2019 (8) TMI 481 - HC - VAT and Sales Tax

Demand of bank guarantee as security - stay on recovery proceedings - HELD THAT - It is clear that under Rule 37(1) of the U.P. Value Added Tax Rules, 2008, the respondents would have demanded the petitioner to deposit security in any of the forms as mentioned in the said rule and that bank guarantee is not provided as one of the measures for demanding the security. A coordinate Bench of this Court after considering the entire legal aspects of the matter in the case of EMAMI LIMITED VERSUS STATE OF U.P. AND ORS. 2007 (12) TMI 526 - ALLAHABAD HIGH COURT has held that in the circumstances, as existing in the present case also, the demand of bank guarantee by the Assessing Authority cannot be justified. This court bears in mind that security which is to be given should be such that it protects the interest of the Revenue, in case of any default by the assessee - the statutory provision as contained in Rule 37(1) of the U.P. Value Added Tax Rules, 2008 is to be followed. Petition disposed off.

Summary

Issues:
Challenge to order rejecting indemnity bond and demanding bank guarantee under U.P. Value Added Tax Act, 2008.

Analysis:
The petitioner challenged an order by the Joint Commissioner (Corporate Circle) directing submission of a bank guarantee instead of accepting an indemnity bond. The petitioner cited Section 19 and Rule 37(1) of the U.P. Value Added Tax Act, 2008, arguing against the demand for a bank guarantee. The rule provides for security through personal immovable assets, surety from registered dealers, or security bond from verified sureties, but does not mention bank guarantees. The petitioner relied on a Division Bench judgment that disallowed bank guarantee demands without cogent reasons for established commercial concerns. The petitioner offered to furnish security as per Rule 37(1).

The revenue contended that the petitioner's assets were outside U.P., making recovery difficult in case of default, justifying the bank guarantee demand. The Court noted that Rule 37(1) does not include bank guarantees as a form of security. Citing the precedent set in the M/s Emami Limited case, the Court held that demanding a bank guarantee without proper justification is not justified. The Court emphasized that the security provided should protect the revenue in case of default by the assessee. The petitioner's willingness to provide security as per Rule 37(1) was acknowledged.

The Court directed the petitioner to submit a representation to the Joint Commissioner detailing the form of security they intend to furnish in place of the tax demand. The authority was instructed to reconsider the matter, taking into account the revenue's interest and the petitioner's representation, disregarding the previous order. The petitioner was given a two-week deadline to submit the representation, after which the authority would pass an appropriate order following the law. The writ petition was disposed of with these directions.