2018 (5) TMI 1706 - HC - VAT and Sales Tax

Attachment orders - Forcibly collection of post-dated cheques by the Department at the time of search - Held that - The question of forcibly collecting cheques from dealers at the time of search operation has occupied the minds of this Court as well as other Courts on multiple occasions. The Courts have deprecated the practice of coercive recoveries, without any order of assessment or without initiation of assessment proceedings. There may be a given situation where, in order to avoid the unpleasant consequence of stock attachment, the dealer may have volunteered to deposit some amount. The Department cannot retain the cheques, seek realization thereof while still attaching the petitioner s stock. Such action on the part of Department is quashed - Department shall return the cheques of the petitioner - petition disposed off.

Summary

Issues:
Challenge to attachment of residential property and stock, challenge to forcibly collecting cheques during search operation.

Analysis:

Attachment of Residential Property and Stock:
The petitioner, engaged in dealing with engineering and electronic goods, had his premises searched by the respondents due to suspected tax evasion. Subsequently, the Department attached the petitioner's residential property valued at approximately &8377; 32 Lakhs and stock valued at approximately &8377; 2.51 crores. The petitioner challenged these actions, but it was mentioned that the life of the order of attachment had expired. Therefore, the relief against the attachment order was not pressed. The Court noted that the petitioner had volunteered to deposit a certain amount to avoid stock attachment, but the Department still attached the stock. The Court emphasized that coercive collection of cheques without a finalized tax assessment is not permissible. The Department was directed to return the cheques to the petitioner, and it was clarified that this order does not prevent the Department from carrying out a lawful assessment.

Forcible Collection of Cheques:
The petitioner objected to the Department forcibly collecting postdated cheques during the search operation. It was found that the petitioner had instructed the bank to stop payment on these cheques, preventing their encashment. The Court highlighted that coercive collection of cheques without a proper assessment or initiation of assessment proceedings is frowned upon. The Court emphasized that revenue authorities have the power to provisionally attach assets to protect government revenue, but coercive collection of cheques for unconfirmed tax amounts is not justified. The petitioner's offer to give cheques was conditional on the non-attachment of his stock, which the Department disregarded. Consequently, the Court quashed the action of forcibly collecting cheques and ordered the Department to return the cheques to the petitioner. The Department was permitted to proceed with the assessment process in accordance with the law, as final assessment orders were pending due to the petition.

In conclusion, the High Court ruled in favor of the petitioner, directing the Department to return the cheques collected coercively during the search operation. The Court emphasized the importance of following due process in tax assessments and disapproved of coercive actions without a finalized assessment. The judgment clarified that the Department could proceed with the assessment process lawfully despite the relief granted to the petitioner.