High Court shuts Out Novel Way of GST Evasion - Imposes Rs. 7.47 Lakh Penalty
Security deposit deemed as sale price when effective control of goods is lost by the original owner
The Punjab and Haryana High Court has upheld the penalty imposed on M/s Pee Pee Marketing for tax evasion, affirming that the transaction involving the transfer of goods was a sale and not a mere stock transfer. The division bench, comprising Mrs. Lisa Gill and Sudeepti Sharma, JJ., delivered the decision on June 6, 2025, dismissing the appeal by M/s Pee Pee Marketing against the State of Punjab.
The case centered around the interpretation of a transaction under the Punjab Value Added Tax Act, 2005. The appellant, M/s Pee Pee Marketing, contended that the transfer of 1,000 Antenna Systems was a branch transfer, supported by a refundable security deposit, and not a sale. However, the transaction was challenged due to the lack of substantial documentary proof, notably the absence of 'Form F', which is essential to substantiate a stock transfer claim.
The High Court's judgment articulated that the substantial advance payment made by the consignee, amounting to Rs. 30,97,000, indicated a sale rather than a stock transfer. The court reasoned that the definition of 'sale' under Section 2(zf) of the Punjab Value Added Tax Act includes transactions where effective control over goods is transferred in exchange for valuable consideration. The court noted that the refundable security deposit effectively constituted the sale price because the goods would remain with the customer beyond five years, with no provisions for repair or return, effectively transferring ownership.
The Assessing Authority had initially imposed a penalty of Rs. 7.47 lakh on M/s Pee Pee Marketing, citing that the transaction was structured to evade tax. This penalty was subsequently upheld by the Deputy Excise and Taxation Commissioner and the Value Added Tax Tribunal, Punjab. The appellant's arguments that the goods were meant for rental purposes and that VAT was being duly paid on the rental income were dismissed due to the lack of documentary evidence supporting these claims.
The court further emphasized that the appellant's method of describing the transaction as a refundable security deposit was a novel approach to evade tax liabilities, as the goods, after a prolonged period, were unlikely to remain functional, making the security non-refundable in practice.
This ruling reinforces the importance of proper documentation and transparency in business transactions to avoid tax evasion penalties. The High Court's decision sends a clear message about the judiciary's stance against innovative methods of tax evasion and underscores the need for businesses to adhere to tax regulations diligently.
The appeal by M/s Pee Pee Marketing was thus dismissed, affirming the penalty and setting a precedent for similar cases. This judgment is expected to have significant implications for businesses engaged in similar transactions, highlighting the necessity of maintaining genuine and proper documentation to substantiate claims of stock transfers or similar non-sale transactions.
M/s Pee Pee Marketing v. State of Punjab, (Punjab And Haryana)(DB) : Law Finder Doc id # 2744431
