Tax Authorities Cannot Resurrect Repealed VAT Powers After GST Regime, Nor Retain Deposits Without Statutory Backing: Tripura High Court

The Tripura High Court has held that where show-cause notices imposing penalty under Section 77 of the Tripura Value Added Tax Act, 2004 (TVAT Act) were issued after delay of 9 years, long after the repeal of the TVAT Act after GST Regime, are arbitrary, illegal and vitiated by malafides. The Court further held that the State cannot retain the security deposit taken for VAT registration once the GST regime does not mandate a security deposit for transporters. A Division Bench comprising Chief Justice M.S. Ramachandra Rao and Justice S. Datta Purkayastha was hearing writ petitions filed by the assessee, challenging multiple show-cause notices and penalty orders issued under Section 77 of the repealed TVAT Act, along with the non-refund of the Rs.12 Lacs. security deposit originally deposited in 2013 at the time of VAT registration. Pre-GST Regime, Section 77 of the Tripura Value Added Tax Act, 2004 (TVAT Act) dealt with penalty on transporters for delivery of taxable goods without proper permits or for concealing particulars of transported consignments. The assessee, M/s North East Carrying Corporation Ltd. (NECC) is a registered transporter under the TVAT Act until 2017, sought refund of the security deposit in 2023. Thereafter, the Department issued a series of show-cause notices alleging delivery of taxable consignments without valid delivery permits during 2013–2018, and thereafter, passed penalty orders imposing tax along with 150% penalty for the period 2013 -2014. The assessee filed rectification applications challenging the penalty orders, relying on the findings of the Division Bench of Tripura High Court in T.R. Freight Movers Vs. State of Tripura and Ors. W.P.(C) No. 42 of 2005, wherein it was held that transporter cannot be treated as a dealer and tax cannot be imposed on transporter under Section 77. Thereafter, the assessee preferred writ petitions before the High Court challenging the penalty orders passed and sought refund of the security deposit. The Bench held that even if a statute does not prescribe a limitation period for penalty, the authority cannot exercise such power after an unreasonable delay, as it violates constitutional principles of fairness and reasonableness. The Bench relied on SEBI v. Sunil Krishna Khaitan (2023) 2 SCC 643, holding that when no limitation is specified, powers must be exercised within a “reasonable period” to prevent stale demands and misuse of authority. Also noted that the Tripura High Court's Division Bench judgment in T.R. Freight Movers v. State of Tripura (followed in M.S. Freight Carriers (India) Pvt Ltd) was binding, since the Supreme Court had not stayed it. The Bench stated that a transporter cannot be treated as a dealer and cannot be subjected to tax under Section 77, and penalty under Section 77 is discretionary and cannot be imposed mechanically. The Bench observed that all show-cause notices were issued only after the petitioner demanded refund of the security deposit also stated that admittedly, for securing registration under the TSGST Act, 2017, no security deposit is required for a 'transporter' to be given to the respondents. No such provision has been brought to our notice. So the petitioner cannot be compelled to leave the security deposit with the respondents when they have no power to retain it under the GST regime. They are therefore bound to refund it to petitioner. It held that penalty proceedings initiated solely to avoid refund of the security deposit are malafide and unsustainable. In view of the above, both the writ petitions were allowed, penalty notices and penalty orders were quashed, and refund with interest and costs was ordered, in favour of the assessee. Case Title: M/s North East Carrying Corporation Ltd.(NECC) Vs. The State of Tripura and Ors. Case No: WP(C) No. 36-37 of 2025 Appearance for Petitioner: Mr. Bibhal Nandi Majumder, Sr. Advocate, Mr. Dhruba Jyoti Saha, Advocate, Mr. Samrat Sarkar, Advocate. Appearance for Respondent: Mr. Pradyumna Gautam, Sr. G.A. Click Here To Read/Download Order

Tax Authorities Cannot Resurrect Repealed VAT Powers After GST Regime, Nor Retain Deposits Without Statutory Backing: Tripura High Court

Rajnandini Dutta

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