Garnishee recovery cannot reach a cargo station that owed nothing to the dealer; Form U notice and attachment failed.

A Container Freight Station that had lawfully sold cargo in its custody after notice and permission, and had applied the proceeds only towards its own outstanding charges, could not be treated as a garnishee for the dealer's sales tax arrears. The Madras HC held that no amount was payable by the station to the defaulting dealer, so recovery proceedings under the Tamil Nadu Value Added Tax Act and the Form U notice were without jurisdiction. Because the bank-account attachment lacked legal basis, the amount recovered was ordered to be refunded, while the revenue was left free to proceed against the defaulting dealer in accordance with law.

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Issues: (i) Whether the petitioner, being a Container Freight Station licensed by the Customs Department, could be treated as a garnishee for the third respondent's sales tax dues so as to sustain the Form U notice issued under the Tamil Nadu Value Added Tax Rules, 2007; (ii) Whether the amount recovered from the petitioner by attachment of its bank account was liable to be refunded.

Issue (i): Whether the petitioner, being a Container Freight Station licensed by the Customs Department, could be treated as a garnishee for the third respondent's sales tax dues so as to sustain the Form U notice issued under the Tamil Nadu Value Added Tax Rules, 2007.

Analysis: The petitioner had lawfully sold the cargo lying in its custody after issuing notices and obtaining the requisite permission, and appropriated the sale proceeds only towards its own outstanding charges. The balance of the third respondent's liability remained recoverable from the third respondent, but no amount was payable by the petitioner to the third respondent. In these circumstances, the petitioner could not be characterised as a garnishee, and the revenue could not invoke Section 45(1)(b) of the Tamil Nadu Value Added Tax Act, 2006 against it.

Conclusion: The Form U notice was without jurisdiction and could not be sustained against the petitioner.

Issue (ii): Whether the amount recovered from the petitioner by attachment of its bank account was liable to be refunded.

Analysis: Since the impugned notice itself was unsustainable and the petitioner was not liable to make any payment towards the third respondent's tax dues, the attachment and recovery from the petitioner's bank account had no legal basis.

Conclusion: The amount recovered from the petitioner was directed to be refunded.

Final Conclusion: The writ petition succeeded, the impugned recovery action was set aside, and the revenue was left free to proceed against the defaulting dealer in accordance with law.

Ratio Decidendi: A person who is not indebted to the defaulting dealer and has recovered only its own lawful charges from the sale of goods in its custody cannot be proceeded against as a garnishee under the sales tax recovery provisions.

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