2019 (4) TMI 1813 - HC - VAT and Sales Tax

Improper Use of Tax Recovery Provision; Cash Credit Accounts Not Attachable

BHOLA RAM STEEL PVT. LTD., DIGICAN SOLUTION AND DAYA ENGINEERING WORKS PVT. LTD. Versus STATE OF BIHAR AND OTHERS

The court held that the Assessing Authority's use of Section 47 of the Bihar Value Added Tax Act for recovery of disputed tax amounts while statutory ... Validity of notice issued by the Assessing authority in purported exercise of powers vested under Section 47 of the Bihar Value Added Tax Act, 2005 - direction to Bank concerned to remit the amount mentioned in the notice in the Government treasury - HELD THAT:- The scheme of recovery of tax provided under Section 39 of 'the Act' is a normal course available to a prescribed authority for recovery of tax, interest and penalty which remains unpaid by the dealer. In addition to the normal course of recovery, the legislature has vested the prescribed authority with powers to resort to special mode of recovery of tax and other liabilities under Section 47 of 'the Act' in which case, a notice is issued to any person from whom any money is due or may become due to be paid to the dealer and/ or to any other person who holds or may hold any money for or on account of the dealer to pay into the Government treasury, the amount mentioned in the notice within the time specified in the notice. Where the legislature provides for a scheme of recovery of tax, interest and penalty under Section 39 of 'the Act' and alongside vests the prescribed authority a power to resort to a special mode of recovery in the manner provided under Section 47 of 'the Act' then unless there are reasons available with the prescribed authority for resorting to a special mode of recovery under Section 47 of 'the Act', it cannot be resorted to in a routine manner merely because it conveniences a speedy recovery during the closure stages of a financial year - The creatures under a statute are bound by the statutory prescriptions and in case a statute while providing for the normal course of recovery, also lays down the provision for special mode of recovery, then, unless, there are reasons reserved with the prescribed authority for resorting to the special mode of recovery, it has not to be resorted to in a routine manner. It becomes only a completion of formality to quash the impugned attachment notices issued by the prescribed authority under Section 47 of 'the Act' and accordingly the notices impugned are set aside. Petition allowed. Issues Involved:1. Legitimacy of the Assessing Authority's use of Section 47 of the Bihar Value Added Tax Act, 2005 for recovery of disputed tax amounts while statutory appeals are pending.2. Validity of attaching a Cash Credit Account under Section 47 of the Bihar Value Added Tax Act, 2005.Detailed Analysis:Issue 1: Legitimacy of the Assessing Authority's use of Section 47 of the Act for recovery of disputed tax amounts while statutory appeals are pending.The court noted that in each case, the petitioners had deposited the admitted tax amounts and filed statutory appeals against the disputed amounts, which were pending. Despite this, the Assessing Authorities initiated recovery under Section 47 of the Act, bypassing the normal recovery process under Section 39. The court observed that Section 39 outlines the standard recovery process, while Section 47 provides a special mode of recovery, which should only be used in exceptional circumstances. The court stated, 'unless there are reasons available with the prescribed authority for resorting to a special mode of recovery under Section 47 of 'the Act', it cannot be resorted to in a routine manner merely because it conveniences a speedy recovery during the closure stages of a financial year.' The court decided to keep this issue open for discussion in appropriate matters, focusing instead on the attachment of Cash Credit Accounts.Issue 2: Validity of attaching a Cash Credit Account under Section 47 of the Act.The court examined whether the Assessing Authority could attach a Cash Credit Account under Section 47 of the Act. Section 47 allows the prescribed authority to issue a notice to any person or entity holding money for a dealer to remit the amount to the government treasury. The court emphasized that this provision applies only to money physically held by the person or entity on behalf of the dealer. The court noted that a Cash Credit Account is essentially a loan facility provided by banks, not a deposit account with available funds. The court cited several judicial pronouncements, including the Madras High Court's decision in K.M. Adam vs. Income Tax Officer and the Gujarat High Court's decision in Kaneria Granito Ltd. vs. Assistant Commissioner of Income Tax, which clarified that Cash Credit Accounts are not subject to attachment for tax recovery as they do not represent actual funds held by the bank for the dealer. The court concluded that the Assessing Authorities' actions in attaching the Cash Credit Accounts were futile and beyond the scope of Section 47.The court quashed the impugned notices issued under Section 47 of the Act, directing the banks to remit the specified amounts to the government treasury. The court highlighted the mechanical obedience by the banks in attaching the Cash Credit Accounts without verifying the nature of the accounts and the prescribed authority's lack of information regarding the account types. The court stated, 'the fault does not lie with the prescribed authority because... the prescribed authority has no information as to the nature of account held by the Bank whose details have been provided by the dealer.'Conclusion:The court quashed the impugned notices and allowed the writ petitions, emphasizing that the special mode of recovery under Section 47 should not be used routinely and that Cash Credit Accounts, being loan facilities, cannot be attached for tax recovery. The court's decision underscores the importance of adhering to statutory provisions and ensuring that recovery actions are justified and legally sound.