2022 (3) TMI 1314 - HC - VAT and Sales Tax

Recovery of arrears of tax - communication dated 04.05.2009, did not accompany a fresh Form B-6 under Rule 18(8) of the TNGST Rules - whether the notice dated 04.05.2009, was sufficient so as to attract liability under Section 26 (4) of the TNGST Act, 1959? - HELD THAT - A reading of Section 26 of the TNGST Act makes it clear that the assessing authority may at any time or from time to time, amend or revoke any such notice or extend the time for making any payment in pursuance of the notice. In this case, though in the original notice, the amount was confined for a paltry amount of ₹ 2,00,000/-, the facts on record indicate that a subsequent notice was issued on 04.05.2009, which made it amply clear that the third respondent was in arrears of ₹ 79,13,281/- to the Commercial Taxes Department towards tax. Despite the same, the petitioner continued to make payment of ₹ 76,57,863/- for the period between 28.05.2009 and 30.07.2009 to the third respondent and further sum of ₹ 60,27,290/- for the period between 28.04.2009 and 22.05.2009 and thereby, denied the legitimate revenue to the Government. The Commercial Taxes Department was not required to issue a fresh notice in Form B-6 as long as there was a further intimation of arrears of tax due from the third respondent to the Commercial Taxes Department. In this case, there was an intimation of arrears by a notice dated 15.04.2009 of the Commercial Taxes Department. It was incumbent on the part of the petitioner to have obtained proper clarification from the Commercial Taxes Department. Instead, the petitioner continued to make payment to the third respondent. There is no merit in the present Writ Petition, as the petitioner has taken a chance to violate Section 26 of the TNGST Act. The petitioner ought to have been cautious while making further payment to the third respondent. The sting under Section 26(4) stared at the petitioner - Petition dismissed.

Summary

Issues:
Challenge to impugned proceedings seeking recovery of payments made to third respondent, interpretation of Section 26 of TNGST Act regarding liability of a creditor for payments made to a defaulting dealer.

Analysis:
1. The petitioner challenged the proceedings of the first respondent seeking to recover payments made to the third respondent. The petitioner, a registered dealer under TNVAT Act and TNGST Act, purchased cotton from the third respondent. The first respondent issued notices regarding arrears owed by the third respondent, leading to the impugned proceedings dated 12.12.2011.

2. The impugned notice alleged that the petitioner made payments to the third respondent despite being aware of the arrears owed by the latter. The petitioner contended that they were only obligated to pay a specific amount mentioned in an earlier notice and were not liable for additional payments under Section 26 of the TNGST Act and TNGST Rules.

3. The court examined Section 26 of the TNGST Act, which allows the assessing authority to recover arrears from a defaulting dealer's creditor. The law holds that a creditor who pays in compliance with a notice is discharged from liability. However, any payment made after receiving the notice renders the creditor personally liable to the extent of the payment or the dealer's liability, whichever is less.

4. Despite the petitioner's argument that they were not properly notified under Section 26, the court found that subsequent notices clearly indicated the third respondent's arrears. The petitioner continued making payments to the third respondent, denying revenue to the government. The court held that the petitioner violated Section 26 and is liable to pay the amount, with liberty to recover from the third respondent.

5. The court dismissed the writ petition, emphasizing the petitioner's responsibility to adhere to Section 26 of the TNGST Act. The judgment highlights the importance of creditors being cautious and seeking clarification from tax authorities before making payments to defaulting dealers to avoid personal liability.

6. The judgment provides a detailed analysis of the legal provisions and factual circumstances, concluding that the petitioner's actions contravened Section 26 of the TNGST Act, leading to the dismissal of the petition with no costs.