1986 (2) TMI 302 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the assessing authority becomes functus officio upon receiving intimation of the dissolution of a firm.
2. Whether the assessing authority must accept the dealer's statement of dissolution without further inquiry.

Issue-wise Detailed Analysis:

1. Whether the assessing authority becomes functus officio upon receiving intimation of the dissolution of a firm:

The central question was whether the assessing authority loses its jurisdiction to frame an assessment upon receiving an intimation regarding the dissolution of a firm. The Financial Commissioner had held that the assessing authority becomes functus officio after receiving such intimation, relying on the case of Ranjit Singh v. Assessing Authority, Sales Tax Officer, Ward No. VII, Delhi [1972] 29 STC 499 (Delhi). However, the High Court disagreed with this view, emphasizing that the judgment in Ranjit Singh's case was delivered per incuriam as the relevant provisions of the local Act and Rules were not considered.

The Court referred to the Supreme Court's judgment in State of Punjab v. Jullundur Vegetables Syndicate [1966] 17 STC 326 (SC), which established that a dissolved firm ceases to be a legal entity and cannot be assessed unless there is a statutory provision allowing for such assessment. However, the High Court clarified that this principle does not preclude the assessing authority from inquiring into the fact of dissolution.

2. Whether the assessing authority must accept the dealer's statement of dissolution without further inquiry:

The High Court held that the assessing authority is not bound to accept the dealer's statement of dissolution without further inquiry. The relevant rules under the Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi, specifically require the dealer to produce evidence in support of any objection, including the dissolution of the firm.

Rule 32 mandates that a notice in form S.T. XIV be issued to the dealer, requiring the production of books, documents, and any evidence in support of objections. Rule 36 further stipulates that the assessing authority must consider any objections and evidence produced before making an assessment. The Court emphasized that these rules apply to all objections, including those concerning the dissolution of a firm.

The Court also referred to provisions requiring dealers to report the dissolution of a firm within a prescribed time, as per Section 16 and Rule 10(1). The Commissioner has the discretion to amend, replace, or cancel the registration certificate based on the evidence provided, indicating that the assessing authority can inquire into the truth of the dissolution claim.

The High Court supported its conclusion by citing Supreme Court judgments in Khushi Ram Behari Lal & Co. v. Assessing Authority, Sangrur [1967] 19 STC 381 (SC) and Khushiram Behari Lal & Co. v. Assessing Authority, Sangrur [1977] 39 STC 34 (SC), which affirmed that the question of a firm's dissolution is open to inquiry.

Conclusion:

The High Court answered the reference in the negative, holding that the Financial Commissioner was not justified in concluding that the assessing authority becomes functus officio upon receiving intimation of a firm's dissolution. The assessing authority is entitled to inquire into the truth of the dissolution claim. The Commissioner of Sales Tax was awarded costs of the references, with counsel's fee set at Rs. 500 in each case.