2017 (11) TMI 1299 - HC - VAT and Sales Tax

Court overturns installment payment order; emphasizes strict compliance with statutes and denies relief to party with unclean hands.

The Commissioner of Commercial Taxes, The Joint Commissioner (CT), LTU, The Deputy Commissioner (CT) I, LTU Versus M/s. Empee Distilleries Ltd., The Tamil Nadu State Marketing Corporation Ltd.

The Commissioner of Commercial Taxes, The Joint Commissioner (CT), LTU, The Deputy Commissioner (CT) I, LTU Versus M/s. Empee Distilleries Ltd., The Tamil ... Issues Involved:1. Validity of the garnishee order issued by the Deputy Commissioner.2. Compliance with statutory provisions for tax payment.3. Financial constraints and their impact on tax payment.4. Suppression of material facts by the respondent.5. Equitable relief under Article 226 of the Constitution of India.Detailed Analysis:1. Validity of the Garnishee Order:The respondent challenged the garnishee order dated 31.08.2017 issued by the Deputy Commissioner (CT-1), Large Tax Payers Unit, Chennai. The writ Court granted liberty to the respondent to pay the arrears of tax together with applicable interest in five equal monthly installments. The garnishee order was to be kept in abeyance subject to compliance with the installment payments. If the respondent failed to pay any installment, the garnishee order would automatically revive.2. Compliance with Statutory Provisions for Tax Payment:The respondent, a company engaged in the manufacture and sale of Indian Made Foreign Liquor, faced financial constraints due to increased production costs and static selling prices. As per Rule 7 of the Tamilnadu Value Added Tax Rules, 2007, dealers with a turnover above Rs. 200 crores must file returns and pay tax by the 14th of the succeeding month. The respondent failed to remit the tax for March 2017, leading to the issuance of a garnishee order to TASMAC to pay the VAT dues. The respondent sought to quash the garnishee order and requested ten months to pay the arrears.3. Financial Constraints and Their Impact on Tax Payment:The respondent cited financial difficulties due to increased production costs and static selling prices, leading to delays in tax payments. The writ Court permitted the respondent to pay the arrears in installments, considering the financial constraints. However, the appellants contended that the respondent had collected the tax amount from TASMAC but failed to remit it to the government, instead using it for business promotion activities.4. Suppression of Material Facts by the Respondent:The respondent had previously obtained an order to pay tax arrears in installments in W.P.No.10573 of 2017. The writ Court had explicitly stated that no further indulgence would be granted for future arrears. However, the respondent suppressed this fact in the subsequent writ petition (W.P.No.24657 of 2017) and sought similar relief. The appellants argued that the respondent's suppression of material facts and failure to remit collected tax amounted to unjust enrichment.5. Equitable Relief under Article 226 of the Constitution of India:The Court emphasized that equitable relief under Article 226 requires the petitioner to come with clean hands and not suppress material facts. The respondent's conduct of withholding tax collected from TASMAC and seeking repeated indulgence from the Court was deemed improper. The Court noted that statutory provisions do not allow payment of tax in installments, and granting such relief would set a dangerous precedent.Conclusion:The High Court set aside the writ Court's order permitting the respondent to pay tax in installments. The Court held that the respondent's suppression of material facts and failure to remit collected tax to the government in time amounted to unjust enrichment. The Court emphasized that statutory provisions must be strictly followed, and equitable relief cannot be granted to a party with unclean hands. The garnishee order issued by the Deputy Commissioner was upheld, and the writ appeal was allowed.