Provisional attachment and recovered deposits under VAT law may be retained pending assessment, but cannot be diverted to third parties.

During pending assessment, the Gujarat VAT Act permits provisional attachment of a dealer's property to safeguard revenue, including where the materials suggest possible bogus billing activity. The Court therefore sustained the protective attachment in substance, while modifying it by allowing release of stock subject to minimum stock maintenance and an undertaking; attachment of immovable property remained in place. It further held that amounts recovered from the dealer could not be credited to other dealers' accounts, but had to remain as the dealer's deposit and be adjustable only against the dealer's eventual tax, interest or penalty liability on completion of assessment.

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Issues: (i) whether the attachment of the petitioner's stock and immovable properties could be sustained during the pendency of assessment, and (ii) whether the sum of Rs. 17 lakhs recovered from the petitioner could be credited to the account of other dealers or was required to remain as the petitioner's deposit for adjustment against the petitioner's final liability.

Issue (i): whether the attachment of the petitioner's stock and immovable properties could be sustained during the pendency of assessment

Analysis: Section 45(1) of the Gujarat Value Added Tax Act, 2003 confers wide power to attach a dealer's properties to safeguard revenue. On the materials placed before the Court, the authorities had a prima facie basis to retain protective attachment, since the assessment was still incomplete and the transactions were stated to indicate possible bogus billing activity. At the same time, further recovery of possible tax or penalty before completion of assessment was not warranted.

Conclusion: The attachment was not quashed, but it was modified by permitting release of the stock subject to maintenance of minimum stock and filing of an undertaking, while the attachment of immovable properties was maintained.

Issue (ii): whether the sum of Rs. 17 lakhs recovered from the petitioner could be credited to the account of other dealers or was required to remain as the petitioner's deposit for adjustment against the petitioner's final liability

Analysis: Amounts recovered from the petitioner could not be treated as payment on behalf of alleged defaulting dealers. The sum already recovered had to be retained in the petitioner's account as a deposit and could be adjusted only against the petitioner's eventual tax, interest, or penalty liability upon completion of assessment. Any credit given to another person or entity was required to be reversed.

Conclusion: The amount of Rs. 17 lakhs was directed to remain as the petitioner's deposit and could not be credited to any other dealer.

Final Conclusion: The petition succeeded only in part by securing modification of the attachment order and protection of the petitioner's recovered deposit, while the protective attachment itself was substantially preserved.

Ratio Decidendi: Pending assessment, the revenue may use provisional attachment to safeguard its interest, but sums recovered from a dealer must remain available only against that dealer's eventual liability and cannot be diverted to third parties.

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