2022 (5) TMI 187 - HC - VAT and Sales Tax

Court to Address Liability Recovery from Family Members in Fraud Scheme

Rohan Sunil Shah & 3 Other (s) Versus The State of Gujarat & 1 Other (s)

The court has scheduled the matter for final disposal to examine the interpretation and application of Section 44 of the Act in recovering liabilities ... Attachment of personal assets - non-discharge of liability by two proprietary firms and the two partnership firms - Availment of ITC illegally - large scale fraud - whether the personal assets of the writ applicants can be put to auction and the amount be recovered towards the discharge of the liability of the two proprietary firms and the two partnership firms? - HELD THAT:- Section 44 of the Act provides for a special mode of recovery. Section 44 starts with a non-obstante clause. Sub section (a) to section 44 is more in the nature of a garnishee provision. Sub section (a) provides that any person from whom any amount of money is due or may become due to a dealer then such money can be appropriated towards the discharge of the liability of the dealer. It is not the case of the department that the case falls within sub section (a). What is sought to be relied upon is sub section (b). Sub section (b) provides that any person who holds or may subsequently hold any money for or on account of such dealer then that money can be appropriated towards the discharge of the liability of the dealer. The writ applicant no.3 namely Ruchita Mukesh Kapadia got married to the writ applicant no. 1 – Rohan Sunil Shah in 2014. Ruchita appears to be a native resident of Mumbai before her marriage. The department has gone to the extent of attaching her bank account running in the joint name of her father at Mumbai. It is difficult to understand, how her bank account, running jointly with the name with her father, could have been attached under Section 44 of the Act. Post this matter for final disposal on 23.03.2022 on top of the Board. Issues:1. Recovery of amount from family members for fraud committed by a dealer.2. Interpretation of Section 44 of the Act for recovery of liabilities.3. Attachment of personal assets of family members under Section 44.4. Consideration of joint bank accounts for attachment under Section 44.Analysis:1. The case involves a large-scale fraud allegedly orchestrated by Sunil Shah, involving bogus bank accounts and illegal refunds. The question before the court is whether the personal assets of the family members of the accused, including the writ applicants, can be attached to recover the liabilities of the firms involved in the fraud.2. Section 44 of the Act provides for a special mode of recovery, starting with a non-obstante clause. Subsection (a) deals with the appropriation of money due to a dealer, while subsection (b) allows for the appropriation of money held for or on account of the dealer. The department seeks to rely on subsection (b) for the recovery in this case.3. The court seeks clarification on how the family members of the accused could be considered as holding money for or on account of the dealer, Sunil Shah. Despite arguments that Sunil Shah may not have been a registered dealer under the Act, the court is interested in understanding the connection between the accused family members and the dealer for the purpose of recovery.4. Specific attention is drawn to the case of Ruchita Mukesh Kapadia, who got married to one of the accused. The department has attached her bank account jointly held with her father in Mumbai. The court questions the rationale behind attaching her joint bank account under Section 44 of the Act, emphasizing the need for a clear explanation in this regard.In conclusion, the court schedules the matter for final disposal to further examine the issues raised, particularly regarding the interpretation and application of Section 44 of the Act in the context of recovering liabilities from family members implicated in the fraud scheme.