1964 (12) TMI 32 - HC - VAT and Sales Tax

Summary

Issues:
Whether the State is entitled to proceed against a surety for payment of tax liability under the Bombay Land Revenue Code, 1879 as if it were an arrear of land revenue.

Analysis:
The petition raised the question of whether the State could recover an amount due under a surety bond as an arrear of land revenue. The petitioner executed a surety bond for an assessee who failed to make payments, leading to the entire amount becoming due. The State sought to recover this amount from the petitioner as an arrear of land revenue under the Bombay Land Revenue Code, 1879. The petitioner challenged this right of the State, leading to a legal dispute.

The main contention by the petitioner was that there was no legal provision allowing the amount due under the surety bond to be recovered as an arrear of land revenue. The State argued that Section 38(5) of the Bombay Sales Tax Act, 1959, or Section 187 of the Bombay Land Revenue Code, 1879, provided the necessary authority for such recovery. However, a detailed analysis of these provisions revealed that they did not support the State's claim.

Regarding Section 38(5) of the Bombay Sales Tax Act, it was found that this provision only applied to the recovery of tax or penalty due from an assessee-dealer, not from a surety under a surety bond. The amount due from a surety did not bear the character of tax or penalty but was based on the contract embodied in the surety bond. Therefore, this section could not be used to recover the amount from the petitioner as an arrear of land revenue.

Additionally, the State relied on Section 187 of the Bombay Land Revenue Code, 1879, specifically the third clause, to argue for the recovery of the amount as an arrear of land revenue. However, it was determined that the surety bond did not contain any provision declaring the amount due from the petitioner as leviable as an arrear of land revenue. The mere provision for auctioning the petitioner's house in case of default did not equate to the amount being recoverable as an arrear of land revenue.

Ultimately, the Court held that since the provisions of law cited did not support the State's claim, and there was no other legal authorization for such recovery, the State could not proceed to recover the amount from the petitioner as an arrear of land revenue. Instead, the State was directed to pursue ordinary legal remedies for debt recovery. The petition was allowed, and a writ of prohibition was issued against the State from enforcing the recovery notice against the petitioner.

In conclusion, the judgment clarified the legal limitations on the State's ability to recover amounts due from a surety as arrears of land revenue, emphasizing the necessity for specific legal provisions authorizing such actions and highlighting the importance of contractual terms in determining the nature of debt recovery processes.