2013 (3) TMI 584 - HC - VAT and Sales Tax

Recovery from the petitioners under the Haryana General Sales Tax Act, 1973 and Central Sales Tax Act, 1956 - Held that - The recovery notices, annexure P8 and P9, are liable to be set aside on the short ground that the petitioners had not stood surety for the period, the unit has been made liable to pay the amount of tax. The petitioners cannot be burdened with recovery of sales tax arrears as in the successive year as they were not sureties for the same. W.P. allowed.

Summary

Issues:
1. Quashing of notice seeking recovery under HGST Act and CST Act.
2. Validity of surety bonds furnished by petitioners.
3. Jurisdiction of civil court in recovery matters.

Analysis:

Issue 1: Quashing of notice seeking recovery under HGST Act and CST Act
The petitioners filed a petition under article 226/227 of the Constitution of India to quash a notice seeking recovery of an amount from them under the Haryana General Sales Tax Act, 1973 and the Central Sales Tax Act, 1956. The petitioners had stood surety for a company that availed sales tax exemption benefits but later did not renew the exemption certificate. The recovery proceedings were initiated against the petitioners as sureties. The petitioners contended that they were not liable for the subsequent period as they had only stood surety for a specific period. The court found in favor of the petitioners, setting aside the recovery notices.

Issue 2: Validity of surety bonds furnished by petitioners
The court analyzed the provisions of rule 28A of the Haryana General Sales Tax Rules, which required surety bonds to be furnished for granting exemption certificates. The petitioners had stood surety for a specific period, and the exemption certificate was renewed only until June 30, 1997. The court noted that the petitioners did not furnish additional security for subsequent years, making them not liable for sales tax payment beyond the period for which they had stood surety. The court held that the surety was not valid for the subsequent period, and the recovery notices were set aside based on this ground.

Issue 3: Jurisdiction of civil court in recovery matters
The petitioners had also approached the civil court, which dismissed their suit citing the bar on jurisdiction under the Haryana General Sales Tax Act. An appeal against this decision was also dismissed. The court reiterated that the petitioners, as sureties, could not file appeals against the recovery proceedings. The court emphasized that the liability of the petitioners was limited to the period for which they had stood surety and that they could not be burdened with recovery for subsequent years. The court allowed the petition, setting aside the impugned orders seeking recovery.

In conclusion, the court quashed the recovery notices under the HGST Act and CST Act, holding that the petitioners were not liable for sales tax arrears beyond the specific period for which they had stood surety. The court emphasized the limited liability of the sureties and clarified the jurisdictional limitations in recovery matters under the relevant tax laws.