2015 (3) TMI 258 - HC - VAT and Sales Tax

Classification - petitioner s contends that the thermoplastic road marking material is classified for the Central Excise under entry 38069090, and accordingly the same would fall under entry 145 for the purpose of VAT Act - Held that - Unless anything there is inconsistent under the notification with respect to any commodity, the description of such commodity for the purpose of central excise would be accepted. We notice that the same product rosin and resin acids and derivatives thereof; rosin spirit and rosin oils; run gums is classified under entry 38.06 under Central Excise Tariff Act. We notice that the manufacturer from whom the petitioner procures such product, classifies the product for the purpose of central excise under entry 38069090. This is also the classification and description, the petitioner s invoices contained. - Thus, there is sufficient material for the petitioner to contend prima facie that its declaration of the product falling under entry 42A of the II Schedule is correct. The tax already collected is sufficient to meet with the petitioner s tax liability. - Resultantly, the subsequent orders insisting on providing Bank Guarantees for lifting such orders would also be rendered invalid. The respondents shall release the Bank Guarantees - Petition is disposed of.

Summary

Issues:
Challenge to provisional attachment of properties by Commercial Tax Officer under Section 45 of the VAT Act based on a disputed tax demand for unpaid Value Added Tax.

Analysis:
The petitioner, a company trading in Thermoplastic Road Marking material, challenged the attachment of properties by the Commercial Tax Officer due to a potential tax demand of Rs. 3.80 crores for unpaid Value Added Tax. The dispute arose from the classification of the product under entry 42A of the Gujarat Value Added Tax Act, 2003. The authorities contended that the product should be taxed at 12.5% under the residuary clause 87 instead of the declared 5%. A show cause notice was issued, questioning the classification and proposing penalties. The petitioner opposed the notice, stating that their classification was correct, leading to the attachment of properties. The petitioner argued that the officer lacked the power to attach under Section 45 of the VAT Act and that the classification was accurate. The respondent argued that the attachment was justified to protect revenue interests.

The High Court analyzed Section 45 of the VAT Act, which allows provisional attachment of property during assessment proceedings to safeguard government revenue. The court emphasized that such powers are drastic and must be exercised judiciously. The court highlighted that the authority must have a strong prima facie case to justify attachment, and it cannot be a routine action during assessment proceedings. The court noted that the power ceases after one year and can be subject to appeals. The court stressed the need to protect revenue interests before exercising such powers.

Regarding the classification issue, the court examined the product's classification under entry 42A, which pertains to industrial inputs. The court reviewed the government notification specifying industrial inputs and noted that the petitioner's classification was supported by the Central Excise Tariff Act. The court found sufficient material for the petitioner to argue the correctness of their classification, indicating that the tax already collected was adequate to cover their liability.

Ultimately, the court quashed the impugned orders of attachment, stating that such extreme measures were not warranted at this stage. The court emphasized that the petitioner had a prima facie case, and the assessment proceedings were ongoing. The court also highlighted that the availability of alternative remedies should not preclude the consideration of a writ petition, especially when the facts are clear. Consequently, the court directed the release of the Bank Guarantees and disposed of the petition in favor of the petitioner.