2017 (3) TMI 1191 - HC - VAT and Sales Tax

Minor - recovery of sales tax dues - Section 65 of the Revenue Recovery Act - it is the case of petitioner that in the Government Order dated 02/08/2003, there was a clear finding that the partnership was reconstituted by excluding the petitioner while he was a minor and the petitioner has ceased to be a beneficiary of the partnership firm. The period of assessment of sales tax arrears in question is later to the cessation of the petitioner as a beneficiary of the partnership firm - Held that - the petitioner was already removed from the benefits of the partnership w.e.f. 01/01/1976 - Unless it is found on evidence, that the petitioner had become a partner of the firm subsequent to 01/01/1976, there cannot be any liability mulcted on the petitioner, as a partner. Yet another eventuality is whether the petitioner had succeeded to the estate of any deceased partner, who is jointly and severally liable to pay the amount. In such an event, there would not be any personal liability, whereas the liability will only be to the extent of properties succeeded from the deceased partner - petition allowed - decided in favor of petitioner.

Summary

Issues:
Challenge to Ext.P5 order confirming revenue recovery proceedings against petitioner.

Analysis:
1. The petitioner was initially a minor partner in a firm and later excluded from the partnership during a reconstitution. The revenue recovery proceedings were initiated against the petitioner based on his earlier partnership status. Petitioner challenged this action through various revisions and writ petitions.

2. The main contention was that the petitioner had ceased to be a beneficiary of the partnership firm before the period for which sales tax arrears were due. The Government Order directed proceedings against all partners during the arrears period. The petitioner argued against reappreciation of facts post the Government Order.

3. The Court observed discrepancies in the reconstitution dates of the firm and the petitioner's partnership status. The District Collector found the petitioner liable based on the Indian Partnership Act, holding all partners jointly liable. The petitioner presented evidence from the Register of Firms supporting his retirement from the firm.

4. The liability of partners in a firm was discussed under Sec.21 of the KGST Act, emphasizing joint and several liability until retirement. The Act specifies that minors can only be admitted to partnership benefits, not liable for debts. The petitioner's partnership period coincided with his minor status, exempting him from personal liability.

5. Sections 30 and 25 of the Partnership Act were analyzed to determine the petitioner's liability. The Court highlighted that the minor's liability is limited to the firm's acts, not personal debts. The absence of evidence post-1976 regarding the petitioner's partnership status was crucial in the decision.

6. The Court clarified the provisions of Sections 30(5) and 30(7) regarding a minor's election to become a partner, which did not apply as the petitioner had ceased partnership benefits in 1976. Section 35 on the liability of a deceased partner's estate was deemed irrelevant to the case.

7. The judgment allowed the writ petition, setting aside the demand against the petitioner as a partner, and quashing the related orders. The decision preserved the revenue authorities' right to pursue alternative recovery methods without prejudicing the petitioner's rights.