2023 (12) TMI 1294 - HC - GST

Tax Authority Wins Partial Victory: Garnishee Order Limited to Specific Contractor's Payments with Strict Compliance Mandate

HC partially upheld tax authority's garnishee order against contractor. Court modified order to restrict garnishment to one specific contractor, allowing ... Principles of Equity - Challenge to garnishee order issued by the Department of Sales Tax - HELD THAT:- If the case of the petitioner is appreciated on the premise of equity, the action of the respondents can certainly be inequitable. But the fact remain that the respondents are also constrained to act in consonance with the mandate of the statute i.e., tax laws and hence the impact in following the course of law. Hence, the respondents also cannot be entirely faulted for the present state. But it is an admitted fact that the respondents and other arms of the Government seem to be due to the petitioner through the main contractor. The fact that the contractors have executed the Government work and the fact that the petitioner has executed some of those works as a sub-contractor is also an admitted fact. The instant set of facts are required to be adjudicated equitably and without transgressing the four corners of GST Act. It is deemed appropriate to modify the garnishee order passed by the respondents by restricting it, in so far as it relates to the amounts in the case of the garnishee namely M/s. Stanch Projects Private Limited. In so far as garnishee order passed by the respondents in respect of the other three garnishees, the same are set aside. Petition disposed off. Issues involved: The issues involved in the judgment are related to a garnishee order issued by the Department of Sales Tax, assessment challenge, due amounts to the petitioner from contractors, inequitable actions by authorities, adherence to tax laws, modification of garnishee order, and deposit of tax dues upon receiving contractor payments.Garnishee Order and Assessment Challenge: The petitioner was aggrieved by the garnishee order issued by the Department of Sales Tax. The petitioner, although initially sought relief against the assessment order as well, later restricted the petition to challenge the garnishee order only. The learned senior counsel for the petitioner acknowledged that the petitioner does not intend to contest the assessment but focuses on relief against the garnishee order.Due Amounts from Contractors and Authorities' Actions: The petitioner had expended money and executed projects for four contractors engaged by the State for infrastructure projects. It was highlighted that significant sums were due to the petitioner from these contractors. Despite the substantial amount due from one contractor, the authorities proceeded to issue garnishee orders against all contractors, hindering the petitioner's chances of receiving payments. The authorities' actions were questioned as being hasty and detrimental to the petitioner's interests, especially considering the state's dues to the petitioner's employers.Equity and Adherence to Tax Laws: The court acknowledged the peculiar and unprecedented nature of the case. While the actions of the authorities might seem inequitable when viewed from an equity perspective, they were deemed to be in line with tax laws. The court recognized the constraints faced by the authorities in following the statutory mandate of tax laws, even though the state and other government arms were also indebted to the petitioner. The need for an equitable adjudication within the framework of the GST Act was emphasized.Modification of Garnishee Order and Deposit of Tax Dues: After thoughtful consideration, the court decided to modify the garnishee order by restricting it to the amounts related to one specific contractor, while setting aside the order concerning the other three contractors. The judgment allowed the authorities to seek payment of tax dues from the petitioner upon receiving dues from any contractor, with a directive for the petitioner to deposit tax dues within two weeks of receiving payments. The court ordered the withdrawal of the garnishee notice against a particular contractor upon the petitioner's compliance with the tax deposit requirement.Conclusion: The Writ Petition was disposed of with the aforementioned directions, and no costs were imposed. The judgment clarified that the order did not prevent the authorities from seeking tax dues in the future if the petitioner received payments from the contractors. Any pending miscellaneous petitions were also directed to be closed as a consequence of the judgment.