2008 (3) TMI 498 - SC - VAT and Sales Tax

Sales tax laibilty - Held that - Appeal dismissed. It is not a case where, this court, while exercising its jurisdiction under article 136 of the Constitution of India should interfere with the impugned judgment. Since there is a transfer of ownership of properties of the transferee, as noticed in terms of section 100 of the Transfer of Property Act, the charged property may be sold. Thus in law the appellant is liable to pay the amount of sales tax assessed by the assessing authority.

Issues Involved:
1. Liability of the appellant for sales tax dues during the lease period.
2. Applicability of Section 19C of the Kerala General Sales Tax Act.
3. Joint and several liability of the appellant and the lessee.
4. Validity of the assessment orders and appellate decisions.
5. Procedural correctness in the assessment and recovery process.

Detailed Analysis:

1. Liability of the appellant for sales tax dues during the lease period:
The appellant, a company registered under the Companies Act, 1956, and operating a distillery, leased out its factory to Eagle Distillery (P) Ltd. The appellant informed the sales tax authorities about the lease and the lessee's responsibility for tax dues post-lease commencement. Despite this, the lessee used the appellant's registration number and statutory forms for business operations and did not deposit the collected sales tax. The assessing authority, in the final assessment, held both the appellant and the lessee jointly and severally liable for sales tax dues for the assessment years 1986-87 and 1987-88. The Tribunal and the High Court upheld this joint liability, noting that the appellant allowed the lessee to use its registration and forms, thus remaining responsible for the tax dues.

2. Applicability of Section 19C of the Kerala General Sales Tax Act:
The appellant contended that Section 19C, which was introduced in 1989, had no retrospective effect and thus should not apply to the assessment years in question. The High Court, however, relied on the overall facts and circumstances, including the appellant's continued registration and the use of its statutory forms by the lessee, to uphold the joint liability. The Supreme Court noted that even without Section 19C, the liability could be fastened based on the factual findings of agency and the appellant's failure to terminate the lease timely.

3. Joint and several liability of the appellant and the lessee:
The Tribunal found that the lessee acted as an agent of the lessor (appellant) and both were colluding to defraud the Revenue. The lessee's application for registration was kept in abeyance, and the appellant's registration continued without cancellation. The Tribunal and the High Court concluded that the lessee's business operations under the appellant's registration and the non-remittance of collected tax justified holding both parties jointly and severally liable.

4. Validity of the assessment orders and appellate decisions:
The appellant challenged the validity of the assessment orders and the appellate decisions. The High Court directed the assessing authority to complete the final assessment with notice to both the appellant and the lessee. The Tribunal restored the assessment order, holding both parties responsible for the tax dues. The Supreme Court upheld these findings, emphasizing the appellant's role in enabling the lessee's operations under its registration and the consequent tax liability.

5. Procedural correctness in the assessment and recovery process:
The Supreme Court acknowledged the procedural steps taken by the High Court and the assessing authority, including the issuance of notices and the opportunity for the appellant to respond. The Court noted that the appellant submitted to the jurisdiction of the assessing authority and did not challenge the High Court's directions. The Supreme Court found no procedural irregularities warranting interference and upheld the assessment and recovery process.

Conclusion:
The Supreme Court dismissed the appeals, affirming the joint and several liability of the appellant and the lessee for the sales tax dues. The Court emphasized the importance of adhering to statutory requirements and the appellant's responsibility for allowing the lessee to use its registration and statutory forms. The judgment underscores the principle that tax liability can be enforced against registered dealers and their agents to prevent tax evasion and ensure compliance with tax laws.

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