CA K. Jitendra Babu

Attachment of Bank Account pending stay petition – Need for instructions to VAT Authorities

1. VAT authorities in various States resort to attachment of bank accounts of dealers in a routine manner, totally ignoring the judicial precedents on the subject and against the principles of natural justice.

2. Many a time, bank accounts are attached while stay petition filed by the dealer is pending before the appellate authority.
Attachment notice is sent to the bank along with notice to the dealer to deposit pending disputed dues, without giving any opportunity to the dealer to represent his case. In some of the cases, attachment notices are sent to the bank simultaneously along with assessment orders, even before expiry of time allowed for filing appeal and stay petitions, in gross violation of the legal provisions.

3. Attachment of bank accounts disrupt the business operations of the dealers and therefore they would have no other option but to move jurisdictional high courts to get the attachment notices vacated, which involves huge expenditure and waste of time which could have been otherwise used for business purposes.

4. High Courts have time and again granted relief to the dealers, by vacating the attachment notices and directing the appellate authorities to dispose the stay petitions on priority. But, pity is VAT departments continue to resort to attachment of bank accounts of dealers, ignoring the directions of the High Courts, on flimsy ground that the relief given by High Court in a particular case does not applicable to other assesses.

5. In the recent case of Automark Industries (I) Ltd. Vs. State of Gujarat, the High Court of Gujarat vide its order Dt.17.10.2015 vacated the attachment notices issued by the department and directed the Dy. Commissioner (Appeals) to decide the stay petitions filed by the dealers within 15 days. In this case the department has served attachment notices on three banks for the same amount of disputed demand. Had there been balance in three banks, the money would have been transferred by banks to Government account resulting in recovery of thrice the amount of disputed demands. The High Court held that “When the petitioner had already preferred an appeal with a stay application, the least that was expected of the fourth respondent was to wait for the outcome of the stay application before resorting to coercive measures as has been done in the present case. Besides, the orders u/s 44 also suffer from the vice of non-application of mind, in as much as, in the notices issued to each of the banks, the fourth respondent has sought to recover the entire demand covered under the notice from each of the banks. As rightly submitted by the counsel for the petitioner, in case there were sufficient funds in each of the bank accounts, the fourth respondent would have succeeded in recovering thrice the amount covered under the demand notice. When drastic powers are conferred on the executive, it is imperative that those powers be exercised with due sense of responsibility and with circumspection by an officer or authority. While the fourth respondent is vested with drastic powers u/s 44, it is expected that such powers are exercised in a reasonable manner and not arbitrarily, as has been done in the present case. In the opinion of this court, the conduct of the fourth respondent in attaching the bank accounts under section 44 in the facts and circumstances of the case was not warranted when the appeals preferred by the petitioner together with the stay applications were pending consideration before the first appellate authority. The impugned orders dated 17.7.2015, 9.6.2015 and 17.7.2015 (Annexure-E collectively to the petition) as well as the impugned orders dated 11.9.2015 Annexure-R-III collectively to the affidavit-in-reply of the respondent are hereby quashed and set aside. The third respondent Deputy Commissioner of Commercial Tax (Appeals) is directed to decide the stay applications filed by the petitioner within a period of fifteen days from the date of receipt of a copy of this order. Rule is made absolute accordingly with no order as to costs.

6. Not long ago, the High Court of Madras vide its judgment dt.05.06.2015 in the case of EDELWEISS COMMODITIES SERVICES LTD Vs COMMERCIAL TAX OFFICER held that “the respondent ought not to have rushed to issue the impugned notice when the revision petition is pending along with the stay application. In view of the same, the reivsional authority is hereby directed to take up the pending revision petition along with the stay application, and dispose of the same on merits and in accordance with law, within a period of four weeks from the date of receipt of a copy of this Order. It is made clear that till such time, the impugned orders shall be kept in abeyance. The writ petition is disposed of accordingly. No costs. Connected miscellaneous petition is closed”.

7. Copies of the judgements are attached herewith, which can be quoted by the trade and industry while representing their case.

8. Even though various High Courts have directed the VAT department in various States not to resort to attachment of bank accounts, pending stay petition before the appellate authorities, the practice of attachment of bank accounts to meet revenue targets is not dispensed with. In some of the cases, before the dealer approaches the High Court, amount is transferred by the banks to the department and thereby leaving the dealer remediless. Therefore, there is need for issue of circulars by the Commissioners of Commercial Taxes of all the States to the assessing authorities under their jurisdiction instructing them to desist with the practice of attaching bank accounts in a very routine manner, when the stay petition is pending before the appellate authorities. The instructions from the Commissioners are expected only on directions by the High Courts. Trade and Industry need to take up at the Commissioners level for necessary instructions to the assessing authority. At the same time, they should pray the High Courts through the advocates at the time of hearing of attachment cases, for issue of directions to the VAT department for executive instructions in general that would be applicable to all dealers, which would help in saving of lot of time and money of dealers and precious time of Courts.

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