2021 (3) TMI 961 - HC - VAT and Sales Tax

Principles of natural justice - Revision of proceeding - recovery of tax arrears - proceedings are challenged by the petitioners on the ground that before issuing the impugned notice dated 26.12.2005 no show cause notice was issued to them and no personal hearing was held - HELD THAT - There is no dispute that there was a transfer of ownership of business of the proprietary concern of Mr.K.Y.Gaitonde to the newly constituted partnership firm. The proprietary concern also which also took over the name M/s.Gomukhi Charma Kendra of the proprietary concern of Mr.K.Y.Gaitonde. Thus all the assets including good will of the erstwhile proprietary concern of Mr.K.Y.Gaitonde was taken over by the partnership firm which consisted of three partners namely Mr.K.Y.Gaitonde and the 2 petitioners. The respective petitioners held 50% and 41.67% of the shares in the profit and loss of the business of the partnership firm based on the credit standing in their name in the books of accounts with the proprietary concern of Mr.K.Y.Gaitonde of the erstwhile proprietary concerned by name M/s.Gomukhi Charma Kendra - It clearly shows that there was a transfer of business in favour of the partnership concerned. Therefore there can be no question that the petitioners not being made liable to pay for arrears of tax of the proprietary concern of Mr.K.Y.Gaitonde. However they are liable only to the extent of the assets that were transferred on the date of execution of the partnership deed dated 29.03.2002 as it is evident from a reading of Section 27 of the TNGST Act 1959 - it was incumbent on the part of the respondents to particularize the extent of liability to which they can be exposed while issuing notice under Section 27 of the TNGST Act 1959. These writ petitions stand allowed with liberty to the respondents to initiate appropriate proceedings against the petitioners to the extent of assets that were transferred to the partnership firm on 29.03.2002.

Summary

Issues:
Challenge to impugned notices and communication for tax arrears liability and rejection of revision application under TNGST Act, 1959.

Analysis:
The case involved four writ petitions challenging impugned notices dated 26.12.2005 and a communication dated 07.02.2006 rejecting the revision application for tax arrears liability. The petitioners, niece and nephew of Mr. K.Y. Gaitonde, entered into a partnership with him to take over his business, M/s. Gomukhi Charma Kendra, which had tax arrears. The partnership arrangement was detailed in an unregistered partnership deed. The petitioners were issued notices to pay tax arrears of the proprietary concern. The rejection of their revision petitions under Section 33 of the TNGST Act, 1959 was based on the argument that no revision lies against a notice for payment of arrears.

The petitioners contended that the impugned notice was an order demanding payment and should be subject to revision under Section 33 of the TNGST Act, 1959. They argued that the liability should be restricted to the proportionate value of assets due to the business transfer. The petitioners emphasized the need for specific details on the liability extent as per the proviso to Section 27 of the TNGST Act, 1959. They cited relevant case law to support their position.

The Commercial Tax Department defended the impugned order, asserting that the assets of the proprietary concern were transferred to the partnership firm, justifying the tax arrears liability under Section 27 of the TNGST Act, 1959. They argued against the revision application, stating it was a mere notice for payment.

The court analyzed the transfer of business ownership to the partnership firm and the liability of the petitioners limited to the assets transferred as per Section 27 of the TNGST Act, 1959. It emphasized the need for particularizing the extent of liability in notices. The court quashed the impugned notices and rejection of revision applications, granting liberty to issue fresh notices specifying the liability extent. The respondents were allowed to initiate proceedings under other provisions of the TNGST Act, 1959 against asset recipients from Mr. K.Y. Gaitonde. The writ petitions were allowed with liberty for appropriate proceedings within three months.