2014 (5) TMI 335 - HC - VAT and Sales Tax

Whether on passing of the final assessment order, the provisional assessment order is discharged including the liabilities created under the provisional assessment order, if any - Validity of Provisional assessment order - Quashment of recovery notice Pre-deposit - Mandamus to bar recovery proceeding Rule 41 of the U.P. Trade Tax Rules, 1948 - Held that - Judgment in Gangadhar Ramchand Oil Mills vs. Sales Tax Officer, Sector VI, Agra and another 1980 (2) TMI 244 - ALLAHABAD HIGH COURT followed The Rules do not contemplate determination of the turnover of a dealer for a particular period again and again, that is, once under Rule 41(3) and again under Rule 41(5) - The rule contemplates that once the turnover for a particular period falling within a particular assessment year has been determined, the dealer has to pay the tax payable on such turnover and in case he does not pay the same, the Sales Tax Officer can recover it under Rule 41(6) - Viewed in this light, the question of such determination of turnover and the liability for payment of tax thereon becoming ineffective on the assessment year coming to an end or because of initiation of proceedings for final assessment under Rule 41(5), does not arise Therefore, the proceedings for recovery initiated for the amount under the provisional assessment shall not become non-est merely by passing of the final assessment order. The petitioners themselves have enclosed the copy of the security/sureties to the writ petition - The contents of the surety clearly indicate that the surety bound themselves to make the payment of surety amount even if the appeal is decided or become infructuous The petitioners have also brought on the record copy of the order passed in second appeal as to the writ petition by which order the second appeal filed by the petitioners against the provisional assessment order was dismissed by Tribunal Thus, 95% security was given under the interim order of the Tribunal which was passed in the second appeal during its pendency - The appeal having been finally dismissed, the security/surety given in pursuance of the interim order can very well be enforced by the tax authorities for realisation of the amount - In the final assessment order there is nothing that provisional assessment order has been reversed and the tax liability which was created by the provisional assessment order has come to an end expressly or impliedly Thus, according to the terms and conditions of the sureties undertaken by the petitioners, they are not entitled to contend that their sureties stood discharged - This court does not find any infirmity in the recovery notice and the citation issued against assessees - Assessees are not entitled for any relief as prayed for in the writ petition - The writ petition is dismissed Decided against assessees

Issues Involved:
1. Validity of the recovery notice and citation.
2. Effect of final assessment order on provisional assessment order.
3. Discharge of sureties upon final assessment order.
4. Applicability of Sections 129, 133, and 135 of the Contract Act, 1872.

Detailed Analysis:

1. Validity of the Recovery Notice and Citation:
The petitioners challenged the recovery notice dated 10th January 2012 and the consequent recovery citation dated 12th March 2012, arguing that these should be quashed as the sureties given by the petitioners stood discharged upon the final assessment order. The court rejected this argument, stating that the provisional assessment order merges with the final assessment order as per Section 28(8) of the U.P. Value Added Tax Act, 2008. Therefore, the liability under the provisional assessment order does not get discharged merely by the final assessment order.

2. Effect of Final Assessment Order on Provisional Assessment Order:
The petitioners contended that the provisional assessment order should be considered non est (null and void) after the final assessment order. The court, however, clarified that the provisional assessment order merges into the final assessment order, meaning it becomes part of the final assessment and is not automatically discharged. The court cited Section 28(8) of the U.P. Value Added Tax Act, 2008, which states that provisional assessment orders merge with the final assessment orders. Therefore, the liabilities created under the provisional assessment order continue unless explicitly discharged in the final assessment order.

3. Discharge of Sureties Upon Final Assessment Order:
The petitioners argued that the sureties they provided in context of the provisional assessment order should be discharged after the final assessment order. The court noted that the sureties were given to secure the amount under the provisional assessment order, and since the final assessment order confirmed the tax liability, the sureties remain enforceable. The court referenced the terms of the surety bond, which indicated that the sureties would remain liable even if the appeal became infructuous. Furthermore, the second appeal was dismissed as infructuous because the final assessment order was passed, confirming the provisional assessment.

4. Applicability of Sections 129, 133, and 135 of the Contract Act, 1872:
The petitioners invoked Sections 129, 133, and 135 of the Contract Act, 1872, arguing for the discharge of sureties. The court found these sections inapplicable:
- Section 129 (Continuing Guarantee): The court held that the surety given by the petitioners was not a continuing guarantee but a specific one for the provisional assessment amount.
- Section 133 (Discharge by Variance in Terms of Contract): The court found no variance in the terms of the contract that would discharge the surety.
- Section 135 (Discharge when Creditor Compounds with, Gives Time to, or Agrees Not to Sue Principal Debtor): The court noted that there was no agreement to compound, give time, or not sue the principal debtor in this case.

Conclusion:
The court dismissed the writ petition, upholding the recovery notice and citation. The petitioners' arguments regarding the discharge of sureties and the effect of the final assessment order on the provisional assessment order were rejected. The court emphasized that the provisional assessment order merges into the final assessment order, and the sureties provided remain enforceable as per the terms of the surety bond and relevant legal provisions.

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