2018 (7) TMI 1324 - HC - Income Tax

Order of furnishing a bank guarantee to get release the entire stock of sugar seized in search - Settlement commission orders - refund claim - Held that - It is well settled that the Department is entitled to secure the tax liability by keeping the goods seized. The petitioner was directed to furnish a bank guarantee of ₹ 63,85,000/-, but instead of complying the aforesaid direction, the petitioner furnished bank guarantee of only ₹ 40,20,833/- and, therefore, the Department kept 1200 bags of sugar which was ultimately auctioned pursuant to the order dated 17th October, 2002 passed by this Court. Had the petitioner furnished the bank guarantee, as directed by the Department for an amount of ₹ 63,85,000/-, the Department would have released entire stock of sugar and the Department was not required to keep 1200 bags of sugar in the warehouse for which it had to pay ₹ 3,09,780 as warehouse charges. Therefore, it was not the Department which was at fault, rather it was the petitioner itself for which the Department cannot be penalized and, therefore, the claim of the petitioner for refund of ₹ 3,09,740/- towards warehouse charges paid to the Central Warehouse Corporation by the Department for keeping 1200 bags of sugar is rejected. Waiver of interest u/s 234A, 234B and 234C - In respect of second prayer for granting interest from the date of seizure to the date of its actual payment, it is clear that the tax liability was much more than the goods and cash which was seized, including FDRs. However, the Settlement Commission waived of the interest amount to the tune of ₹ 43,53,651/-. The petitioner kept the issue alive till the final order was passed by the Settlement Commission on 25th February, 2015. Therefore, the petitioner cannot claim interest on the amount of ₹ 6,24,260/- from the date when the goods were auctioned. We are of the view the petitioner is entitled for the interest at the rate of 12% per annum from the date of final order passed by the Settlement Commission i.e. 25th February, 2015. Thus, we direct the respondent-authority to release ₹ 6,24,260/- lying with the CIT (Moradabad) with interest at the rate of 12% per annum from 24th February, 2015 till the date actual payment is made. We further direct that the needful should be done within a period of four weeks from the date of production of certified copy of this order.

Summary

Issues:
1. Release of amount from P.D. Account without deducting warehouse charges and interest.
2. Seizure of goods during a raid under Section 132 of the Income Tax Act.
3. Dispute over bank guarantee requirement for releasing seized goods.
4. Settlement Commission's orders on tax liabilities and interest.
5. Challenge to notice of demand and subsequent legal proceedings.

Issue 1: Release of Amount without Deducting Warehouse Charges and Interest
The petitioner sought a writ to release funds from the P.D. Account without warehouse charges deduction. The High Court acknowledged the petitioner's failure to comply with the bank guarantee requirement, resulting in the Department retaining 1200 bags of sugar. The Court held the Department was not at fault for the warehouse charges and rejected the petitioner's claim for refund.

Issue 2: Seizure of Goods during Raid
Following a raid under Section 132 of the Income Tax Act, goods and cash were seized from the petitioner's premises. Despite court orders for release, the petitioner's non-compliance led to further legal disputes and auction of seized sugar bags. The Court noted the tax liability exceeded the seized assets, justifying the Department's actions.

Issue 3: Dispute Over Bank Guarantee Requirement
The petitioner contested the bank guarantee amount set by the Department for releasing the seized sugar stock. Despite multiple court interventions, including auctioning of sugar bags, the petitioner's non-compliance with the bank guarantee directive led to prolonged legal battles and additional charges for the Department.

Issue 4: Settlement Commission's Orders on Tax Liabilities and Interest
The Settlement Commission finalized tax liabilities, including interest waivers under specific sections of the Act. The Commission rejected claims for losses due to sugar seizure, stating it lacked authority to address such matters. The Court upheld the Commission's decision on interest waivers but directed interest payment from the date of the final Commission order.

Issue 5: Challenge to Notice of Demand and Legal Proceedings
Challenges to the notice of demand, delays in issuance, and lack of specificity led to legal battles up to the Supreme Court. The Court dismissed the challenges, upholding the Settlement Commission's decisions. The Court directed the release of funds with interest from a specified date, partly allowing the writ petition.

In conclusion, the High Court's judgment addressed various legal issues surrounding the seizure of goods, tax liabilities, bank guarantee disputes, and interest payments, providing detailed reasoning and directives based on the facts and legal provisions involved in the case.