1990 (6) TMI 205 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Maintainability of the suit against the State under Section 49 of the Kerala General Sales Tax Act, 1963.
2. Maintainability of the suit seeking invalidation of proceedings under the Revenue Recovery Act, 1968.
3. Maintainability of the suit against the State without notice under Section 80(1) of the Code of Civil Procedure, 1908, or leave under Section 80(2).
4. Permissibility of recovery against a partner of the firm for the firm's sales tax liability.

Issue-wise Detailed Analysis:

1. Maintainability of the Suit Against the State Under Section 49 of the Kerala General Sales Tax Act, 1963:
The plaintiff contended that the bar under Section 49 operates only against a registered dealer, which in this case is the firm, not the partner. The State argued that the attachment of the plaintiff's properties in 1963 was part of the recovery process, and the plaintiff did not avail of the internal remedy of revision before the Board of Revenue. The court found it unnecessary to pronounce finally on this question in light of conclusions on other points.

2. Maintainability of the Suit Seeking Invalidation of Proceedings Under the Revenue Recovery Act, 1968:
The State emphasized that the Revenue Recovery Act is a self-contained code, providing exhaustive provisions for recovery steps and correctional avenues. The plaintiff relied on Section 80(1) of the Revenue Recovery Act, which keeps alive a remedy by way of suit for an aggrieved defaulter. The court noted that the plaintiff had not taken steps to question the attachment proceedings since 1963 until the notice of sale in 1978, indicating a lack of urgency.

3. Maintainability of the Suit Against the State Without Notice Under Section 80(1) of the Code of Civil Procedure, 1908, or Leave Under Section 80(2):
The court emphasized the mandatory nature of Section 80, which requires a two-month notice before instituting a suit against the Government, except in urgent cases where leave of the court is obtained under Section 80(2). The plaintiff's application for leave cited the proposed sale and lack of time to issue notice. The court found that the plaintiff had ample opportunities to challenge the recovery earlier and that the urgency claimed did not justify bypassing the notice requirement. Consequently, the suit had a fatal defect due to non-compliance with Section 80(1).

4. Permissibility of Recovery Against a Partner of the Firm for the Firm's Sales Tax Liability:
The court examined whether the assets of an individual partner could be proceeded against for the firm's tax dues. Under the General Sales Tax Act, 1125, the firm is an assessable entity, and recovery proceedings are permissible only against the firm. However, the Kerala General Sales Tax Act, 1963, introduced Section 21, making each partner jointly and severally liable for the firm's tax. The court interpreted Section 61 of the 1963 Act, which equates outstanding tax liabilities under the 1125 Act to liabilities under the 1963 Act, allowing recovery from partners. The court declared that the liability of a firm under the 1125 Act could be recovered after the 1963 enactment by proceeding against the firm and its partners. This interpretation led to the dismissal of the suit and rejection of the plaintiff's contentions.

Conclusion:
The court reversed the appellate court's decision, emphasizing the mandatory nature of Section 80 of the Code of Civil Procedure and the joint and several liability of partners under the Kerala General Sales Tax Act, 1963. The suit was dismissed due to non-compliance with Section 80(1), and the recovery of tax arrears from the partner's assets was deemed permissible. The judgment highlighted the negligence of the State's officers in handling the case and called for accountability and improved departmental functioning.