1998 (11) TMI 627 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to the notices issued by the Excise and Taxation Officer for depositing arrears of sales tax as surety, Liability of petitioner as a surety for M/s. Jai Laxmi Rice Mills, Dissolution of the partnership firm and its impact on petitioner's liability, Interpretation of the surety bond terms, Recovery of tax dues from the petitioner, Action against other partners of the firm.

Analysis:
The petitioner challenged the notices issued by the Excise and Taxation Officer to deposit arrears of sales tax as surety for M/s. Jai Laxmi Rice Mills. The petitioner executed a surety bond in 1987 for the firm. After changes in the firm's constitution, the petitioner sought withdrawal from the surety bond. The petitioner contended that his liability as a surety ceased after the withdrawal, but the Officer issued a recovery notice. The petitioner also disputed the warrant of attachment and arrest, claiming no liability after withdrawal.

The petitioner argued that the dissolution of the firm in 1993 terminated his liability as a surety. The counsel cited Section 133 of the Indian Contract Act, stating that any variance in the contract without the surety's consent discharges the surety. The petitioner's liability was limited to Rs. 50,000 for tax liability before the dissolution. The respondents defended the recovery, stating the liability continued until the bond cancellation. They argued the petitioner's liability extended beyond the dissolution for taxes due till March 1996.

The Court found that tax liability post-March 1996 could not be recovered from the petitioner. As the firm dissolved in 1993 and the petitioner did not stand surety for the re-constituted firm, recovery from the petitioner was unjustified. The Court noted the existence of tax liability for specific years against the firm but found no liability post-dissolution. The petitioner's liability was limited to Rs. 50,000 as per the bond terms.

Referring to legal precedent, the Court held that recovery from the petitioner was limited to Rs. 50,000 only. The Court directed the respondents to focus on recovering tax dues from other partners. The Court emphasized that recovery efforts against the other partners should be pursued diligently. The writ petition was disposed of with a direction to recover only Rs. 50,000 from the petitioner.

This detailed analysis of the judgment highlights the issues raised, arguments presented, legal interpretations applied, and the final decision rendered by the Court.