2022 (4) TMI 196 - HC - VAT and Sales Tax

Attachment on personal properties of director and brother of director - validity of attachment for discharge of the liability incurred by the writ-applicant no.1 company - debtor-creditor relationship - Vera Samadhan Yojana, 2019 - HELD THAT - The plain reading of Section 44 of the GVAT Act would indicate that it provides a machinery for the VAT department to collect tax arrears from the debtors of the assessees (dealers). It is in substance the familiar garnishee proceedings under the Civil Procedure Code. The basic foundation would appear to be the substance of a relationship of a debtor and creditor, between the garnishee and the assessee - Under clauses (a) and (b) of sub-section (1) of Section 44 of the GVAT Act, the Commissioner is empowered to issue notice requiring any person from whom any amount of money is due or may become due or who subsequently holds money on account of such dealer in respect of the arrears of tax, penalty or interest under the GVAT Act. A plain and simple reading of the aforesaid provisions will suggest that the power under the same is to be exercised when there is a person who has debtor-creditor relationship with the dealer and from whom his money is due or may become due to him or the person who holds or may subsequently hold money for or on account of such dealer. Indisputably, in the case on hand, the company and the writ-applicants nos.2 and 3 respectively do not have any debtor-creditor relationship. Under sub-section (5) of Section 44 of the GVAT Act, a person to whom a notice under this sub-section is sent has a right to object to the notice by a statement that the sum demanded or any part thereof is not due to the assessee or that he does not hold any money for or on account of the assessee and then nothing contained in this sub-section would require such person to pay any money or part thereof, as the case may be - In the case on hand, no notice was sent to the writ-applicants nos.2 and 3 respectively in the manner prescribed and straightway the respondent no.1 proceeded to attach the personal properties of the two writ-applicants. Had the notice been sent to the writ-applicants nos.2 and 3 respectively as contemplated under sub-section (5) of Section 44 of the GVAT Act, both would have had the liberty to file their objections denying their liability to pay the amount as they did not owe the money to the assessee in default. Thus, in interpreting a taxing statute, the equitable considerations are entirely out of place. The reasons of morality and fairness can have no application to bring a citizen who is not within the four corners of the taxing statute within its fold so as to make him liable to payment of tax. The entire approach of the department that as it is not in a position to recover anything from the company, it can run after the Director of the company and attach his personal properties. The writ applicant No.3 has even otherwise no legal connection with the company. He just happens to be the brother of the writ applicant No.2 - thus, Section 44 of the GVAT Act is being misused to the maximum. Either the authorities concerned have no idea about the scope and true purport of Section 44 of the GVAT Act or they just pretend to be ignorant of the correct interpretation of Section 44 of the GVAT Act. The order of attachment in the case of both, the writ-applicant no.2 and the writ-applicant no.3, is hereby quashed and set-aside - application allowed.

Issues Involved:
1. Validity of the impugned notice issued under the Gujarat Value Added Tax Act, 2003 for the payment of outstanding tax and attachment of personal properties.
2. Applicability and interpretation of Section 44 of the GVAT Act.
3. Jurisdiction and procedural correctness of the attachment proceedings.

Detailed Analysis:

1. Validity of the Impugned Notice and Attachment:
The writ-applicants challenged the notice dated 21.08.2021 issued under the GVAT Act for the payment of outstanding tax of ?1,68,02,573/- and the consequent attachment of personal properties of the director and his brother. The company had previously incurred a tax liability of ?56,05,146/- in 2013 and had applied under the 'Vera Samadhan Yojana, 2019', depositing the required amount. Despite this, a fresh levy was raised, leading to the attachment of personal properties.

2. Applicability and Interpretation of Section 44 of the GVAT Act:
Section 44 of the GVAT Act, similar to Section 226(3) of the Income Tax Act, 1961, allows the Commissioner to require any person from whom money is due to a dealer to pay the Commissioner for the dealer’s tax arrears. The court noted that the provisions are in the nature of garnishee proceedings, which require a debtor-creditor relationship. In this case, there was no such relationship between the company and the writ-applicants nos.2 and 3. The court emphasized that Section 44 is intended for situations where a third party owes money to the dealer, not for attaching personal properties of directors or their relatives without such a relationship.

3. Jurisdiction and Procedural Correctness:
The court found that the proceedings under Section 44 were initiated without jurisdiction and proper procedure. No notice was sent to the writ-applicants nos.2 and 3 as required under sub-section (5) of Section 44, which allows the recipient to object and requires an inquiry if objections are raised. The absence of such notice invalidated the attachment proceedings. The court also highlighted that the equitable considerations in interpreting taxing statutes are out of place, and the authorities cannot extend the statute’s application beyond its clear terms.

Conclusion:
The court concluded that the attachment of personal properties of the writ-applicants nos.2 and 3 was without jurisdiction and resulted in undue harassment. The order of attachment was quashed, and the attachment was removed. The authorities were directed to proceed further in accordance with law concerning the company’s liability.

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