2017 (1) TMI 1381 - HC - VAT and Sales Tax

Court Allows Revision, Upholds Goods Seizure Validity under U.P. VAT Act, Rejects 'No-Man's Land' Claim

The revision was allowed, setting aside the Tribunal's order. The court upheld the validity of goods seizure and cash security demand under Section 48 of ... Evasion of the duty - Seizure - Invoices are fictitious - No registration under VAT - Held that: - Facts of the present case as noted above, leave no manner of doubt that the alleged invoices accompanying the goods are fake, the TIN numbers printed therein are fictitious, the alleged consignors are non-existent and identity of real owners of the goods have been concealed by the respondents with only motive to evade tax under the Act or to help undisclosed persons to evade tax. Once a transportation of goods under the cover of Section 52 of the Act is shown to be fraudulent, sham, bogus, circuitous or a device designed to evade tax under the Act, the statutory authorities under the Act and the court can always examine the substance of the transaction because the legislature never intends to guard fraud - Hence section 52 of the Act cannot be considered and understood in a manner so as to encourage tax evaders and to discourage those who abide by law. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. No doubt, when a person transports goods from outside the State of U.P. to outside the State of U.P. in terms of Section 52 of the Act and Rule 58 of the Rules, the authorities under the Act have no power to seize the goods and demand security for release thereof but where, as in the present case, the transaction is sham, not genuine and make believe and originated for transportation from a place within the State of U.P. or intended to be sold within the State of U.P. with intent to evade tax then it would be a case falling under Section 48 of the Act - Decided against the assessee. Issues Involved:1. Validity of seizure of goods and demand of cash security under Section 48 of the U.P. VAT Act, 2008.2. Status of Delhi-U.P. Border area of District Ghaziabad as 'no-man's land.'3. Role and knowledge of transporters in transactions of sale and purchase.4. Applicability of Section 52 versus Section 48 of the U.P. VAT Act, 2008 in cases of fraudulent transportation of goods.Detailed Analysis:1. Validity of Seizure of Goods and Demand of Cash Security:The court observed that the truck bearing Registration No. UP22T4924 was intercepted, and discrepancies were found in the accompanying documents. The goods were loaded from Ghaziabad (U.P.), and 76 out of 78 invoices were found to be fake with fictitious TIN numbers. The respondents failed to appear for physical verification multiple times, and the Mobile Squad Authority concluded that the goods were loaded within U.P. and intended to evade tax. The court held that the seizure of goods and demand for cash security under Section 48 of the U.P. VAT Act was valid, as the goods were loaded within U.P. with forged documents, intending to evade tax.2. Status of Delhi-U.P. Border Area of District Ghaziabad as 'No-Man's Land':The court rejected the respondent's claim that the Delhi-U.P. Border area of District Ghaziabad is a 'no-man's land.' It was clarified that District Ghaziabad is within the territory of U.P. as per Article 1(2) of the Constitution of India. The circular dated 31.01.1987, which termed the area as 'no-man's land,' was cancelled by a subsequent circular dated 29.08.2016. Therefore, the area in question is part of District Ghaziabad (U.P.).3. Role and Knowledge of Transporters in Transactions of Sale and Purchase:The court referred to the Supreme Court's observation in A.B.C. (India) Ltd. Vs. State of Assam, stating that transporters are not strangers to the sale or purchase of goods but are directly involved in storing and transporting goods. The court held that the transporters cannot claim ignorance about the consignors and consignees, especially when the transactions involve fictitious names and addresses. The transporters are part of the episode of fictitious transactions aimed at evading tax.4. Applicability of Section 52 versus Section 48 of the U.P. VAT Act, 2008:The court emphasized that fraudulent transportation of goods under the guise of Section 52, which is intended for genuine transit of goods through the state, falls under Section 48 when it is shown to be a sham or designed to evade tax. The court cited the Supreme Court's stance on tax avoidance and fraud, asserting that the legislature does not intend to protect fraudulent transactions. Therefore, the seizure of goods under Section 48 was justified in the present case, where the transportation was fraudulent and aimed at evading tax.Conclusion:The revision was allowed, and the impugned order of the Tribunal was set aside. The court clarified that penalty proceedings should be concluded by the competent authority without being influenced by the observations made in this judgment. The questions of law were answered in favor of the applicants and against the respondents.