By TIOL News Service

MUMBAI, SEPT 05, 2015: THE issue before the Bench is - Whether attachment of assessee's property u/s 35 is an absolute power which could be exercised without recording opinion. NO is the answer.

Facts of the case

The assessee is a registered dealer under the Maharashtra VAT Act, 2002. It's product which was styled as "rigid frame steel structures", involves a particular configuration of various steel components, commonly and collectively referred to as "PreEngineered Buildings". The components were supplied to the customers in a completely knocked down condition. The customers have an option to get these materials installed and erected by either the assessee or any third party. The assessee had been collecting the VAT from its customers until the year 2011 at the rate of 12.5.% on account of rigid frame columns and rafters and remitting the same to the Revenue. On the rest of the products, assessee had been collecting VAT from its customers at the rate of 4 or 5%, as applicable, and remitting the same to the Revenue. There was no dispute with the Revenue until the financial year 2010-2011. Assessee thereafter relying upon a judgment of the Rajasthan HC, started charging VAT at the rate of 5% and not 12.5% on rafters and rigid frame columns. Assessee also invoked the procedure for determination of disputed question (DDQ) under the MVAT Act, 2002 for one of the products supplied by it. An order was passed by the Commissioner holding that the rigid framed columns do not fall under the entry claimed by assessee, and therefore, liable to be taxed at the residual rate of 12.5%. Against this order, an Appeal was filed by assessee in 2013. A search and seizure notice was issued and records and information as requested by the Sales Tax Department was produced. Some of the documents were seized. The seized documents were stored in the assessee's premises but with a seal. The statements of the various employees of the assessee were recorded, and thereafter, the assessee was called upon to produce all books of accounts since 1st April, 2011. Thereafter, assessee was required to appear before the Joint Commissioner, but before that it was informed by the bankers that there was a communication from the department attaching their bank accounts.

The Joint Commissioner of Sales Tax, VAT Administration, Pune Division had provisionally attached the bank accounts of the assessee dealer for the tax liability. The order directed that the amounts would remain provisionally attached until further orders. Any amount shall not be paid, unless that order was withdrawn or communication to that effect was made by the Joint Commissioner of Sales Tax,(VAT Administration) Pune. The order further directed that if any such payment was made, such a person shall be personally held liable to the Commissioner of Sales Tax, Maharashtra State, Mumbai and the said amount shall be recovered as an arrears of land revenue as per the provisions of Maharashtra Land Revenue Code, 1966 and appropriate legal action will be initiated as per the provisions of law. The dealer would be at liberty to produce any documents, papers or books of accounts and appear before the Joint-Commissioner of Sales Tax (VAT Administration) Pune in person within 15 days from the service of that order to justify the withdrawal of this order, failing which that order would be absolute. That order was to remain in operation for 12 months from the date of service on the dealer and may be extended further from time to time for a period of two years.

Held that,

++ for any action in terms of section 35 to be taken, firstly there ought to be an inquiry in any proceedings including the proceedings relating to recovery of any amount due. Secondly, that ought to be in respect of any person or dealer. Thirdly, during any inspection or search in relation to any business of any person or dealer under the MVAT Act, 2002, the Commissioner ought to form an opinion that for the purpose of protecting interest of the Revenue, it is necessary to pass an attachment order provisionally. Foundation for the action thus, is the recovery of the amount due and the opinion of the Commissioner that for the purpose of protecting interest of the Revenue, this drastic action is needed. It is not an absolute power and which could be exercised without recording the requisite opinion and on the above material counts. We are not impressed by the argument of Mr Sonpal that the assessee can be relegated to the remedy provided by section 35(5) and that is of making an application to the Commissioner for modifying or cancelling the order. We are also not satisfied that in the given facts and circumstances, this Court should not exercise its discretion in favour of the Petitioner and relegate it to the alternate remedy, as it is well settled that the existence of an alternate remedy is not an absolute bar against entertaining a Writ Petition under Article 226 of the Constitution of India. It is more a rule of caution and prudence rather than a legal bar. Therefore, whether the Petitioner should be relegated to the alternate remedy, is a matter left to the discretion of the Court exercising powers under Article 226 of the Constitution of India. Considering the impact of the impugned order and the drastic consequence thereof, we do not think that the assessee should be relegated to the remedies suggested by Mr Sonpal. They are hardly efficacious in the present case;

++ we find that the Petitioner is proceeded against because in the opinion of the Joint Commissioner, it was reported to him that the proceedings u/s 64 are in progress. Those proceedings, on the own showing of the Joint Commissioner, pertain to production and inspection of accounts and documents and search of premises. On the date of the impugned order these proceedings were in progress. Thereafter, the Joint Commissioner proceeds to verify the records and holds that the dealer has misclassified its product and sold it at an incorrect tax rate. This was the discrepancy noticed during the course of the investigating visit. According to him, the dealer has failed to act as per the provisions of law. We find absolutely no reference made by the Joint Commissioner to the admitted and undisputed factual position, namely, since 2011 the Petitioner entertained the doubt about the rate at which tax is to be levied and collected, and therefore, requested the Commissioner to determine a disputed question and issue. That determination ended in an order dated 9th July, 2013 adverse to the Petitioner. However, this order is challenged in Appeal before the Tribunal and that Appeal is pending. In such circumstances, and that the dispute being as old as 2011, coupled with the fact that the Commissioner's order is of 9th July, 2013 and against which an Appeal has been preferred by the Petitioner in the Tribunal which is pending since September 2013, then, we do not see what was the occasion to exercise the powers u/s 35;

++ it may be that a search of the premises was conducted and that production and inspection of accounts and documents was directed, and thereafter, the same came to be referred to, but by that itself, and without making any reference to the debatable issues, we do not think that the Commissioner was justified in exercising his powers. There is no basis for holding that the dealers' credentials are doubtful and if coercive action is not initiated immediately, then, the dealer may not discharge the said liability to the exchequer. How or why such an apprehension was not raised from 2011 till date, has not been clarified at all. What was the occasion to act in terms of Section 35 on 21st August 2015, has not been also explained beyond referring to the action under Section 64. We do not think that the Commissioner needed to exercise this power in order to protect the interest of the Revenue. If the Joint Commissioner was of the opinion that revenue involved is to the tune of more than Rs.45 Crores, and that is required to be secured, then, he could have ensured security of the same by appropriate proceedings including by an Application in the pending Appeal. That Authority could have obtained an undertaking and thereby ensuring that the assets and properties are not frittered away or disposed of. The Petitioner appears to be readily willing to make a statement that the factory building, plant and machinery are unencumbered, and therefore, there appears to be no apprehension that their present value would not be adequate to secure the Revenue. Assessee's counsel had stated that the assessee is ready and willing to make a statement that unless and until the proceedings under the Act including an Appeal preferred by the Petitioner is disposed of, it would not create any third party right, part with possession of the assets and properties including the above plant and machinery and building. However, that should not prevent the Petitioner from utilizing the same in the ordinary and normal course of business;

++ we are of the opinion that the statements made by the Senior Counsel, are enough to protect the interest of the revenue at this stage. There is no need of continuing the provisional attachment ordered by the Joint Commissioner vide Exhibit-A to the Petition. By accepting the statement made by the Senior Counsel as an undertaking given to the Court and directing that movable and immovable Assets and properties of the Petitioner shall not be disposed of, transferred and no third party interest of any nature created therein nor their possession shall be parted with during the pendency of the proceedings under MVAT Act, 2002, as noted above, we set aside the impugned order. Ordered accordingly. We clarify that our order and direction shall not prevent the Petitioner from utilizing all movable and immovable properties and assets in the ordinary and normal course of business. The bank accounts and which are the subject matter of the provisional attachment order are forthwith released and defreezed. The Petitioner is free to operate these bank accounts as well in the ordinary and normal course of business. However, our order and direction shall not prevent or preclude the Revenue from passing the assessment order in accordance with law and equally our order and direction shall not preclude the parties from raising all contentions in the pending appellate proceedings. All such contentions of both sides are kept open. Needless to clarify that having expressed no opinion on the merits of the controversy, this order and direction shall not influence the Tribunal while deciding the Appeal of the Petitioner. The Writ Petition is accordingly allowed in the above terms. This order is passed in the presence of Mr Alakesh Roy, Managing Director of the Petitioner who is before us in this Court. We also record the statement of Mr Sonpal that the Revenue/ Department will pass the requisite assessment order in accordance with law and after giving all prior opportunities of hearing to the Petitioner within a period of three months from today. Needless to clarify that the Petitioner will cooperate with the Department in early conclusion of assessment proceedings by not seeking unnecessary adjournments.

(See 2015-TIOL-2032-HC-MUM-VAT)