Detention of goods cannot be used to impose penalty; amounts collected for release must be treated as tax under the Act.

Under the Tamil Nadu Value Added Tax Act, a detention officer acting under the goods detention provisions may require payment of tax or security for release of goods, but has no statutory authority to levy penalty. Section 71(3), being a penal provision for offences and consequential proceedings, could not be invoked in the course of detention proceedings. Amounts collected on release of detained goods must therefore be treated in accordance with the detention power exercised and not recharacterised as penalty. The amount paid for release was directed to be treated as tax, while the assessee was left free to pursue any adjustment remedy available under the Act.

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Issues: Whether the amount collected by the detention officer on release of the goods could be treated as penalty or compounding fee, or was liable to be treated only as tax under the Tamil Nadu Value Added Tax Act, 2006.

Analysis: The power exercised was under Section 67(3)(b) of the Tamil Nadu Value Added Tax Act, 2006, which authorises detention of goods to prevent evasion of tax and enables the officer to direct payment of tax or furnishing of security. The provision does not confer power on the detention officer to levy penalty. Section 71(3) of the Act is a penal provision dealing with offences and consequences arising in appropriate proceedings, and could not be invoked by the detention officer while acting under the detention provisions. On the facts, the officer could have required payment of tax and released the goods, leaving the assessee to pursue other remedies under the Act if adjustment was claimed.

Conclusion: The remittance of Rs. 2,29,680/- could not be treated as penalty and was directed to be treated as tax.

Final Conclusion: The writ petition succeeded to the extent that the respondents were required to treat the amount paid on release of the goods as tax, while leaving the assessee free to pursue remedies under the Act regarding any adjustment claim.

Ratio Decidendi: A detention officer exercising powers under the goods detention provisions can demand tax or security for release of goods, but cannot convert the amount collected into penalty absent statutory authority.

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