issue-Wise Detailed Analysis:

1. Territorial Jurisdiction:
The primary contention raised by the petitioner was that the first respondent, the Deputy Commissioner of Commercial Taxes, lacked the territorial jurisdiction to issue recovery notices to the petitioner's bank situated outside Karnataka. The petitioner argued that the KVAT Act and KTEG Act are enforceable only within Karnataka's territorial limits.

The court analyzed the statutory provisions, particularly Section 45 of the KVAT Act and Section 9 of the KTEG Act, which allow a tax recovery authority to issue notices to "any person" holding money on behalf of a dealer. The court cited the Supreme Court's judgment in Securities and Exchange Board of India v. Pan Asia Advisors Ltd., which upheld the exercise of extra-territorial jurisdiction under the "effects doctrine." The court concluded that the tax recovery officer could issue notices to a bank outside Karnataka if the bank account is accessible online, thus applying the "effects doctrine."

The court further noted that modern banking practices, including net banking and electronic fund transfers, support the view that money in a net-enabled bank account is accessible from any branch or ATM across the country. Consequently, the recovery proceedings initiated by the first respondent were deemed tenable.

2. Legality of Issuing Recovery Notices During Pending Writ Petitions:
The petitioner argued that the first respondent could not initiate recovery proceedings while writ petitions challenging the reassessment orders and the validity of the KVAT Act's amendment were pending. The petitioner relied on the judgment in M. L. Narasimha Gupta v. Commercial Tax Officer, which dealt with the consideration of an interim stay application by an appellate authority.

The court distinguished the present case from M. L. Narasimha Gupta, noting that the petitioner had filed a writ petition challenging the "vires" of the Act and incidentally the tax liability, rather than a statutory appeal. Therefore, the immunity from recovery argued by the petitioner was deemed misconceived.

Conclusion:
The court dismissed the writ petitions, holding that the first respondent had the authority to issue recovery notices to the petitioner's bank situated outside Karnataka under the provisions of the KVAT Act and KTEG Act. The court also held that the recovery proceedings were not barred by the pending writ petitions challenging the reassessment orders and the validity of the Act's amendment. The learned Additional Government Advocate was permitted to file a memo of appearance within four weeks.