Sanchayita Lahkar

The High Court of Tripura Division Bench of Chief Justice M.S. Ramachandra Rao and Justice S. Datta Purkayastha held that show-cause notices proposing penalty under Section 77 of the Tripura Value Added Tax Act, 2004, issued after delays of about nine years and after the TVAT regime had been replaced by GST, are arbitrary, illegal and vitiated by mala fides, and therefore liable to be quashed. In a petition by a transporter-assessee challenging delayed penalty proceedings and non-refund of a registration security deposit, the Court further decided that the State cannot retain the security taken for VAT registration once the GST framework does not require such security from transporters, and directed refund of the security deposit of Rs.12,00,000 with interest while setting aside the consequential tax and penalty orders.

M/s North East Carrying Corporation Ltd., a registered transporter under the Tripura Value Added Tax Act, 2004, deposited ₹12,00,000 as security on 12.07.2013 for its registration. The TVAT Act was repealed upon the enactment of the Tripura State Goods and Services Tax Act, 2017 with effect from 01.07.2017. Believing that the security deposit could no longer be retained under the GST framework, the petitioner submitted an application on 05.04.2023 seeking refund from the Superintendent of Taxes.

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After the refund request, the authority issued seven show-cause notices between 04.07.2023 and 18.07.2023 alleging that during September 2013–March 2014, the petitioner delivered taxable consignments without valid delivery permits. The petitioner filed replies citing Section 33 of the TVAT Act, Rule 21(8) of the TVAT Rules, and the decision in T.R. Freight Movers, pointing out that assessment could not be made beyond five years. Despite this, on 18.03.2024, seven orders were passed imposing tax and 150% penalty. The petitioner filed rectification petitions on 14.05.2024, which were rejected on 01.08.2024 on the ground that the authority lacked power to rectify orders passed under Section 77. These notices and orders were challenged in W.P.(C) No.37 of 2025.

On 02.08.2024, further show-cause notices were issued for financial years 2014–15 to 2017–18 alleging delivery of taxable goods without valid permits. In W.P.(C) No.36 of 2025, the petitioner sought quashing of these notices and refund of the security deposit. The State relied on provisions relating to refund of tax under the TVAT Act, while the petitioner maintained that these provisions did not apply to refund of security deposit.

The Court recorded that Section 77 of the TVAT Act permitted levy of penalty but did not provide a mechanism for assessment of tax from a transporter. Referring to T.R. Freight Movers, it stated that “tax under the Act can only be levied on ‘taxable turnover of goods’… ‘tax’ cannot be imposed on the transporter” and reiterated that the judgment remained binding since no stay had been obtained.

The Bench observed that the impugned orders violated binding precedent because “tax has been imposed on the petitioner… which is impermissible as per the said judgment” and because “penalty of 150% was imposed mechanically without determining… whether petitioner had acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest.”

On the issue of delay, the Court recorded that the notices for 2013–14 were issued “with delay of more than 9 years” and those for 2014–18 after “9-6 years delay”. It further noted that “all the above show cause notices had been admittedly issued only after the petitioner had sought refund of the security deposit.”

Interpreting Section 33 of the TVAT Act and Rule 21(8), the Court stated that a transporter “cannot be put in a worse position than a dealer” and that proposals for penalty long after the five-year period were “contrary to the intention of the legislature and cannot be countenanced.”

Relying on SEBI v. Sunil Krishna Khaitan, the Court recorded that “every authority is to exercise power within a reasonable period… there is public interest involved in not taking up and spending time on stale matters.” It held that invoking Section 77 after an inordinate delay, and only after the refund request, was “malafide.”

On the argument relating to refund provisions, the Court observed that Section 43 of the TVAT Act and Rule 35 of the TVAT Rules relate only to refund of tax, and “cannot be made applicable to the instant case which relates to refund of security deposit.” It further stated that no provision under the GST regime required a transporter to furnish security, and therefore the authority had no power to retain it. Finally, the Court recorded that the impugned action was “arbitrary, illegal, without jurisdiction, malafide and also violative of Art.14, 265 of the Constitution of India.”

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The Court directed that “both the Writ Petitions are allowed; show-cause notices issued by the respondent No.3 under Section 77 of the TVAT Act, 2004 for the years 2014-15 to 2017-18 are all quashed. The orders dt. 18.03.2024 passed by the respondent No.3 for the period September, 2013 to March, 2014 are also quashed for the same reason. The respondents are directed to refund Rs.12,00,000/- (rupees twelve lakhs only) deposited by the petitioner as security deposit for registration as a transporter under the TVAT Act, 2004 with interest @ 7% per annum from 05.04.2023 till the date of payment.”

“The respondent No.3 shall also pay costs of Rs.20,000/- (Rupees Twenty thousand only) to the petitioner within eight weeks.” The Court stated that “All pending applications shall stand disposed of.”

Advocates Representing The Parties

For the Petitioners: Mr. Bibhal Nandi Majumder, Senior Advocate; Mr. Dhruba Jyoti Saha, Advocate; Mr. Samrat Sarkar, Advocate.
For the Respondents: Mr. Pradyumna Gautam, Senior Government Advocate.

Case Title: M/s North East Carrying Corporation Ltd. v. State of Tripura & Others
Case Number: WP(C) No.36 of 2025 & WP(C) No.37 of 2025
Bench: Chief Justice M.S. Ramachandra Rao; Justice S. Datta Purkayastha