Gujarat High Court
Automark Industries (I) Ltd vs State Of Gujarat & 2 on 28 November, 2014
Bench: Akil Kureshi, Vipul M. Pancholi
C/SCA/12592/2014 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 12592 of 2014
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AUTOMARK INDUSTRIES (I) LTD....Petitioner(s)
Versus
STATE OF GUJARAT & 2....Respondent(s)
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Appearance:
MR SN SOPARKAR, SENIOR ADVOCATE WITH MR DHAVAL SHAH AND HD
DHARMADHIKARI, ADVOCATES for the Petitioner(s) No. 1
MR JAIMIN GANDHI, AGP for the Respondent(s) No. 1 3
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI
Date : 28/11/2014
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Heard learned counsel for the parties for final disposal of the petition. Petitioner has challenged series of orders produced as at AnnexureI collectively under which the Commercial Tax Officer has attached the properties of the petitioner on the ground that a huge tax demand of Rs.3.80 crores is likely to arise against the petitioner for unpaid Value Added Tax.
2. Brief facts are as under:
2.1. The petitioner is a company registered under the Companies Act. The petitioner is engaged in trading of Thermoplastic Road Marking material, commonly used for marking and creating strips on the road such as Zebra Crossing and Speed Breakers. These markings are meant to last for a long time and are reflective in nature making them visible at night also. The petitioner has been Page 1 of 9 C/SCA/12592/2014 ORDER declaring the product as falling under entry 42A of II Schedule to the Gujarat Value Added Tax Act, 2003 ('the VAT Act' for short), which entry pertains to "Industrial Inputs or Agricultural Inputs as may be specified by the State Government by notification in the Official Gazette." This entry carries tax liability of 4% plus 1% additional duty i.e. total 5% of tax. The petitioner relies on Government Notification dated 31.03.2006 specifying various goods mentioned in the schedule appended to the Notification as "Industrial Input" for the purpose of entry 42A. Item 145 thereof is "rosin and resin acids and derivatives thereof; rosin spirit and rosin oils; run gums." This entry is under heading No.38.06.
3. The petitioner has been filing tax returns accordingly, and we are informed that for the past two years such declarations were also accepted by the VAT authorities. However, the authorities are holding a prima facie belief that the product that the petitioner deals in does not fall under entry 145 of the said notification and correspondingly it cannot be classified as "industrial input" for the purpose of entry No.42A inviting tax at the rate of 5%, but that the same must fall under the residuary clause 87 of the II Schedule inviting tax liability at the rate of 12.5%. On such basis, a show cause notice dated 10.04.2014 came to be issued by the Commercial Tax Officer calling upon the petitioner why for the year 20102011 tax at the rate of 12.5% plus 2.5% not be calculated on the petitioner's sale of thermoplastic road marking material. The said authority further proposed to levy interest and impose penalties. In such showcause notice, it was conveyed that the petitioner's stand 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 is not correct, since both entries are not identical. It was Page 2 of 9 C/SCA/12592/2014 ORDER also conveyed that thermoplastic road marking material sold by the petitioner is classified under heading 3911 10 under the Central Excise. The third objection of the authority was that the product is used as a marker once the road was constructed, and therefore, cannot be considered as an industrial input.
4. The assessment proceedings pursuant to such showcause notice are going on. The petitioner opposes the proposals contained in the showcause notice contending that the earlier declaration and the calculation of tax was correct. At that stage, the respondents issued impugned orders in exercise of powers under Section 45 of the VAT Act attaching various properties of the petitioner. By way of a sample, if we look at the first of such orders, it is one dated 25.04.2014 in which it is recorded that during the spot inspection of the petitioner's place of business between 05.04.2014 to 07.04.2014, various details were collected. It was found that the petitioner pays tax at the rate of 5% treating the product as an industrial input falling under entry 42A of II Schedule to the VAT Act, whereas such product is not specified elsewhere, and would, therefore, fall within the residuary clause 87 of II Schedule to the VAT Act, inviting tax at the rate of 12.5% plus 2.5%. For the year 20102011, the tax would come to Rs.3.80 crores. There would be further liability of interest. For such recoveries assessing authority has already issued notices to the petitioner. Therefore, for the possible tax liability, to protect the interest of the revenue, it is necessary to place the properties of the petitioner under provisional attachment.
5. It appears that subsequently the petitioner provided a Bank Guarantee to the tune of Rs.1.82 crores, in lieu of which, the authority lifted the orders of attachment.Page 3 of 9 C/SCA/12592/2014 ORDER
6. Learned counsel Shri Soparkar vehemently contended that the Commercial Tax Officer has no power under Section 45 of the VAT Act to impose any such attachment. The product is correctly classified under entry 42A. Counsel took us to the various documents on record to contend that the classification as declared by the petitioner is correct. He submitted that the State authorities are labouring under a mistaken belief in law and facts. At a stage where such issues are yet to be gone into by the assessing authority, order of attachment cannot be passed. He submitted that the petitioner has a strong prima facie case to contend that the product falls under entry 42A of the II Schedule.
7. On the other hand, learned AGP Shri Jaimin Gandhi opposed the petition contending that the petitioner has alternative remedy of appeal. The department has sufficient material to prima facie demonstrate that the product does not fall under entry 42A or in any other entries, the same can, therefore, be classified as a residuary product. When a huge tax demand is likely to arise, the authority was justified in passing the order of provisional attachment.
8. Section 45 of the VAT Act empowers the Commissioner during pendency of any proceedings of assessment or reassessment of turnover escaping assessment, to attach provisionally any property belonging to any dealer, if he is of the opinion that for the purpose of protecting the interest of Government revenue, it is necessary to do so. As per subsection (2) of Section 45, every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under sub section (1). Few things emerge from these statutory provisions.
Firstly, the power of provisional attachment is in the nature of an Page 4 of 9 C/SCA/12592/2014 ORDER extraordinary measure available to the revenue authorities for the purpose of protecting interest of Government revenue. Even before any assessment is made, such powers can be exercised if the Commissioner is of the opinion that for the purpose of protecting the interest of Government revenue, it is necessary to do so. The power thus, is of drastic nature. Any such power, therefore, is coupled with the duty to exercise such power with due care and in appropriate cases. Subsection (2) of Section 45 when specifies the life of such order of provisional assessment for a maximum period of one year, it further amplifies that the same is in the nature of a drastic measure for a temporary period. The authority exercising such powers, therefore, must have a strong prima facie case to show that upon ultimate conclusion of the assessment, there is every likelihood of tax, interest and/or liability being attached on a dealer, and further that pending such consideration, it is necessary in the interest of Government revenue to pass order of provisional attachment. Such powers cannot be exercised in a routine manner in every case of reopening of assessment de hors the consideration noted above and in any case not merely because some assessment proceedings are pending. At that stage, it is merely a prima facie, exparte opinion of the assessing authority that a certain tax demand is likely to arise. This would be subject to biparte assessment proceedings. Even after the assessment is done, it is subject to further appeals, typically first before the Commissioner and thereafter before the VAT Tribunal and the High Court. At all such appellate stages there are powers for granting stay or waiving requirement of predeposit if statute so provides. Therefore, to contend that mere pendency of assessment or reassessment proceedings would clothe the authority to pass order of provisional attachment would be wrong. Pendency of such proceedings would be a prerequirement for exercising such powers. But the additional Page 5 of 9 C/SCA/12592/2014 ORDER requirement would be that it is necessary to do so to protect the interest of revenue.
9. While, therefore, not accepting the contention of the counsel for the petitioner of total lack of power of the authority to pass order of provisional attachment, we must examine whether in the present case, such powers could have been exercised. We are conscious that such powers are in the discretionary nature, and as long as such discretion is exercised bona fide, and that sufficient material is available on record permitting exercise of such discretion, the Court would not ordinarily interfere in such orders. However, when the nature of power is drastic, the Court's scrutiny in the sufficiency of reasons would necessarily be more incisive.
10. The assessment proceedings are still going on. We do not mean to influence such proceedings either way. We have, however, noted the rival contentions with respect to the correct classification of the product. We notice that entry 42A of II Schedule pertains to industrial inputs or agricultural inputs as may be specified by the State Government by notification in Official Gazette. The notification dated 31st March 2006 issued by the State Government contains several products, which for the purpose of entry 42A to be considered as industrial inputs. Item 145 thereof pertains to "rosin and resin acids and derivatives thereof; rosin spirit and rosin oils; run gums." It contains heading '38.06'. This notification contains, by way of an addendum, following notes: "Note(1) The rules for the interpretation of the provisions of the Central Excise Tariff Act, 1985 read with Explanatory notes as updated from time to time published by the Customs Cooperation Council, Brussels apply for the interpretation of this notification.
Page 6 of 9 C/SCA/12592/2014 ORDERNote(2) Where any commodities are described against any heading or, subheading or as the case may be, tariff item, and the aforesaid description is different in any manner from the corresponding description in the Central Excise Tariff Act, 1985, then only those commodities described as aforesaid shall be covered by the scope of this notification and other commodities though covered by the corresponding description in the Central Excise Tariff shall not be covered by the scope of this notification.
Note(3) Subject to Note 2, for the purpose of any entry contained this notification, where the description against any heading or, as the case may be, subheading, matches fully with the corresponding description in the central Excise Tariff, then all the commodities covered for the purpose of the said tariff under that heading or subheading or as the case may be, tariff item, shall be covered by the scope of this notification.
Note(4) Where the description against any heading or subheading or as the case may be, tariff item, is shown as "other", then interpretation as provided in Note 2 shall apply."
11. In short, as per these notes, 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.
12. Thus, there is sufficient material for the petitioner to contend Page 7 of 9 C/SCA/12592/2014 ORDER 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.
13. The respondents have raised three fold objections, such objections are yet to be gone into. The petitioner's opposition to the points raised by the Department would require a detailed scrutiny and examination of materials not fully before us. In any case, we do not intend to bypass the assessment proceedings. Suffice it to say that at this stage to pass an order of provisional attachment would neither be permissible nor be proper. To reiterate, when the petitioner's classification on the basis of which the tax has so far been collected, cannot be stated to be without any basis nor can it be stated that the petitioner has no prima facie case, and when the assessment proceedings are yet to be completed, resorting to such extreme power of attachment without anything further to suggest that the liability if ultimately finalized, the petitioner will not pay, would simply not be permissible. It is not the case of the Department placed before us through any material on record that if ultimately any additional tax liability is finalized, the petitioner would not pay or be in a position to pay such taxes.
14. To refuse to entertain a writ petition on the ground of alternative remedy is not a matter of lack of jurisdiction but of exercise of discretionary restraint. When the facts are so demonstrably clear not requiring any examination of disputed question of facts, only on the ground of availability of alternative appellate remedy, the writ petition would not be turned down, that too after the same remained pending for considerably long period of time, and the question of alternative remedy to be efficacious would also one of the consideration.
Page 8 of 9 C/SCA/12592/2014 ORDER15. In the result, impugned orders dated 25.04.2014 as at AnnexureI collectively are quashed. 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 accordingly.
(AKIL KURESHI, J.) (VIPUL M. PANCHOLI, J.) Jani Page 9 of 9