1983 (4) TMI 235 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether service on one partner of a dissolved firm is sufficient for the purposes of assessment and recovery under the U.P. Sales Tax Act.
2. The validity of the appeal filed by one partner when the notice was not served on all partners.
3. The interpretation of Section 3-C(1)(b) of the U.P. Sales Tax Act regarding the liability and service requirements for dissolved firms.

Issue-wise Detailed Analysis:

1. Sufficiency of Service on One Partner:

The main issue was whether service on one partner of a dissolved firm is sufficient for the purposes of assessment and recovery under the U.P. Sales Tax Act. The court examined the provisions of Section 3-C(1)(b) of the U.P. Sales Tax Act, which states that every person who was a partner at the time of discontinuance shall be liable severally and jointly for the payment of the tax assessed and penalty imposed on the firm. The court noted that the legislative intent behind this provision was to ensure continuity in tax liability and prevent evasion by dissolving the firm.

The court referred to the case of Commissioner of Sales Tax v. Sampat Ram Jain [1971] 27 STC 307, where it was held that service on one partner is deemed sufficient for the purposes of assessment and recovery. The court emphasized that the fiction created by the statute treats every partner as a dealer to ensure that tax liability can be enforced without serving each partner individually.

2. Validity of Appeal Filed by One Partner:

The court addressed the contention that the appeal filed by Mehandi Hussain was within time because no notice was served on him. The Assistant Commissioner (judicial) had rejected the appeal as barred by time, holding that service on Nawi Hussain was sufficient for the firm. The Tribunal, however, remanded the matter, stating that all partners were not served.

The court concluded that service on one partner (Nawi Hussain) was sufficient, and thus, the dealer (the firm) was served. Consequently, the limitation period for filing an appeal started from the date of service on Nawi Hussain. The court held that the appeal filed by Mehandi Hussain was barred by time, and the Assistant Commissioner (judicial) was correct in rejecting it.

3. Interpretation of Section 3-C(1)(b):

The court analyzed the language and intent of Section 3-C(1)(b) of the U.P. Sales Tax Act. The provision creates a legal fiction treating every partner of a dissolved firm as a dealer for the purposes of tax liability. The court emphasized that the purpose of this fiction is to facilitate the assessment and recovery of tax from dissolved firms, preventing partners from evading tax liability by dissolving the firm.

The court referred to the case of Moti Dal Mills, Agra v. Sales Tax Officer [1978 UPTC 606], where it was held that service on the firm's business premises was not sufficient after dissolution, and service should be made on the partners individually. However, the court distinguished this case, stating that the issue was different, and the decision did not conflict with the principle that service on one partner is sufficient for assessment and recovery purposes.

The court also considered the decision in Income-tax Officer (Collection), Circle I, Bangalore v. Mrs. A. Sattler [1973] 92 ITR 576 (SC), where the Supreme Court held that notice served on one partner after dissolution was not valid for assessing another partner. However, the court noted that this decision was based on the specific provisions of the Income-tax Act and was not directly applicable to the U.P. Sales Tax Act.

Conclusion:

The court concluded that there was no conflict between the decisions in Commissioner of Sales Tax v. Sampat Ram Jain [1971] 27 STC 307 and Moti Dal Mills, Agra v. Sales Tax Officer [1978 UPTC 606]. It held that service on one partner of a dissolved firm is sufficient for the purposes of assessment and recovery under the U.P. Sales Tax Act. The appeal filed by Mehandi Hussain was barred by time, and the Assistant Commissioner (judicial) was correct in rejecting it. The court emphasized the need for the department to make all possible efforts to serve all partners, but service on one partner should be considered sufficient for legal purposes.