2018 (1) TMI 817 - HC - VAT and Sales Tax

Recovery of Arrear Sales Tax - it is submitted by petitioner that if at all, the respondent has to recover any arrears of sales tax, then, the respondent should proceed against the dealer, or, in other words, the Proprietor, who owns the said Concern, as subsequently he released his part of shares - Held that - even if the petitioner had not obtained a decree from the Civil Court, the respondent could not proceed against the petitioner s father for the alleged sales tax due payable by the petitioner. In any event, the respondent cannot proceed against the petitioner, since the petitioner had succeeded before the Civil Court and obtained decree, which is ruled in favour of the petitioner, and held that the petitioner is not a Partner of M/s.S.S.Metals on and from 01.04.1990. The respondent has issued the impugned notice, which is bereft of particulars, and there seems to be a change of Officer, who was unaware of what has happened earlier and issued the impugned notice - impugned notice is held to be unenforceable against the petitioner - petition allowed.

Issues:
1. Validity of demand notice for arrears of tax and penalty.
2. Interpretation of partnership firm transitioning to a proprietorship concern.
3. Challenge to notice issued to petitioner's mother.
4. Dispute over the genuineness of the release deed.
5. Jurisdiction of Civil Court in determining partnership status.
6. Enforcement of impugned notice against the petitioner.

Issue 1: Validity of demand notice for arrears of tax and penalty
The petitioner challenged a demand notice for arrears of tax and penalty issued by the respondent under the Tamil Nadu General Sales Tax Act, 1959 for the assessment years 1990-1991 and 1991-1992. The petitioner argued that as a minor, he held only a 5% share in the partnership firm, which later became a proprietorship concern through a release deed. The petitioner contended that any arrears should be recovered from the dealer or the proprietor, not him.

Issue 2: Interpretation of partnership firm transitioning to a proprietorship concern
The petitioner claimed that the partnership firm transitioned into a proprietorship concern after the release deed executed by him, represented by his father. The petitioner highlighted the assessment orders showing the evolution of the firm's structure from a partnership to a proprietorship. The petitioner argued that the respondent should pursue recovery from the proprietor, not the petitioner.

Issue 3: Challenge to notice issued to petitioner's mother
A notice was issued to the petitioner's mother, challenging her liability for arrears of sales tax. The Special Tribunal set aside the notice, emphasizing that any liability of the minor son should be recovered from his assets, absolving the mother from payment. This decision established that the mother was not liable for the minor son's tax arrears.

Issue 4: Dispute over the genuineness of the release deed
The respondent alleged that the release deed was fictitious and created to evade tax liabilities. However, the petitioner's father challenged this claim before the Special Tribunal, which directed the petitioner to establish the truth of the retirement through proper proceedings. The Civil Court later decreed that the petitioner was not a partner from a certain date, affirming the genuineness of the release deed.

Issue 5: Jurisdiction of Civil Court in determining partnership status
The Civil Court's judgment declared the petitioner was not a partner of the firm from a specific date, providing legal clarity on the partnership status. The court's decision, in this case, was crucial in determining the petitioner's liability for the tax arrears and preventing further proceedings against him.

Issue 6: Enforcement of impugned notice against the petitioner
The High Court held that the impugned notice was unenforceable against the petitioner, emphasizing the Civil Court's decree and the Special Tribunal's findings. The court ruled in favor of the petitioner, quashing the notice against him while allowing the respondent to pursue recovery proceedings against the registered dealer. The court highlighted the lack of particulars in the notice and the change of the issuing officer as factors contributing to the notice's invalidity.

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