Section 44 Of GVAT Act Akin To Garnishee Order; Requires Debtor-Creditor Relationship: Gujarat High Court

Background and Contentions

The Applicant herein was a company registered under the provisions of the Gujarat Value Added Tax 2003 and had incurred liability for tax under the GVAT Act worth INR 56,05,146 in 2013. The Company therefore preferred an application under the Vera Samadhan Yojana 2019 for waiving off this liability. The Applicants contested before the High Court that the Respondent authorities had raised a fresh levy of INR 1,68,02,573 along with attachment of personal movable properties of the director and the brother of the director under Section 44 of the GVAT Act.

The Applicants' primary contentions were that the amount of INR 56,05,146 was already waived off and that Section 44 had no application in the current factual matrix. Per contra, the Respondent averred that the Applicants were liable to pay tax amounting to INR 1,68,02,573 minus INR 56,05,160 which amounted to INR 1,12,10,280 vide a government resolution of 2019. Further, the Applicant was liable to pay the tax amount in six different installments but the same was not done even though the Applicant had showed willingness to pay the outstanding amount vide a reply in 2021. Owing to this failure, the Department issued a fresh notice for attachment of the property owned by the Applicant since the company owned no separate property.

Judgement

The Bench observed that Section 44 of the GVAT Act was pari materia to Section 226(3) of the Income Tax Act 1961 which was modelled upon the provisions of the Australian Act, Section 218 which has been discussed in the following manner:

"The purpose of Section 218 is to enable the Commissioner to collect unpaid taxes from persons owing money to the tax-payer without having to proceed to judgment and issue execution."

Justice Pardiwala concluded that Section 44 of the Act provided a machinery for the VAT department to collect tax arrears from the debtors of the assesses and it was akin to the garnishee proceedings under the CPC. Per the Bench, the substance of the provision was similar to the relationship of a debtor and creditor, between the garnishee and the assessee. However, in the instant case, the Company and the Applicants did not have any debtor-creditor relationship while Section 44 could be exercised.

The Bench also relied on Commercial Corpn. Ltd. vs. Syed Mohiuddin Khadir (1975) 2 SCC 624 wherein the Supreme Court had held:

"To be capable of attachment, there must be in existence at the date when the attachment becomes operative something which the law recognises as a debt. So long as there is a debt in existence, it is not necessary that it should be immediately payable. Where any existing debt is payable by future instalments, the garnishee order may be made to become operative as and when each instalment becomes due."

Stating that the primary debate was determining the meaning of the word "due" in "any person from whom money is due or may become due to the assessee", the Bench referred to the concise Oxford Dictionary to interpret the term. Further, it was pointed out that the issuance of a notice in writing to the person from whom the money is due and may become due to the Assessee is sine qua non for the Assession Officer. any person from whom money is due or may become due to the assessee.The person to whom the notice is sent has the right to object to the notice by a statement that the sum demanded was not due to the assessee. In the instant case, no such notice was sent to the Applicants. Additionally, the entire approach of the Department was incorrect since it had no right to recover anything from the company, or the Director of the company or attach his personal properties or attach his brother's properties. Section 44 was being misused by the Department and the correct interpretation of Section 44 was ignored.

Accordingly, the impugned notice was set aside.

Case Title: SHRI SHAKTI COTTON PVT. LTD. Versus THE COMMERCIAL TAX OFFICER

Case No.: C/SCA/12788/2021