Gujarat HC dubs tax recovery from pvt firm as extortion

The Gujarat High Court has termed the action of state tax authorities to collect revenue from a private firm as "nothing short of extortion", and ordered the return of Rs 1.49 crore recovered from it along with an interest of six per cent.

In an order passed on a petition moved by Micromax Informatics Limited against alleged "coercive action" taken by authorities to recover Rs 1.49 crore as tax, a division bench of Justices J B Pardiwala and A-C Rao called their action as "high-handed and arbitrary".

"The action on part of authorities concerned could be termed as absolutely high-handed and arbitrary," the high court said in its order on August 7.

"This is not the way and the manner to recover the tax. The department should not get so desperate for revenue. The revenue is to be collected in accordance with the law. The action at the end of the authorities in the present case is nothing short of extortion," the court said.

After an audit assessment under provisions of the Gujarat Value Added Tax Act, Micromax was on October 30, 2018, directed by the deputy commissioner of state tax in Ahmedabad to pay Rs 1,49,27,723 as tax.

Following this, the company moved an appeal under Section 73 of the Act to a stay against the assessment order.

On January 25, 2019, the company's banker (Kotak Mahindra) received a notice from the sales tax deputy commissioner, demanding the release of the amount, even as the copy of the notice was not served on the company.

The company's appeal was not taken up for hearing on January 29, 2019, as scheduled.

The company informed its bank on February 5, 2019, about the pendency of the appeal and the stay application, and requested it not to release the amount.

The joint tax commissioner (appeals) then passed an order on February 7, 2019, directing the company to deposit 20 per cent of the disputed tax amount within a week as pre-deposit and pre-condition to grant of stay, which was done.

But despite this, the state government "coerced the bank to release a demand draft to the tune of Rs 1,49,27,723, which was encashed on February 15, 2019, without any advance notice to the company," the court said in its order.

During the hearing, a state government official even told the court that the amount of Rs 1,49,27,723 "was not to be recovered from the applicant as there was an error" while determining the amount.