2014 (9) TMI 639 - HC - VAT and Sales Tax

Demand of security to the extent of 40% of the valuation of the consignment has been imposed - violation of VAT Act and Entry Tax Act - Held that - Imposition was at the stage of seizure and not at the stage of penalty and the Court held that imposition of demand of security at the rate of 40% is unjustified and reduced the same to the extent of 15% of the valuation of the goods subject to cash deposit by the revisionist before the authority - amount of penalty being 40% is absolutely disproportionate to the tax, which may ultimately be sought to be levied and the same may be reduced and that so far as the Entry Tax is concerned, the security may be confined to four times of the amount of Tax. although the statute provides 40% by way of penalty but the 40% is the outer limit and it shall be borne in mind that the amount of penalty or security must have a co-relation with the tax sought to be evaded. Therefore, it is directed that the amount of security by way of cash deposit be reduced to four times of the amount of tax which may ultimately be found to be the amount sought to be evaded - Decided in favour of assessee.

Summary

Issues:
1. Imposition of security demand on consignment of iron and steel.
2. Seizure of consignment for alleged evasion of tax.
3. Rejection of application by Joint Commissioner and confirmation of seizure order.
4. Appeal to Commercial Tax Tribunal and subsequent rejection.
5. Dispute over the amount of tax under U.P. VAT Act and Entry Tax Act.
6. Validity of security demand at 40% under U.P. VAT Act.
7. Comparison with previous judgments regarding penalty imposition.

Analysis:
The High Court judgment dealt with the imposition of security demand on a consignment of iron and steel imported into the State of U.P. by a revisionist company. The consignment, weighing about 39.92 M.T., was loaded in a truck and was seized by the Tax Officer of Rai Bareilly for allegedly being unloaded in U.P. without necessary declaration forms to evade taxes. The revisionist contended that the consignment was duly accounted for in their books. The Joint Commissioner rejected the revisionist's application, leading to an appeal before the Commercial Tax Tribunal, which also upheld the seizure order, prompting the revisionist to approach the High Court.

The revisionist argued that the total tax payable under the U.P. VAT Act and Entry Tax Act was significantly lower than the security demanded at 40% of the consignment's value. The Court considered the Tribunal's findings that the consignment was intended for a single dealer, contradicting the revisionist's claim of multiple recipients. The Court also reviewed previous judgments where penalties were reduced due to lack of relevant documentation.

The Court, acknowledging the statutory provision for a 40% penalty, emphasized that the penalty or security amount should correlate with the tax sought to be evaded. Consequently, the Court directed the reduction of the security amount to four times the tax potentially evaded. This decision aimed to balance the penalty imposition with the tax liability, ensuring a proportional outcome.

In conclusion, the High Court disposed of the writ petition by reducing the security amount and emphasizing the necessity for a rational correlation between penalties and tax evasion amounts. The judgment highlighted the importance of fairness and proportionality in imposing financial obligations related to tax compliance and evasion.