Ashwin Vanaspati Ind. Pvt. Ltd. vs Sales Tax Office

M.S. Shah, J.—Rule. Mr.Siraj Gori, learned Assistant Government Pleader waives service of Rule. In the facts and circumstances of the case, the petition is taken up for final disposal today.

This petition under Article 226 of the Constitution challenges the order dated 5/6/2004 (Annexure-E) u/s 48A of the Gujarat Sales Tax Act,1969 (''the Act'' for brevity) passed by the Sales Tax Officer Class-I, Flying Squad Unit-1, Gujarat State, Ahmedabad attaching the raw materials/finished goods lying at the factory premises valued at Rs.15,36,00,000/and also outstanding payment to be made by Parle Products Pvt.Ltd. amounting to Rs.1,33,50,443/-. The petitioner has also challenged the show cause notice dated 17/7/2004 (Annexure-J) issued by the same officer calling upon the petitioner to show cause why criminal proceedings should not be initiated against the Board of Directors of the Company and the employees responsible for the offence of reducing the stock as on 14/7/2004 as compared to the stock as on 5/6/2004 when the attachment order was passed.

The facts leading to filing of this petition, as averred by the petitioner, are as under :-

3.1 The petitioner is engaged in the business of manufacturing and selling of various kinds of Oil since 1944. The said unit was taken over as a sick unit in 1986. The petitioner is registered under the Gujarat Sales Tax Act,1969 and the Central Sales Tax Act,1956. The petitioner paid sales tax to the tune of Rs.6.71 crores for the financial year 2002-03 and paid sales tax to the tune of Rs.6.33 crores for financial year 2003-04. The petitioner employs more than 500 persons.

3.2 The controversy involved in the present petition centers around the attachment order passed by the respondent-sales tax authorities with reference to certain consignment sales. On 10/3/2004 the Assistant Sales Tax Commissioner, Vadodara issued a letter to the petitioner stating that one agency namely Butterfly Overseas to whom the petitioner had sent consignment goods was liable to tax since the registration number of the said party was cancelled with effect from 27/6/2003. The petitioner responded to the said letter stating that the said goods were sent on consignment sales and Form-F were also received from the said party and further even the registration number of the said party is still continuing as per the information on the Website of Delhi Sales Tax Department.The petitioner further stated that the assessment order for the year 2002-2003 was already passed on 31/3/2004 and the said consignment sales were also allowed after considering forms-F tendered by the petitioner as genuine. The said order is produced at Annexure-C to the petition.

3.3 On 5/6/2004 the respondent No.1 - Sales Tax Officer-Ward-1,Flying Squad Unit-1, Ahmedabad conducted an inquiry and put certain questions to the petitioner''s representative. It was stated in reply to question no.10 that the petitioner company received payments from consignment agents by account payee cheques/demand drafts. In response to question no.19 whether the petitioner had taken any precautionary measures about genuineness of other consignment agents after being informed by Assistant Sales Tax Commissioner about the cancellation of registration of M/s.Butterfly Overseas, the petitioner''s representative replied that on receiving Assistant Commissioner''s letter the petitioner has stopped dealing with any such parties regarding whose genuineness the Assistant Commissioner had raised objections.

3.4 The Sales Tax Officer passed the impugned order dated 5/6/2004 (Annexure-E) referring to 12 parties to whom the petitioner had made consignment sales and doubting genuineness of the forms issued by the said parties. On the basis of the said doubt, the Sales Tax Officer computed the petitioner''s liability at Rs.11.44 crores plus interest and penalty aggregating to Rs.30.68 crores and attached the following properties of the petitioner:

(A) Raw materials/finished goods lying at factory premises amounting to Rs.15,36,00,000/-.

(B) Out-standing payment to be made by Parle Products Pvt.Ltd. amounting to Rs.1,33,50,443/-.

The order purports to have been issued u/s 48A of the Gujarat Sales Tax Act,1969 (hereinafter referred to as ''the Act'').

At the hearing of this petition, it is contended on behalf of the petitioner that the petitioner had received F forms from the concerned agents and even some of the documents produced by the respondent along with affidavit-in-reply indicate that the concerned authorities in Maharashtra and Delhi had issued F forms. Hence, no fault can be found with the petitioner in relying upon such F forms which were also accepted by the authorities for the assessment year 2002-03. It is also contended that the petitioner had also received payments through account payee cheques only, and, therefore also, the petitioner had no reason to doubt the genuineness of such agents. It is also submitted that when the registration of dealers outside the State is cancelled, the petitioner could not be fastened with the knowledge of such cancellation unless there is publication of such cancellation in accordance with Rule 11A of the Gujarat Sales Tax Rules,1970.

It is further submitted that, in any view of the matter, the provisional attachment order is arbitrary because the petitioner''s liability arising from transactions with Sarthak Enterprise and other parties referred to in the said order would be maximum to the tune of Rs.2.32 crores, but the petitioner''s goods which valued at more than Rs. 15 crores have been attached. The petitioner-company has immovable properties with plant and machineries worth Rs.18 crores which are not encumbered. Hence, the interest of the revenue is sufficiently secured without passing any attachment order whatsoever. It is submitted that the attachment order cannot be passed merely because the department is of the view that some tax liability is likely to be fastened on the assessee. Such order can be passed during the pendency of any proceedings or on provisional assessment or on assessment of tax, if the Commissioner is of the opinion that it is necessary to attach the property for the purpose of protecting the interest of the revenue. In the instant case, the interest of the revenue is sufficiently protected as the value of the assets of the petitioner company is more than Rs. 18 crores.

On the other hand, Mr.Siraj Gori, learned Assistant Government Pleader, has submitted that the department has gathered information from the Sales Tax authorities of Delhi and Maharashtra States, upon which information the department is justified in contending that the transactions between the petitioner and the consignment agents of those States were not genuine or were after cancellation of the registration of the consignment agents. It is further submitted that since the liability of the petitioner for sales-tax, interest and penalty is to the tune of Rs.30 crores, there is justification for attaching the raw material worth Rs.15 crores.

Section 48A of the Act reads as under :-

"48A. Provisional attachment to protect revenue.

(1) Where during the pendency of any proceedings of provisional assessment or assessment of tax or reassessment of turnover escaping assessment, the Commissioner is of the opinion that for the purpose of protecting the interest of the revenue, it is necessary so to do, he may by order in writing attach provisionally any property belonging to the dealer in such manner as may be prescribed.

(2) Every such provisional attachment shall cease to have effect after the expiry of a period of six months from the date of the order made under sub-section (1):

Provided that the Commissioner may, for reasons to be recorded in writing, extend the aforesaid period by such further period or periods as he thinks fit so however that the total period shall not in any case exceed one year."

Having heard the learned Counsel for the parties, we are of the view that when the petitioner is a regularly assessed dealer in business for the last many decades and has been paying sales tax to the tune of Rs.6 crores every year for the last two years and when the respondent authorities have not passed any orders in regular assessment or reassessment proceedings fastening the liability on the petitioner for an amount of Rs.11 crores and odd amount as mentioned in the attachment order, the respondent authorities are not justified in bringing the business of the petitioner to a grinding halt by attaching all the raw materials and finished goods lying in the petitioner''s premises which would result into cessation of the petitioner''s business and stoppage of revenue for the State exchequer as well.

8 The respondent authorities have not given any reason why, without affording an adequate opportunity to the petitioner of putting-up its defence in assessment/reassessment proceedings, such a drastic action of attachment of all the finished goods and raw materials was required to be taken, when the petitioner is an established company in the business for the last more than 20 years and has been paying sales tax to the tune of Rs.6 crores per year for the last two years. We are, therefore, of the view that the attachment order is passed without taking into consideration whether the provisional attachment was necessary in the interest of the revenue, when such attachment order for months would cripple a going concern which not only pays sales tax to the tune of Rs.6 crores every year but also employs 500 persons.

9 Having regard to the facts and circumstances of the case and also taking into consideration the value of the petitioner''s immovable assets including plant and machineries, we are of the view that the order dated 5/6/2004(Annexure-E) is required to be quashed and set aside and is hereby quashed and set aside, and at the same time the interest of the revenue would be protected by imposing the following conditions, while disposing of the petition :-

(a) On behalf of the petitioner-company, the Chairman/Managing Director shall file an undertaking on affidavit to the effect that the petitioner company shall not transfer, dispose of in any manner or encumber its immovable properties, plant and machineries till the regular assessments/reassessments for the years 2002-03 and 2003-04 are not finalised. The lists of such assets shall be filed alongwith affidavit.

(b) The petitioner shall deposit a sum of Rs.75 lacs with the respondent authorities and shall also file an undertaking to give bank guarantees for a total sum of Rs.1.57 crores in three installments. The first such Bank Guarantee for Rs.57 lacs will be furnished by the first week of September,2004 and two more Bank Guarantees of Rs.50 lacs each, shall be furnished by the first week of each succeeding month i.e. October and November,2004.

(c) Upon the petitioner''s filing the above undertakings and paying a sum of Rs.75 lacs as aforesaid the respondent authorities shall permit the petitioner to remove the finished goods/raw materials lying in the petitioner''s premises.

(d) The assessment/reassessment proceedings for 2003-04/2002-03 shall be completed by 31/12/2004 for which the petitioner company shall extend necessary cooperation.

(e) Since the order of attachment u/s 48A of the Act at Annexure "E" dated 5/6/2004 is quashed and set aside, the consequential notice issued by the respondent authorities shall no longer survive.

The petition stands disposed of accordingly. Rule is made absolute to the above extent only. There shall be no order as to costs.