1979 (7) TMI 229 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Competence of assessing a dissolved firm.
2. Validity of assessment orders post-dissolution.
3. Applicability of statutory provisions for assessment of dissolved firms.
4. Joint and several liability of partners post-dissolution.

Detailed Analysis:

1. Competence of assessing a dissolved firm:

The primary issue was whether the assessing authority could assess a firm that had been dissolved. The firm in question was dissolved effective from April 1, 1967, and its registration certificate was canceled on the same date. The assessing authority argued that the firm could still be assessed based on the Supreme Court's decision in *Murarilal Mahabir Prasad v. B.R. Vad* (1976). However, the court found that, according to the precedent set by the Supreme Court in *State of Punjab v. Jullundur Vegetables Syndicate* (1966), a dissolved firm ceases to be a legal entity and cannot be assessed unless there is a specific statutory provision allowing such assessment.

2. Validity of assessment orders post-dissolution:

The assessment orders dated June 17, 1969, and all subsequent proceedings were challenged as invalid and illegal because they were made after the dissolution of the firm. The court reiterated that, following the dissolution, the firm ceased to have any legal existence and could not be assessed. This principle was supported by multiple Supreme Court decisions, including *Khushi Ram Behari Lal & Co. v. Assessing Authority, Sangrur* (1967) and *Additional Tahsildar, Raipur v. Gendalal* (1968).

3. Applicability of statutory provisions for assessment of dissolved firms:

The court examined the statutory provisions under the Rajasthan Sales Tax Act, 1954, and compared them with those under the Bombay Sales Tax Act, 1953, and 1959. It was noted that the Rajasthan Act did not have provisions equivalent to Section 5(3) of the Bombay Act, which allowed for the assessment of a dissolved firm until the cancellation of its registration certificate. The court emphasized that the Rajasthan Act lacked an express provision or necessary implication to assess a dissolved firm, unlike the Bombay Act.

4. Joint and several liability of partners post-dissolution:

The court analyzed Section 9(3)(b) of the Rajasthan Act, which imposes joint and several liability on partners of a dissolved firm for the firm's tax liabilities. It concluded that while partners could be held liable for tax payments, the dissolved firm itself could not be assessed. This interpretation was consistent with the Supreme Court's ruling that the liability for assessment and payment of tax continues as joint and several upon the partners, not the dissolved firm itself.

Conclusion:

The court held that the present reference application was not maintainable as no proceedings could be taken or continued against a dissolved firm for assessment of tax. The reference application was therefore dismissed. The judgment reaffirmed the principle that a dissolved firm ceases to be a legal entity and cannot be assessed unless explicitly authorized by statute. The liability for tax assessment and payment shifts to the individual partners jointly and severally post-dissolution.