Detention-based tax demand fails when registration claim is not verified and release conditions conflict with the governing circular.
A detention-based demand for tax and penalty was found unsustainable where the authority proceeded on the assumption that the consignee was unregistered without first verifying the stated TNVAT registration application and acknowledgment. The insistence that the goods would be released only on collection of tax and penalty was also contrary to Circular No. 33/2014 dated 17.07.2014. On that basis, the compounding notice was held unsustainable and the detention ground based on tax and penalty could not be maintained. The authority was left free to verify the consignee's registration claim and, if correct, release the consignment.
Issues: Whether the compounding notice and the detention-based demand for tax and penalty were sustainable when the consignee had allegedly applied for registration and the detention ground ran contrary to the applicable circular.
Analysis: The detention notice rested essentially on the assumption that the consignee was an unregistered dealer. The petitioner had replied that the consignee had already applied for TNVAT registration and had enclosed the acknowledgment, but the authority had not verified that claim before issuing the compounding notice. The further stipulation that the goods would be released only on collection of tax and penalty was found to be contrary to Circular No. 33/2014 dated 17.07.2014 issued by the Principal Secretary/Commissioner of Commercial Taxes. On that basis, the detention ground based on a demand for tax and penalty was held to be illegal and the compounding notice was found to be unsustainable.
Conclusion: The challenge succeeded and the compounding notice was quashed. The demand for tax and penalty could not be sustained on the footing adopted in the detention notice.
Final Conclusion: The writ petition was allowed, while leaving it open to the authority to verify the consignee's registration application and to release the consignment if the claim was found correct.
Ratio Decidendi: A detention-based demand for tax and penalty cannot be sustained where the authority fails to verify a stated registration application and the detention condition conflicts with the governing circular.
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