Bank guarantee recovery must follow statutory penalty procedure before encashment under the Kerala General Sales Tax Act.
Where section 29A of the Kerala General Sales Tax Act prescribes detention of goods, release on security, enquiry, penalty order, demand and time for payment, recovery from a bank guarantee must follow that statutory sequence. The authority could not bypass the prescribed mode and encash the guarantee merely because the penalty order had been made or the guarantee was nearing expiry. Since the penalty order had not been communicated before encashment, the recovery action was contrary to the Act and Rules, and the premature realisation was held illegal and without jurisdiction.
Issues: Whether the bank guarantee furnished for release of goods could be encashed towards penalty before the penalty order under section 29A was communicated to the assessee.
Analysis: Under section 29A of the Kerala General Sales Tax Act, the officer may detain goods on suspicion of attempted evasion, release them on security, enquire into the matter, and thereafter impose penalty by order. The scheme further contemplates demand and time for payment, and Rule 35A provides for realisation from security only in accordance with that statutory process. The authority could not bypass the prescribed mode and directly invoke the bank guarantee merely because the penalty order had been made and the guarantee was nearing expiry. Since the order was appealable and had not been communicated before encashment, the recovery action was contrary to the Act and the Rules.
Conclusion: The encashment of the bank guarantee before communication of the penalty order was illegal and without jurisdiction, and the challenge succeeded.
Final Conclusion: The petitioner was entitled to relief against the premature recovery action, with liberty to pursue the statutory appeal against the penalty order.
Ratio Decidendi: When a statute prescribes a specific procedure for imposing and recovering penalty, the authority must strictly follow that procedure and cannot realise the amount from security before the penalty order is communicated and the time for statutory compliance has run.
TaxTMI 
AI Drafter ✕
TaxTMI 
