1975 (9) TMI 155 - SC - VAT and Sales Tax

Whether the impugned assessment orders and demand notices were authorised under the Bombay Sales Tax Act, 1953, and the Bombay Sales Tax Act, 1959, after the dissolution of petitioner No. 1-firm on 20th May, 1962? Whether respondent No. 1 followed the procedure laid down by law in passing the said orders and issuing the said demand notices? Whether the assessment and reassessment made against petitioner No. 1-firm is proper and based on the turnovers of petitioner No. 1-firm as stated in the said orders? Held that - Appeal allowed. A dissolved firm may be equated with a dead person; both cease to be assessable units. The apprehension that the firm may be dissolved voluntarily in order to avoid liability should not, in my opinion, make any difference in principle; a man who takes his own life is in no worse position than one who dies of a natural cause, so far as the tax dues are concerned. As for aviodance of liability, it is up to the legislature that created the liability to prevent evasion. Section 19(3) of the 1959 Act which makes the erstwhile partners of a dissovled firm jointly and severally liable for the tax (including any penalty) due from the firm, was obviously enacted with that purpose; but making the partners liable for the dues of a dissolved firm does not mean that the dissolved firm as such can be assessed. Therefore the assessment orders made and the demand notices issued in the name of the dissolved firm in the instant case must be held to be invalid.

Issues Involved:
1. Whether the impugned assessment orders and demand notices were authorized under the Bombay Sales Tax Act, 1953, and the Bombay Sales Tax Act, 1959, after the dissolution of the firm.
2. Whether the Sales Tax Officer followed the procedure laid down by law in passing the said orders and issuing the said demand notices.
3. Whether the assessment and reassessment made against the dissolved firm were proper and based on the turnovers of the firm as stated in the orders.

Issue-wise Detailed Analysis:

1. Authorization of Assessment Orders and Demand Notices Post-Dissolution:
The primary issue revolves around the legality of assessing a dissolved firm under the Bombay Sales Tax Act, 1953, and the Bombay Sales Tax Act, 1959. The court examined whether the provisions of these Acts allowed for the assessment or reassessment of a firm after its dissolution.

- Firm as a Dealer: The court noted that under the 1953 Act, a "dealer" includes any "person" carrying on the business of selling or buying goods. The definition of "person" under the Bombay General Clauses Act, 1904, includes a "body of individuals," which encompasses a firm. Therefore, a firm can be considered a dealer under the 1953 Act.

- Continuity of Liability: Section 5(3) of the 1953 Act indicates that a dealer remains liable to pay tax until the cancellation of registration. The dissolution of a firm does not automatically terminate its liability to be assessed. Section 15(1) allows the Collector to assess or reassess escaped turnovers within a specified period, implying that even a dissolved firm can be assessed if the notice is served within the prescribed period.

- Implication of Section 26(3): This section provides that a dissolved firm is liable to pay tax on goods allotted to any partner as if the goods were sold to such partner. This indicates that the legislature intended to keep the firm liable for tax purposes even after dissolution.

- 1959 Act Provisions: Section 19(3) of the 1959 Act explicitly states that every person who was a partner in a dissolved firm is jointly and severally liable to pay the tax due from the firm, whether assessed before or after dissolution. This provision confirms that a dissolved firm can be assessed under the 1959 Act.

2. Procedure Followed by the Sales Tax Officer:
The court did not delve deeply into the procedural aspects due to the pending appeals before the Assistant Commissioner of Sales Tax. However, it was noted that the firm had multiple interactions with the tax authorities, and notices were issued and served as required by law.

- Service of Notices: The notices for reassessment and assessment were served on the firm, and the firm was given opportunities to respond. The assessment orders were passed ex parte due to the firm's non-attendance.

3. Validity of Assessment and Reassessment Based on Turnovers:
The court did not decide on the merits of the assessment orders due to the pending appeals. The primary focus was on the jurisdictional issue of assessing a dissolved firm.

- Pending Appeals: The court acknowledged that the firm had filed appeals against the assessment orders, which were pending. Therefore, it refrained from adjudicating on the correctness of the assessment and reassessment based on the firm's turnovers.

Conclusion:
The court concluded that both the Bombay Sales Tax Act, 1953, and the Bombay Sales Tax Act, 1959, provide for the assessment of a dissolved firm. The provisions of these Acts, either expressly or by necessary implication, allow for the assessment and reassessment of a firm's pre-dissolution turnovers. Consequently, the court upheld the jurisdiction of the sales tax authorities to proceed against the dissolved firm. The procedural and factual issues raised by the petitioners were left to be decided by the appellate authorities.

Separate Judgment by Gupta, J.:
Justice Gupta dissented, arguing that neither the 1953 Act nor the 1959 Act expressly or by necessary implication permits the assessment of a dissolved firm. He emphasized that a firm ceases to exist as a legal entity upon dissolution, and without a statutory provision keeping it alive for assessment purposes, such an assessment is invalid. He pointed out that section 19(3) of the 1959 Act makes the partners liable but does not authorize the assessment of the dissolved firm itself. Therefore, he concluded that the assessment orders and demand notices issued in the name of the dissolved firm were invalid.

Final Order:
The appeal was dismissed with costs, upholding the judgment of the Bombay High Court. Justice Gupta's dissenting opinion did not alter the majority decision.

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