2007 (8) TMI 655 - HC - VAT and Sales Tax

Court quashes notice, releases bank guarantee, orders costs, and upholds inter-State trade principles.

The court accepted the petition, quashed the notice dated May 2, 2007, and directed the release of the bank guarantee. The respondent-State was ordered to ... Violation of section 21 of the Punjab VAT Act - Held that:- Multiple taxation as claimed by the respondents would result in hampering the free movement of goods between the States as provided by article 301 of the Constitution and therefore would be prejudicial to freedom of trade, commerce and intercourse throughout the territory of India, and for the unity and integrity of the country. Therefore, we find that the petitioner has not violated section 21 of the Punjab VAT Act as has been claimed by the respondents. For the reasons stated above, this petition succeeds. The notice dated day 2, 2007 (annexure P4) is quashed and respondents are saddled with costs of ₹ 10,000 which initially shall be paid by the respondent-State to the petitioner. In view of the fact that the Excise and Taxation Officer, respondent No. 2, is not impleaded in person we direct the respondentState to hold an enquiry and the costs of ₹ 10,000 be recovered personally from the officer who may be found guilty for having committed the lapse of detaining the goods. Issues Involved:1. Quashing of notice dated May 2, 2007, and proceedings initiated in pursuance thereof.2. Detention of goods and truck by the Excise and Taxation Officer.3. Applicability of the Punjab VAT Act, 2005, in relation to the inter-State sale.4. Requirement for the petitioner to register under the Punjab VAT Act.5. Alleged harassment by the Excise and Taxation Officer.6. Multiple taxation and its impact on free trade and commerce.Detailed Analysis:1. Quashing of Notice Dated May 2, 2007, and Proceedings Initiated:The petitioner sought the quashing of the notice dated May 2, 2007, issued by the Excise and Taxation Officer-cum-Detaining Officer, alleging a violation of section 21(1) of the Punjab VAT Act. The court found that the notice was issued without jurisdiction as the transaction was an inter-State sale under section 3 of the CST Act. The court held that all ingredients of an inter-State sale were fulfilled, and thus, the notice was liable to be quashed.2. Detention of Goods and Truck:The goods and the truck were detained at the ICC, Shambhu (import) barrier. The petitioner argued that the detention was unjustified as the transaction was an inter-State sale, and Central sales tax was duly paid. The court agreed with the petitioner, noting that the goods were detained without valid grounds and directed the release of the goods and truck.3. Applicability of the Punjab VAT Act, 2005:The respondents argued that the petitioner violated sections 21(1) and 6(3)(a)(i) of the Punjab VAT Act by not registering under the Act and not providing proof of payment in advance. The court, however, held that the transaction was an inter-State sale, and thus, the petitioner was not liable to register under the Punjab VAT Act or pay any tax to the State of Punjab.4. Requirement for the Petitioner to Register under the Punjab VAT Act:The court rejected the argument that the petitioner was required to register under the Punjab VAT Act. It referred to the judgment in National Thermal Power Corporation's case, which emphasized that multiple taxation would hamper free movement of goods between states. The court concluded that the petitioner did not violate section 21 of the Punjab VAT Act.5. Alleged Harassment by the Excise and Taxation Officer:The petitioner alleged that the Excise and Taxation Officer employed tactics to harass dealers from outside Punjab. The court noted past observations against the same officer in other cases and found merit in the petitioner's claim of harassment. The court directed an enquiry against the officer and ordered the respondent-State to pay costs of Rs. 10,000 to the petitioner.6. Multiple Taxation and Its Impact on Free Trade and Commerce:The court emphasized that multiple taxation would be prejudicial to the freedom of trade, commerce, and intercourse throughout India, as protected by Article 301 of the Constitution. It held that the petitioner's compliance with the CST Act negated the need for additional registration under the Punjab VAT Act, thereby preventing multiple taxation.Conclusion:The court accepted the petition, quashed the notice dated May 2, 2007, and directed the release of the bank guarantee furnished by the petitioner. The respondent-State was ordered to pay costs and conduct an enquiry against the Excise and Taxation Officer responsible for the wrongful detention of goods. The judgment reinforced the principles of inter-State trade under the CST Act and protected the petitioner from undue harassment and multiple taxation.