2022 (4) TMI 557 - HC - VAT and Sales Tax

Attachment of bank accounts of petitioner - escapement of turnover - framing of opinion - Section 44 of the GVAT Act, 2003 - HELD THAT - In the absence of any debtor creditor relationship, the department could not have asked the bank to debit the accounts of the writ applicant company and credit a particular amount as specified in the notices to the treasury of the State Government. Ordinarily, when appeals are pending before the first appellate authority or the Tribunal, as the case may be, with an application seeking stay towards recovery of the tax, then, in such circumstances, the department should not proceed to take coercive steps for the recovery of the amount incurred by the dealer under the GVAT Act. This statement of ours should not be construed as an absolute proposition of law, but, the department is expected to at least wait for the final outcome of the appeals on their own merits, more particularly, when the appeals are already admitted. The Administrative directions for fulfilling recovery targets for the collection of revenue should not be at the expense of foreclosing the remedies which are available to assessees for challenging the correctness of a demand. The sanctity of the rule of law must be preserved. The remedies which are legitimately open in law to an assessee to challenge a demand cannot be allowed to be foreclosed by a hasty recourse to coercive powers. Assessing Officers and appellate authorities perform quasi-judicial functions under the GVAT Act, 2003. The impugned notices are hereby quashed and set aside - application allowed.

Issues Involved:
1. Legality and validity of the notices issued by the State Tax Officer under Section 44 of the Gujarat Value Added Tax Act, 2003.
2. Whether the respondent followed the due process in attaching the bank accounts of the petitioner.
3. Whether the pending appeals before the appellate authorities affect the recovery proceedings initiated by the respondent.

Detailed Analysis:

1. Legality and Validity of the Notices:
The primary issue was the legality and validity of the notices issued by the State Tax Officer to the banks, directing them to attach the petitioner’s bank accounts to recover tax dues. The notices were issued under Section 44 of the Gujarat Value Added Tax Act, 2003 (GVAT Act). The court noted that the notices were based on the provisions of Section 44, which allows the Commissioner to recover tax dues by directing any person holding money for the dealer to pay the amount due.

The court emphasized that Section 44 is akin to garnishee proceedings under the Civil Procedure Code, which necessitates a debtor-creditor relationship between the garnishee (bank) and the dealer (petitioner). The court found that the department did not establish such a relationship, making the notices invalid.

2. Due Process in Attaching Bank Accounts:
The petitioner argued that the respondent did not follow the due process required under Section 44 and Section 45 of the GVAT Act. Specifically, the respondent did not serve the attachment order to the petitioner, failed to frame an opinion to protect government revenue, and did not provide tangible material to justify the attachment.

The court referenced the Supreme Court’s decision in M/s. Radha Krishan Industries vs. State of Himachal Pradesh, which highlighted the necessity of forming an opinion based on tangible material before attaching a bank account. The court found that the respondent did not comply with these requirements, making the attachment process flawed.

3. Impact of Pending Appeals on Recovery Proceedings:
The petitioner contended that the final tax liability was not determined as appeals and stay applications were pending before the appellate authorities. The court noted that ordinarily, when appeals are pending with stay applications, the department should refrain from taking coercive recovery steps. The court emphasized that administrative directions for revenue collection should not override the legal remedies available to the assessees.

The court directed the appellate authorities to expedite the hearing of the pending appeals and dispose of them on their merits within two months. The court also clarified that it did not express any opinion on the merits of the case.

Conclusion:
The court quashed the impugned notices and directed the appellate authorities to hear and dispose of the pending appeals within two months. The court reiterated the importance of following due process and respecting the legal remedies available to the assessees.

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