1965 (7) TMI 51 - HC - VAT and Sales Tax

Issues Involved:
1. Legality of recovery proceedings initiated by the Sales Tax Officer.
2. Liability of the petitioners for the tax dues of the firm Komalchand Bhupendrasingh.
3. Adequacy of notice and hearing provided to the petitioners.
4. Applicability of Section 23 of the Madhya Pradesh General Sales Tax Act, 1958.
5. Assessment and recovery procedures under the Madhya Pradesh General Sales Tax Act, 1958.

Issue-wise Detailed Analysis:

1. Legality of recovery proceedings initiated by the Sales Tax Officer:
The court found that the recovery proceedings initiated by the Sales Tax Officer against the petitioners were "wholly illegal and must be quashed." The petitioners were not given any hearing, and their objections to the recovery of the amount in question from them were never decided by the opponent. No order holding that the petitioners were liable to pay the amount as dealers or otherwise was even recorded by the Sales Tax Officer. The Sales Tax Officer exhibited "obscurity and confusion" about his functions, failing to pass a necessary order making the petitioners liable for the payment of the amount assessed on the firm Komalchand Bhupendrasingh.

2. Liability of the petitioners for the tax dues of the firm Komalchand Bhupendrasingh:
The petitioners contended that they were not liable for the tax dues of the firm Komalchand Bhupendrasingh, which had a separate existence and was doing business under a separate registration certificate. The court noted that the Sales Tax Officer had not determined the liability of the petitioners for the payment of the amount due from the firm Komalchand Bhupendrasingh. The court emphasized that an order assessing the petitioners or making them liable for payment of the amount due from the firm Komalchand Bhupendrasingh after hearing their objections should have been passed before commencing to recover any amount from the petitioners.

3. Adequacy of notice and hearing provided to the petitioners:
The court observed that the petitioners were not given notices when the assessment against the firm Komalchand Bhupendrasingh was being made. The opponent averred that a notice was given to Komalchand alone, which was deemed sufficient. The court held that the Sales Tax Officer was bound under the provisions of the Act of 1947, the Act of 1958, and principles of natural justice to give the petitioners an opportunity of hearing before passing any order making them liable for the payment of any amount. The repeated reference to the existence of ample material to indicate the liability of the petitioners was deemed meaningless and of no avail.

4. Applicability of Section 23 of the Madhya Pradesh General Sales Tax Act, 1958:
The petitioners averred that the opponent issued a warrant for recovery of the tax amount from their firm under Section 23 of the Madhya Pradesh General Sales Tax Act, 1958. The court noted that Section 23 provides for a special mode of recovery of dues under the Act, requiring a person from whom any amount is due or who holds money for a dealer to pay such money to satisfy the amount due from the dealer. The court emphasized that the petitioners were entitled to prefer objections to the recovery under sub-section (5) of Section 23, and the Sales Tax Officer was bound to decide those objections before passing an order about the recovery.

5. Assessment and recovery procedures under the Madhya Pradesh General Sales Tax Act, 1958:
The court highlighted that an order of assessment against the joint family making it liable for the transactions effected at Ramward in the name of the firm Komalchand Bhupendrasingh was necessary before any proceedings for recovery of the amount could be initiated against the petitioners. The court emphasized that the Sales Tax Officer should have considered several questions, such as whether the joint family could be made liable for the business done at Ramward by the firm Komalchand Bhupendrasingh, whether it amounted to "escaped assessment," and whether the turnover of the firm Komalchand Bhupendrasingh could be considered the turnover of the joint family firm. The court concluded that, in the absence of any such valid assessment order, the recovery proceedings initiated by the opponent against the petitioners could not be sustained.

Conclusion:
The court allowed the petition and quashed the recovery proceedings initiated by the Sales Tax Officer against the petitioners. The court condemned the arbitrary manner in which the Sales Tax Officer proceeded, emphasizing the need for compliance with the provisions of the Sales Tax Act and principles of natural justice. The petitioners were awarded costs of the application, and the outstanding amount of security deposit was ordered to be refunded to them.

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