2023 (3) TMI 882 - HC - VAT and Sales Tax

Recovery of arrears of tax - criminal liability of the main accused and of the guarantor - returns filed by the first petitioner for the year 2013-14 was not complete and the returns did not tally with the actual sales reported by the first accused - HELD THAT - Though it is true that the second accused had given an undertaking to pay taxes, if the first accused fails to pay the same that cannot be the sole reason to fix the second accused also for the default committed by the first accused. Though it might be true that the second accused also liable to pay the tax arrears in view of his undertaking or guarantee given in favour of the 1st accused to the commercial tax department. However that can be done by taking civil action for recovery. Unless the second petitioner is the assessee in the eyes of the Act he cannot be implicated as an accused for the default committed on the part of the first accused, who alone is the assessee. Since the complaint has been given against this petitioner by presuming culpability on his part for failing to pay the tax, there is no basis for this criminal case. The undertaking or the guarantee executed by the second accused in favour of the 1st accused to the department can be at the best called as an agreement and for which the petitioner can be attached with contractual liability but not criminal liability. In order to serve the ends of the justice and to prevent the abuse of the process of the Court, the proceedings against the second accused alone should be quashed - Petition allowed.

Summary

Issues:
Proceedings quashing in CC.No.7 of 2019 against petitioner/A2.

Analysis:
The 1st respondent filed a private complaint against accused 1 and 2 for various offenses under different acts and rules. The first accused, a proprietor of a chicken agency, allegedly did not file complete returns and pay taxes for a specific period. The second accused, petitioner herein, had given an undertaking to pay the tax arrears of the first accused. Despite demands, the second accused did not pay the tax arrears, leading to the allegations against him. The petitioner argued that he should not be held criminally liable as he is not an assessee under the relevant acts. The prosecution contended that the petitioner's undertaking made him equally accountable for the tax dues of the first accused.

The court noted that the sole reason for implicating the second accused was the undertaking to pay tax arrears on behalf of the first accused. While acknowledging the petitioner's liability under the undertaking, the court emphasized that civil action could be taken for recovery, not criminal prosecution. The court held that unless the second accused is an assessee under the law, he cannot be charged for the first accused's defaults. The court observed that the complaint presumed the petitioner's culpability for tax non-payment, lacking a basis for criminal liability. The court concluded that the proceedings against the second accused should be quashed to prevent the abuse of the court process and uphold justice.

Therefore, the court allowed the Criminal Original Petition, quashing the proceedings against the petitioner/A2 in CC.No.7 of 2019 before the Judicial Magistrate, Mahe. The judgment highlighted the distinction between civil and criminal liabilities concerning tax arrears and emphasized the importance of legal accountability based on statutory definitions and obligations.