By TIOL News Service

AHMEDABAD, MAY 30, 2018: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether Tax Department should restrain themselves from coercively collecting cheques from the dealers of the amounts of tax which have not crystallized. YES IS THE VERDICT.

Facts of the case:

The assessee dealer is engaged in business of engineering and electronic goods. During the relevant year, the assessee's premises were subjected to search, wherein the Commercial tax Department found large scale tax evasion. Therefore, pursuant to such action, the CTO passed the order for attachment of assessee's residential property valued at Rs.32 Lakhs approximately and stock valued at Rs.2.51 crores approximately. The Department also collected cheques worth Rs.45,98,352/- along with a statement purportedly given by the assessee voluntarily on the same day indicating that it was aware about the tax liability and was prepared to deposit the principal amount of tax but, not the penalty. However, the assessee stated that he had volunteered to deposit such amount to avoid attachment of his stock.

High Court held that,

++ the materials on record would suggest that when such cheques were deposited, the assessee had instructed the bankers for stop payment. Resultantly, the cheques were never encashed. The question of forcibly collecting cheques from dealers at the time of search operation has occupied the minds of this Court as well as other Courts on multiple occasions. The Courts have deprecated the practice of coercive recoveries, without any order of assessment or without initiation of assessment proceedings. There may be a given situation where, in order to avoid the unpleasant consequence of stock attachment, the dealer may have volunteered to deposit some amount. The Revenue authorities have ample powers under the VAT Act to provide for provisional attachment, even pending attachment, in order to protect the Government revenue. However, the Courts have always deprecated the action of coercively collecting cheques of the amounts of tax which have not crystallized;

++ in the present case, as noted in his statement, the assessee had indicated that he was prepared to give the cheques to avoid attachment of the stock. The Department, nevertheless, attached the stock also. Even if voluntarily made, the offer of assessee to pay the amount of possible tax was conditional and the condition being that his stock should not be attached. The Department cannot retain the cheques, seek realization thereof while still attaching the assessee's stock. Under these circumstances, such action is quashed and the Department shall return the cheques of assessee.

(See 2018-TIOL-1004-HC-AHM-VAT)