2023 (11) TMI 1067 - HC - VAT and Sales Tax

Maintainability of appeal - appellant was relegated to pursue his alternative remedy under the statute - Recovery of tax dues of the firm for the assessment year 2002-2003 - appellant retired from the partnership with effect from 17.10.2000 and the fact of his retirement was intimated to the Department - HELD THAT - It is not in dispute that the retirement deed that showed the appellant as having retired from the partnership firm in the year 2000 was received by the Department well before the assessment year 2002-2003. It is also not in dispute that in the penalty proceedings initiated for the said period, the appellant was not shown as partner of the firm that was proceeded against. Still further, in the assessment proceedings against the firm, the partner who was admitted to the partnership in lieu of the appellant was also shown as a partner of the firm that was proceeded against - the said actions on the part of the Department would by themselves indicate that the Department was in the know of things and in particular of the fact that the appellant had ceased to be a partner of the firm in 2000 itself. The acceptance by the Department of the retirement deed, and their knowledge with regard to the fact of retirement of the appellant, are sufficient to conclude that the object of Rule 5(8) of the KGST Rules was met in the facts of the instant case. If that be so, then it is apparent that the Department could not have proceeded against the appellant for realisation of the tax dues of the firm for the assessment year 2002- 2003. Thus, it was unnecessary for the learned singe judge to have relegated the appellant to pursue his alternative remedy under the statute - the assessment orders/revenue recovery notices impugned in the writ petition is set aside - appeal allowed.

Summary

Issues involved:
The issues involved in the judgment are retirement from partnership firm, tax liability, submission of statutory Form No. 3, alternative remedy under Article 226 of the Constitution of India, and compliance with statutory provisions in tax matters.

Retirement from partnership firm:
The appellant retired from the partnership firm with effect from 17.10.2000, as per the retirement deed produced in the writ petition. Despite the appellant's retirement and intimation to the authorities, assessment orders were issued for the assessment year 2002-2003, demanding a significant amount towards tax liability. The Department issued revenue recovery notices holding the appellant jointly liable with other partners. The respondents admitted receiving the retirement deed but contended that the appellant did not submit the statutory Form No. 3, leading to a dispute on the appellant's obligation to bear tax burden with other partners.

Submission of statutory Form No. 3:
The respondents argued that the appellant's failure to submit Form No. 3 as per Rule 5(8) of the KGST Rules prevented him from avoiding tax liability. The appellant's counsel, however, asserted that the retirement deed, acknowledged by the respondents, should be considered as substantial compliance with statutory provisions. Citing legal precedent, the appellant's counsel emphasized that substance should prevail over form, especially when no prejudice is caused to the Department.

Alternative remedy under Article 226 of the Constitution of India:
The learned Single Judge determined that the factual aspect of the appellant's partnership status during the assessment year should be addressed by the adjudicating authority, not under Article 226. The appellant's counsel argued against relegating the appellant to an alternative remedy, highlighting the Department's awareness of the appellant's retirement and lack of dispute on the factual aspects.

Compliance with statutory provisions in tax matters:
The Senior Government Pleader contended that statutory provisions must be strictly followed in tax matters to safeguard revenue interests. However, the High Court found in favor of the appellant, emphasizing that the Department's acceptance of the retirement deed and knowledge of the appellant's retirement fulfilled the objective of Rule 5(8) of the KGST Rules. The Court concluded that the Department could not pursue the appellant for tax dues of the firm for the assessment year 2002-2003, as the factual aspects were clear and undisputed.

Conclusion:
The High Court allowed the writ appeal, setting aside the judgment of the Single Judge and the assessment orders/revenue recovery notices concerning the appellant. The Court held that the Department's actions and knowledge regarding the appellant's retirement from the partnership firm were sufficient to conclude that the appellant was not liable for the tax dues, thereby ruling in favor of the appellant.