2018 (6) TMI 1593 - HC - VAT and Sales Tax

Recovery of tax arrears - Enforce-ability of Bond executed during the pendency of the appeal - Held that - It is not in dispute that the security bond was executed in Form XIX during the pendency of the appeal for the purpose of obtaining stay. A reading of Rule 31(1) of the Tamil Nadu General Sales Tax Rules, 1959, would clearly show that the validity of the security bond shall remain in force during the pendency of the appeal. If the appeal is allowed or remanded back, it shall become void or ineffective. In the event, the appeal is dismissed, the security bond shall be valid for another three months till further action is taken challenging the order passed by the appellate authority. Admittedly, the petitioner is not a Director. The first respondent cannot proceed against a legal heir of one of the deceased Directors. The company shall be proceeded through the Directors who are holding office and not against the legal heirs of the deceased Director. To be precise, the security bond executed in Form XIX has become void and ineffective by operation of Rule 31(1) of the Tamil Nadu General Sales Tax Rules, 1959 - Therefore, the bond executed during the pendency of the appeal is not enforceable after the disposal of the appeal. Petition allowed - decided in favor of petitioner.

Issues:
1. Validity of a notice issued for recovery of tax arrears through a petitioner's property.
2. Interpretation of Rule 31(1) of the Tamil Nadu General Sales Tax Rules, 1959 regarding the validity of a security bond.
3. Whether a security bond executed during the pendency of an appeal remains enforceable after the appeal's disposal.
4. Jurisdiction of the first respondent to recover tax arrears from a third party who is not a director of the company.

Issue 1:
The judgment deals with a writ petition challenging a notice issued by the first respondent for the recovery of tax arrears of the second respondent through the petitioner's property. The petitioner, being the wife of one of the directors, had provided her personal property as security during the appeal process. The appellate authority set aside the assessment order and remanded the matter for fresh consideration. Subsequently, the first respondent issued a notice calling for the remittance of tax arrears, threatening to sell the property given as security. The petitioner contested the notice, leading to the present case before the court.

Issue 2:
The petitioner's counsel argued that as per Rule 31(1) of the Tamil Nadu General Sales Tax Rules, 1959, the security bond executed during the appeal becomes void upon the appeal's disposal in favor of the appellant. The counsel emphasized that the security bond, as per Form XIX, would cease to have effect once the appeal is fully allowed or remanded in favor of the petitioner. The appellate authority's decision to set aside the assessment order rendered the security bond ineffective.

Issue 3:
The first respondent contended that the security bond, executed by the petitioner as a legal heir of the second respondent, remained valid. However, the court analyzed Rule 31(1) and determined that the security bond's validity is tied to the appeal's outcome. If the appeal is allowed or remanded, the bond becomes void. Since the petitioner was not a director of the company, the court held that the bond executed during the appeal's pendency was not enforceable after the appeal's disposal.

Issue 4:
The court clarified that the first respondent could not proceed against the petitioner, a third party who was not a director of the company. The judgment highlighted that any action against the company should be directed at the directors or the company itself, not the legal heirs of deceased directors. As the security bond had become void as per the rules, the court set aside the impugned notice, directing the first respondent to release the documents submitted through Form XIX to the petitioner.

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