Case Law Details

Case Name : Ajay Kumar Kaushal Vs State of Maharashtra (Bombay High Court)
Appeal Number : Writ Petition (L) No.22651 of 2023
Date of Judgement/Order : 01/09/2023
Related Assessment Year :

Ajay Kumar Kaushal Vs State of Maharashtra (Bombay High Court)

Introduction: In a recent case before the Bombay High Court, Ajay Kumar Kaushal, a retired Director of M/s Ananta Impex Pvt. Ltd., challenged a notice issued by the Sales Tax Officer, Nodal Division Mumbai-2, under Section 38 of the Maharashtra Value Added Tax Act, 2002 (MVAT Act). The notice, dated 11th April 2022, sought the recovery of dues amounting to Rs.1,68,22,661, arising from assessment orders under the MVAT Act for the financial years 2016-17 and 2017-18.

Factual Background: The petitioner and two other founder directors had resigned from their positions with effect from 20th March 2017. They sold their shares to new incoming directors, who subsequently filed accurate Profit & Loss A/c, Balance Sheets, and returns, including an Audit Report, under MVAT and Income Tax Act. These submissions correctly reflected a NIL turnover of sales and purchases. However, after a few months, the new directors revised the MVAT Act returns, indicating a significant turnover.

The assessment orders were based on these revised returns, confirming the output tax and disallowing Input Tax Credit (ITC). While the petitioner did not challenge the assessment orders, he filed a Writ Petition seeking the quashing of the notice dated 11th April 2022 and the freezing of his Demat accounts.

Bombay High Court’s Observations:

The Bombay High Court, in its interim order, noted the following key points:

1. Former Director and Non-Registered Dealer: The court observed that the impugned notice under Section 38 could not be validly issued to the petitioner, who was a former Director and not a registered dealer to whom such a notice could have been addressed.

2. Prima Facie Opinion: The court held that, prima facie, it did not find a legal basis for the notice and that the authorities had not verified the facts before issuing it.

3. Stay on Notice and Lapsed Attachment: The court, as an interim measure, stayed the impugned notice dated 11th April 2022. Additionally, it declared that the provisional attachment of the Demat Accounts of the petitioner and his family members had lapsed by virtue of the provisions of Subsection (2) of Section 35 of the MVAT Act.

4. Department’s Future Actions: While granting relief to the petitioner, the court clarified that the department was not precluded from taking any lawful action for the recovery of MVAT dues against Ananta Impex Pvt. Ltd. or Mapro Ventures Ltd., as well as their present directors.

Conclusion:

The interim order by the Bombay High Court provides temporary relief to Ajay Kumar Kaushal by staying the impugned notice and declaring the lapsed attachment of Demat accounts. The court’s decision underscores the importance of proper verification of facts before issuing recovery notices under tax laws. The matter is scheduled for further proceedings, and the court has directed the respondents to file a reply affidavit within a week.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

We have heard Mr. Bapat, learned counsel for the Petitioner and Mr. Takke, learned AGP for the Respondent (State).

2. The challenge in this petition is to a notice dated 11th April 2022, issued to the Petitioner by the Sales Tax Officer, (C-813), Nodal Division Mumbai-2, being an intimation under Section 38 of the Maharashtra Value Added Tax Act, 2002 (for short “MVAT Act”).

3. The impugned notice proceeds on the assumption that the Petitioner is a Director of one – Ananta Impex Pvt. Ltd. and/or of Mapro Ventures Ltd., being the registered dealer under the Act and against whom for the period 1st April 2016 to 31st March 2017 and 1st April 2017 to 31st March 2018, there is a MVAT liability of Rs.53,24,740/- and Rs. 1,14,97,921/- respectively totaling to Rs. 1,68,17,661/-. By the impugned notice Petitioner is informed that he has become liable to pay the said amount and that for such recovery, a charge is being created on the assets of the Petitioner as set out in the following terms:-

“This is to bring to your notice that, the provision of Section 38 of the MVAT Act 2002 which state that during the pendency of any proceedings under this Act, the total amount of which exceed Rs. 16817661/- creates a charge on, or parts with the possession by way of sale, mortgage, gift, exchange or any other mode or transfer whatsoever of any of the assets of his business valued at Rs. 16817661/- or more in favors of any other person with intention of defrauding the revenue, such charges or transfer shall be void as against any claim in respect of any tax or any other sum payable by the dealer as a result of the completion of such proceedings.

Please note that in this section “assets” means land, building, machinery, plant, shares, securities and fixed deposits in bank, to the extent to which any of the assets aforesaid does not from part of the stock-in-trade of the business of the assessee.”

4. The second challenge as raised by the Petitioner is to the effect that in pursuance of a notice dated 9th June 2021 of the Sales Tax Officer, the Demat Accounts of the Petitioner and his family members with the ICICI Bank are freezed. The ICICI Bank has informed the Petitioner and his family members that in pursuance of communication issued by the Sales Tax Officer addressed to the officer incharge of National Security Depository Limited (for short “NSDL”), the demat accounts of the Petitioner as also of his relatives, Tripta Ajay Kaushal, Saurabh Kaushal and Ruchi Chand Seth being the following demat account numbers stands freezed : –

Sr. No.

Name Demat Account No.
1. Ajay Kumar Kaushal (Petitioner) IN300183-10725009,

IN300 183-10256243

2. Tripta Ajay Kaushal IN300183-10256251
3. Saurabh Kaushal IN300183-10256278
4. Ruchi Chand Seth IN300183-10256260

5. Bapat, learned counsel for the Petitioner submits that in so far as, the first period in question, in respect of which recovery is stated to be initiated against the dealer, the Petitioner had resigned to be a Director of Ananta Impex Pvt. Ltd. on 20th March 2017. It is his submission that for the second period, for which the recovery of Rs.1,14,97,921/- is initiated, admittedly such period [1st April 2017 to 31st March 2018], is post his resignation. It is, therefore, submitted by Mr. Bapat that in so far as the first period is concerned, an amount of Rs.53,24,740/- sought to be recovered from the dealer pertaining to the period from 1st April 2016 to 31st March 2017 which is the period when the Petitioner had continued till 20th March 2017 till he resigned as a Director of Ananta Impex Pvt. Ltd.

6. It is Mr. Bapat’s submission that the returns in regard to both the said periods were filed post retirement of the Petitioner when the Petitioner was not the Director. Mr. Bapat has also drawn our attention to the resignation letter dated 20th March 2017, which was accepted by the Ananta Impex Pvt. Ltd. and same is annexed at page 114 of the paper book.

7. Mr. Bapat has also drawn our attention to the original return dated 2nd May 2017, which was for the period 1st January 2017 to 31st March 2017 to submit that this return which has covered the period from 1st January 2017 to 31st March 2017, during which the Petitioner was a Director of the said company i.e. Ananta Impex Pvt. Ltd., the turnover shown in the return was NIL. It is submitted that, however, when revised return was filed on 2nd September 2017, the same was filed in the changed name of the company “Mapro Ventures Ltd.” Mr. Bapat’s submission is that the name of the company was also changed post retirement of the Petitioner showing the turnover of Rs.4,17,67,877.00/- which is annexed at Exhibit ‘J’. It is his submission that the Petitioner having resigned had nothing to do with all the events which had taken place post his resignation including filing of the revised returns. In supporting such submissions our attention is also drawn to the assessment order dated 25th February 2021, for the period 1st April 2016 upto 31st March 2017 in respect of which demand of Rs.53,24,740/- which is an ex-parte order is raised. Our attention is also drawn to the demand notice issued by the designated officer dated 25th February 2021, whereby such amount was sought to be recovered from Ananta Impex Pvt. Ltd.

8. By drawing our attention to the documents as discussed above, it is Mr. Bapat’s submission that the impugned notice, namely of issuing an intimation under Section 38 of the MVAT Act against the Petitioner was totally untenable, as the same could have been issued only against the “dealer” as the provisions would purport. He submits that in no manner, it could have been issued against the Petitioner. The next grievance of Mr. Bapat is to the effect that the freezing of the demat accounts of the Petitioner and his family members on the basis of communication dated 7th June 2022 was also totally illegal. According to Mr. Bapat, in the circumstances of the present case, such action has no basis in law in the facts.

9. On the other hand, Mr. Takke, learned AGP would submit that admittedly there is a MVAT liability on the “dealer” for the period in question namely against ‘Ananta Impex Pvt. Ltd.’ and later appeared to be renamed as ‘Mapro Ventures Ltd.’ of a total amount of Rs.1,68,17,661/- and accordingly steps have been taken by the Respondents by issuing the impugned intimation under Section 38 of the MVAT Act, as also by the letter dated 7th June 2021 addressed to the It is submitted that such action was justified in law even though the Petitioner had retired on 20th March 2017. He has accordingly prayed that no interim relief be granted to the Petitioner.

10. On the above rival contentions, we have heard learned counsel for the parties. We have also perused the record.

11. At the outset, we would address the issue in regard to the action of the Respondents in addressing the impugned letter dated 7th June 2022 to the officer in-charge of the NSDL. We have perused the said communication as shown to us by Mr. Takke from the file of the department which was produced before us. Such communication is issued invoking the provisions of Section 35 of the MVAT Act. Section 35 of the MVAT Act pertains to provisional attachment to protect revenue in certain cases. The same was issued more than a year back, hence, such provisional attachment stands automatically revoked by operation of law by virtue of the provisions of sub-section (2) of Section 35 of the MVAT Act, which mandates that every provisional attachment shall cease to have an effect after the expiry of one year from the date of the service of an order issued under Sub-section (1). We are not shown any order, whereby the proviso below sub-section (1) was invoked and/or for any reasons to be recorded in writing, the period of one year as contained in the order was in any manner and as permissible in law was extended. Thus, in our opinion, by operation of law, the provisional attachment of all demat accounts has come to an end.

12. In so far as the impugned notice issued under Section 38 is concerned, after having noted the provisions of Section 38, in our prima-facie opinion, we do not find as to how such notice can be issued to the Petitioner, who was a former Director and who himself is not a registered dealer to whom such a notice could have been addressed. Section 38 reads thus:-

“38. Transfer to defraud revenue void:-

(1) Where, during the pendency of any proceedings under this Act or after the completion thereof, 1[the Commissioner has reason to believe that the liability of the dealer to pay tax or any other sum payable under this Act, is likely to be in excess of rupees twenty-five thousand and the dealer] creates a charge on, or parts with the possession by any mode of transfer whatsoever, including sale, mortgage, gift or exchange of any of the assets of his business valued at rupees ten thousand or more in favour of any other person with intent to defraud revenue, then, notwithstanding anything contained in any Act or contract to the contrary such charge or transfer shall be void as against any claim in respect of any tax or other sum payable by the dealer as a result of the completion of such proceedings or otherwise:

Provided that, such charge or transfer shall not be void if made for adequate consideration and without notice of the pendency of the proceeding or of the liability to pay any sum on completion of any proceedings.

(2) Where any person liable to pay tax or other sum payable under this Act has, during the pendency of any proceeding under this Act or after completion thereof, created a charge on or parted with possession by any mode of transfer including sale, mortgage, gift or exchange of any of his assets in favour of any other person and the Commissioner is of the opinion that such charge or transfer becomes void under sub-section (1), then the Commissioner shall issue a notice and hold enquiry and decide whether the charge or transfer became void under sub-section (1).

(3) If, after holding such enquiry the Commissioner is satisfied that the charge or transfer is void, he shall make an order declaring such charge or transfer to be void for the purposes of this Act.

Explanation.- In this section, “assets” includes land, building, machinery, plant, shares, securities and fixed deposits in banks, to the extent to which any of the assets aforesaid does not form part of the stock-in-trade of the business of the assessee.”

13. Takke had made some attempt to justify the department’s action by inviting our attention to Section 18 of the Act, but certainly on a perusal of the impugned notice dated 11th February 2022, we find that it is not a step being taken by the Respondents by invoking Section 18.

14. Prima-facie, we are of the clear opinion that the Respondents have not verified the facts before issuance of such notice as they have proceeded under an impression that the Petitioner has continued to be a Director of Ananta Impex Pvt. Ltd. The approach appears to be that in some manner, the Petitioner be connected in regard to the recovery in question, oblivious to the facts on record, which the Petitioner has pointed out and which we have discussed hereinabove.

15. In this view of the matter, we are of the clear opinion that as and by way of interim order, interest of justice would require us to stay the impugned notice dated 11th April 2022, issued by the Respondents under Section 38 of the MVAT Act against the Petitioner. We also order that the provisional attachment of the Demat Accounts of the Petitioner and his family members has lapsed by virtue of the provisions of Sub­section (2) of Section 35 of the MVAT Act.

16. Ordered accordingly.

17. Respondents are directed to file reply affidavit to this petition, which be filed within a period of one week from today, a copy of the same be served on the Petitioner.

18. List the matter on 15th September 2023, High on Board.

19. It is clarified that the department is not precluded from taking any action in accordance with law for recovery of the MVAT dues for the period in question against the entity Ananta Impex Pvt. Ltd. or Mapro Ventures Ltd. as also from its present Directors.

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