Customs auction proceeds exhausted by statutory dues cannot be recovered from the custodian through bank attachment.

A customs auction sale was conducted after notice, and the proceeds were applied in the statutory order toward auction expenses, customs duty, storage and handling charges, leaving no surplus. On those facts, the court held that no legally recoverable amount remained against the petitioner, so recovery by attachment of its bank account under the Tamil Nadu VAT law was unsustainable. The garnishee-style proceedings were set aside, the impugned notices were quashed, and the amount collected was directed to be refunded, while the revenue was left free to proceed against the original dealer in accordance with law.

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Issues: Whether the tax authority could invoke Section 45(1)(b) of the Tamil Nadu Value Added Tax Act against the petitioner by attaching its bank account and recovering the auction amount, when the petitioner had sold the cargo after notice and the sale proceeds stood exhausted by statutory expenses and customs-related dues under Section 150 of the Customs Act, 1962.

Analysis: The cargo belonged to the second respondent and was sold by the petitioner only after issuing notices under Section 48 of the Customs Act, 1962 and after intimating the customs authorities. The sale proceeds were required to be applied in the order prescribed by Section 150 of the Customs Act, 1962, namely towards sale expenses, freight and other charges, duty, custody charges, and amounts due under customs law. The Court found that, after adjusting the auction expenses, customs duty, VAT on sale, storage and handling charges, the petitioner was left with no balance from the auction proceeds and in fact had incurred an excess amount. In that situation, the respondent had no legally recoverable amount from the petitioner and could not resort to garnishee-style recovery by attaching the petitioner's bank account.

Conclusion: The invocation of Section 45(1)(b) of the Tamil Nadu Value Added Tax Act, 2006 against the petitioner was not sustainable, and the attachment and recovery proceedings were set aside.

Final Conclusion: The writ petition succeeded, the impugned notices were quashed, and the amount recovered from the petitioner was directed to be refunded, leaving the revenue free to proceed against the original dealer in accordance with law.

Ratio Decidendi: Where sale proceeds from a lawful customs auction stand fully absorbed by statutory expenses and charges, with no surplus remaining, the tax authority cannot invoke recovery against the custodian of the goods under a garnishee notice for the dealer's arrears.

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