1991 (7) TMI 332 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality and validity of the recovery notice dated September 2, 1985.
2. Whether there was a transfer of business to the petitioner.
3. Applicability of Section 26(4) of the Gujarat Sales Tax Act, 1969.
4. Liability of the petitioner under Section 31 of the Indian Partnership Act, 1932.

Detailed Analysis:

1. Legality and Validity of the Recovery Notice:
The petitioner challenged the recovery notice dated September 2, 1985, which demanded Rs. 59,112 for sales tax dues pertaining to the period before the petitioner joined the business. The main ground of challenge was that the business was never transferred to the petitioner.

2. Transfer of Business:
The court examined the sequence of transactions involving the business known as Energy Electrical Corporation. Initially, it was a partnership business formed in 1965. By January 1971, three partners retired, leaving Prabhashankar Joshi as the sole proprietor. The petitioner joined as a partner on May 14, 1976, converting the sole proprietorship back into a partnership. Joshi retired on August 26, 1976, making the petitioner the sole owner. The court found that these transactions indicated a transfer of business to the petitioner.

3. Applicability of Section 26(4) of the Gujarat Sales Tax Act, 1969:
Section 26(4) of the Act deals with the transfer of business in whole or in part by any manner. The court held that the sequence of transactions constituted a transfer of business within the meaning of "in any other manner whatsoever" under Section 26(4). This interpretation was supported by the partnership deed and the retirement document, which showed that the petitioner took over the business as the sole proprietor.

4. Liability under Section 31 of the Indian Partnership Act, 1932:
The petitioner argued that under Section 31, he was not liable for any act of the firm done before he became a partner. The court noted that Section 31 governs relations between partners inter se and does not override the special provisions of Section 26(4) of the Gujarat Sales Tax Act, which is a taxing statute. Thus, the petitioner's liability for the sales tax dues was upheld.

Conclusion:
The court concluded that there was a transfer of the business to the petitioner within the meaning of Section 26(4) of the Gujarat Sales Tax Act, 1969. Therefore, the petitioner was liable for the sales tax dues, and the recovery notice was valid. The petition was dismissed, and any ad interim relief was vacated.