1967 (12) TMI 53 - SC - VAT and Sales Tax

FIRM ONE TIME PARTNER APPOINTED AS AUTHORISED CONTROLLER PENDING SUIT FOR DISSOLUTION TAX ASSESSED ON FIRM WHEN CAN BE RECOVERED FROM AUTHORISED CONTROLLER.

Summary

Issues:
1. Appointment of an authorized controller for a cotton spinning mills company.
2. Assessment of sales tax on the turnover from the sale of yarn produced by the factory.
3. Liability of the authorized controller to pay the sales tax assessed against the firm.
4. Legal distinction between the liability of partners and the authorized controller.

Analysis:
The case involved the appointment of an authorized controller for a cotton spinning mills company by the Government of U.P. and later by the Central Government. The authorized controller managed the factory and sold goods produced in the factory under the orders of the government. The issue arose when the Sales Tax Officer assessed the firm for sales tax under the U.P. Sales Tax Act for the assessment years 1949-50 to 1953-54. A significant amount was assessed as tax, leading to a dispute regarding the recovery of the tax.

The Sales Tax Officer initiated proceedings for the recovery of the assessed tax against nine out of the sixteen partners of the firm. Subsequently, the Sales Tax Officer issued a notice to the authorized controller to pay the outstanding sales tax. The authorized controller challenged the notice in the High Court of Allahabad, contending that he was acting on behalf of the government orders and not personally liable for the tax assessment against the firm. The High Court dismissed the application, and the decision was upheld on appeal.

The main legal question revolved around the liability of the authorized controller to pay the sales tax assessed against the firm. The High Court held that the authorized controller, being instrumental in selling the goods, could be held liable for the unpaid tax. However, the Supreme Court disagreed with this reasoning. The Court emphasized that the authorized controller had not been assessed to pay tax in his capacity as an authorized controller. The liability to pay tax was mistakenly enforced based on the assumption that the controller, being a former partner, could be held accountable for the firm's tax liability.

The Supreme Court highlighted the necessity to determine whether the partnership agreement was in force during the relevant assessment years and whether the authorized controller was a partner of a subsisting firm at that time. The Court concluded that the High Court failed to address these crucial aspects before enforcing the tax liability against the authorized controller. Consequently, the Supreme Court allowed the appeal, set aside the High Court's order, and remanded the case back to the High Court for a proper assessment based on the observations made in the judgment. No costs were awarded in the appeal, and the costs before the Single Judge and the Division Bench would be considered as costs in the petition.