GVAT Section 44 similar to a garnishment order; Requires debtor-creditor relationship: Gujarat High Court

“It may be said that in the interpretation of a fiscal law, considerations of equity are wholly irrelevant. Reasons of morality and equity can have no application to bring a citizen who is not within the four corners of the tax law in its lap in order to make it subject to the payment of tax”, Judge JB Pardiwala of the High Court of Gujarat issued an opinion.

The bench was hearing an application for subpoena under Section 226 in which the plaintiffs sought to set aside the disputed notice issued under Value Added Tax, 2003 for payment of an unpaid sum of 1 68 02 573 INR and seizure of the personal property of the manager and the manager’s brother. They also asked for a stay of notice until the petition is decided.

Background and claims

The plaintiff was a registered company under the Gujarat Value Added Tax provisions of 2003 and had incurred a tax liability under the GVAT Act worth INR 56,05,146 in 2013. The company therefore preferred a request under the law Vera Samadhan Yojana 2019 for exemption from this liability. The claimants challenged in the High Court that the defendant authorities levied a further levy of INR 1,6802,573 as well as seizing the personal movable property of the director and the director’s brother under Section 44 of the GVAT.

The main arguments of the claimants were that the amount of INR 56,05,146 had already been canceled and that Article 44 had no application in the current factual matrix. On the other hand, the Respondent claimed that the Claimants were liable to pay a tax in the amount of INR 1,68 02,573 less INR 56,05,160, i.e. INR 1,12,10,280, as per a government resolution of 2019. Further, the Applicant was required to pay the amount of the fee in six different instalments but this was not done even though the Applicant had shown his willingness to pay the outstanding amount by a response in 2021. Due to this failure, the Department issued a new notice of seizure of property belonging to plaintiff since the company did not own any separate property.


The panel observed that Article 44 of the GVAT law was bet materia in section 226(3) of the Income Tax Act 1961, which is modeled on the provisions of section 218 of the Australian Act, which has been considered as follows:

“The purpose of section 218 is to enable the commissioner to collect unpaid taxes from persons who owe money to the taxpayer without having to make a judgment and order execution.”

Judge Pardiwala found that Section 44 of the Act provided a mechanism for the VAT Department to recover tax arrears from debtors of the assessments and that this was akin to the garnishment procedure under the CPC . According to the bench, the substance of the disposition was similar to the relationship of a debtor and a creditor, between the garnishee and the assessee. However, in the present case, the Company and the Petitioners had no debtor-creditor relationship while Article 44 could be exercised.

The Chamber also relied on Commercial Corp Ltd v Syed Mohiuddin Khadir (1975) 2 SCC 624 where the Supreme Court held:

“To be subject to seizure, there must exist on the date when the seizure takes effect something that the law recognizes as a debt. As long as a debt exists, it need not be immediately due. Where an existing debt is payable in future installments, the garnishment order may be made enforceable as each installment becomes due.”

Stating that the main issue was to determine the meaning of the word “owed” in “everyone to whom money is due or might become due to the assessee”, the bench referred to the concise Oxford Dictionary to interpret the term. Furthermore, it was pointed out that the issuance of written notice to the person to whom the money is owed and may become owed to the Assessed is a sine qua non for the Assessing Officer. any person whose money is or may become due to the assessee. The person to whom the notice is sent has the right to object to the notice by stating that the amount claimed was not due to the assessee. In the present case, no such notification was sent to the applicants. Moreover, the whole approach of the Department was incorrect since he had no right to recover anything from the company, or from the director of the company, nor to seize his personal assets or to seize the assets of his brother. Section 44 was misused by the department and the correct interpretation of section 44 was ignored.

Consequently, the contested opinion was annulled.


Case No: C/SCA/12788/2021

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