The Hindu Business Line : A case of seizure logic that suffered serious seizures

In King Lear, Cornwall tells Edmund, "You shall be ours: Natures of such deep trust we shall much need; you we first seize on." And Edmund replies, "I shall serve you, sir, truly, however else."

Alas, such a happy mood doesn't prevail when the taxman seizes goods or property of the hapless. One such instance came up before the Calcutta High Court recently: Ferring Pharmaceuticals Private Ltd vs Assistant Commissioner of Commercial Tax Officer.

The story begins in January 2002, when a consignment of goods from Mumbai reached Kolkata. It contained two packages, evidenced by two stock transfer notes; one had `20 boxes each containing 5 ampoules of Remestyp injection amounting to Rs 1,39,104' and the other had `90 boxes of one ampoule of Decapeptyl injection amounting to Rs 5,04,252.'

Air consignment note, however, was one, and it covered the entire stock of goods transferred. Ferring's employee, Ashoke Das, a peon, was sent to the airport to collect the consignment. A waybill was filled up for the purpose, in a statutory form as per the West Bengal Sales Tax Rules; but it was only for releasing `20 boxes'. So, officials asked him for waybill in respect of the second stock transfer note for `90 boxes'.

Das "had no clue regarding the second stock transfer note." That note hadn't reached the Kolkata office of Ferring then. Since he could not produce the waybill for the second stock transfer note, those goods were not released; they were kept in the custody of the airport authority.

The seizure drama

So far, so good. Drama started thereafter. The officials immediately seized the goods, saying there was `false declaration' by Ferring. They handed over a seizure receipt to Das.

Reminds one of Clarence's line in King Richard III, "Seize on him, Furies, take him to your torments!" "The tiger now hath seized the gentle hind," says Queen Elizabeth, elsewhere in the same play of the Bard. More apt, though, would be Portia's, "Seize one half his goods," in The Merchant of Venice. Or, "Think what you will, we seize into our hands his plate, his goods, his money and his lands," from King Richard II.

A show-cause notice was issued against Ferring threatening of penalty under the West Bengal Sales Tax Act, 1994. The company approached the tribunal challenging the seizure. "The Tribunal, however, was not pleased to interfere with the petitioner's application and dismissed the same."

Ferring moved another petition before the Assistant Commissioner, Commercial Tax "praying for release of the seized goods since the goods were life saving drugs." Ferring offered to pay security charges under protest and also made a prayer for early hearing of the penalty proceeding.

Tax authorities heard the matter and imposed a penalty of Rs 1,41,594, which the company paid under protest to get the goods released in February 2002. Ferring challenged the tribunal's order through a writ petition before the High Court, which directed the tribunal to hear the matter afresh.

`Constructive possession'

The tribunal noted that stock transfer of two different types of consignments of goods and of different quantity were brought to the airport under one consignment note but waybill in respect of 90 boxes of medicine was not produced. That since it was a case of stock transfer, the right to property over the goods was not questioned. That even though the goods were not seized from the physical possession of Ferring, constructive possession was there over the goods when seizure was made. And so, seizure was made in accordance with law, said the tribunal.

Penalty, however, was set aside by the tribunal on the ground that Ferring didn't make any attempt to take delivery of the second lot or "get the goods released by any unfair means or under any false pretext." There might have been a bona fide mistake or a communication gap on the part of Ferring, said the tribunal, ruling out mens rea. What did the Commercial Tax Officer (CTO) do? He ultimately passed an order of penalty of Rs 70,792, which was half of the earlier amount of Rs 1,41,594.

Ferring challenged the tribunal's order and the penalty before the High Court. Justices Asok Kumar Ganguly and Maharaj Sinha studied the facts and noted that since the other waybill had not reached the Kolkata office, the authority should not have proceeded on the basis that there was any false declaration by the petitioner.

On the second package that was seized in exercise of the power under the West Bengal Sales Tax Act "from the alleged possession and custody of Das," the court pointed out that Das had no custody over the goods. "This factual assumption is obviously wrong," said the court. Because no attempt was made by Das to get the consignment of 90 boxes released. He had "only wanted to have the consignment of 20 boxes released" and for that there was a waybill.

Holes in logic

On the question of `constructive possession' that the tribunal had put forth, the judges had this to say: "This Court does not understand what is meant by constructive possession in the facts and circumstances of this case. The concept of constructive possession cannot be pressed into service when one is dealing with the question of seizure of goods from the possession of a party."

Seizure is an overt act and as a result of which property which is in the physical possession of a private party can be seized and taken control of by the seizing authority, explained the judges. "If the property is not in the physical possession of any private party but is in physical possession of the authority as in the instant case, there is no question of seizure."

Constructive or deemed seizure may happen where "it is not possible to take physical possession of any article or thing and remove it to any safe place because of its volume, weight or other physical characteristics or may be where the thing seized is itself of a dangerous nature," notes the text of the judgment, citing the provisions of the Income-tax Act, 1961. In the Ferring's case, though, "the very basis of seizure is unsustainable," said the court.

The goods arrived at the check-post at 2.30 p.m., and seizure receipts recorded 3.40 p.m. "Therefore, within a span of 1 hour 10 minutes from the arrival of the goods the seizure had taken place," noted the court. "48 hours for presentation of the waybill should have been granted." Such period, in fact, excludes Sunday or any other holiday declared under the Negotiable Instruments Act.

Quashing the orders of the tribunal and that of the CTO, the court ordered that the amount of penalty realised from Ferring be refunded by the Department within six weeks, failing which an interest of 9 per cent per annum would have to be paid till the date of actual refund.

A case of seizure logic that suffered serious seizures at the Department's end.

Tailpiece

"Their election promise says, `No taxes'!

"Makes no difference to us, does it?"

http://detaxification.blogspot.com

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