2000 (4) TMI 36 - SC - VAT and Sales Tax

Whether Sri R.A. Mehta was empowered to file the present plaint for and on behalf of the plaintiff-bank for recovery of the amount claimed in the suit?

Whether the sales tax arrears due from the first defendant partnership to the State of Karnataka can be recovered in preference to the suit claim of the plaintiff-bank.

Whether the partners of the first defendant partnership firm are personally liable for the arrears of sales tax due from the first defendant partnership to the State of Karnataka.

What decree or order?

Held that:- The power of attorney was executed on June 19, 1963, by the managing director and one another director. It was notarised on July 7, 1966. Thus, the power of attorney came to be executed in favour of R.A. Mehta, who has filed the suit in question on April 13, 1972, on behalf of the plaintiff-bank. Therefore, we answer point No. (i) in the affirmative.

Answer point No. (ii) in the affirmative and hold that having regard to the provisions contained in sections 156, 161 and 190(c) of the Land Revenue Act read with section 13(3)(a) of the Karnataka Sales Tax Act the arrears of sales tax and any other amount due under the Sales Tax Act to the State shall have precedence over the suit claim of the plaintiff and the same can be recovered by the State in preference to the suit claim.

There was no change in the partnership and its partners. As the matter stood prior to introduction of sub-section (2A) of section 15 of the Act, there was no specific provision contained in the Act either excluding the partners or specifically making them personally liable for the sales tax arrears under the Act. As such, section 25 of the Partnership Act held the field. The insertion of sub-section (2A) in section 15 of the Sales Tax Act, is nothing but extension of the joint and several liability of a partner for all the acts of firm done while he is a partner as contained in section 25 of the Partnership Act to the sales tax arrears which otherwise existed. This position flows from the provisions contained in section 25 of the Partnership Act. Thus, we are of the view that Point No. (iii) has to be answered in the affirmative.

While considering point No. 2, as already held that the sales tax arrears due to the State from the first respondent-partnership, shall have preference over the plaintiff’s claim. Therefore, we accept the compromise except clauses (7) and (8) and other terms which affect the preferential claim of the State to recover sales tax arrears by sale of the suit properties, and decree the suit of the plaintiff in terms of the compromise, subject to exception as stated above, and subject to the condition that the sales tax arrears including the penalty, if any, due under the Sales Tax Act from the first respondent and its partners shall have preference over the plaintiff’s claim, and the plaintiff shall have to first pay the amount recovered during the course of execution to the State towards the sales tax arrears and the other amount due under the Sales Tax Act from the first respondent and its partners and thereafter the plaintiff is entitled to adjust the remaining amount towards the amount due under the decree. Appeal allowed.