2016 (9) TMI 407 - HC - VAT and Sales Tax

Validity of recovery proceedings - attachment of residential property of the surety (mother) of firm in which her son is a partner - Section 12 read with Rule 28(8) of the Andhra Pradesh General Sales Tax Act and Rules, 1957 - Held that - It is settled law that the surety given by a person, on behalf of the assessee, would remain in force against the tax payable under the APGST Act for a year as estimated by the assessee. As the estimated turnover declared in Form D is ₹ 20,00,000/-, and the rate of tax during the said period was 4%, the liability of the surety, to pay the tax arrears of the partnership firm, is only upto ₹ 80,000/- and not beyond - the impugned demand notice, to the limited extent the surety was called upon to pay an amount in excess of ₹ 80,000/-, is set aside. The respondents may proceed and recover the arrears of tax, due from the partnership firm, upto a limit of ₹ 80,000/- from the petitioner-surety under the Revenue Recovery Act - It is made clear that this order shall not preclude the respondents from proceeding against the partnership firm, or its partners, for recovery of the balance arrears of tax due - petition disposed off - decided in favor of petitioner.

Issues Involved:
1. Validity of the attachment notice issued by the first respondent.
2. Liability of the petitioner as a surety for the tax dues of the partnership firm.
3. Interpretation of the estimated turnover and total turnover in the context of surety.
4. Applicability of the law laid down in previous judgments and circulars.
5. Recovery of tax dues from the surety under the Revenue Recovery Act.

Issue-wise Detailed Analysis:

1. Validity of the Attachment Notice:
The proceedings under challenge in this Writ Petition concern the attachment notice in Form-5 dated 31.03.2015 issued by the first respondent. The petitioner questioned the validity of this notice, claiming it was contrary to Section 12 read with Rule 28(8) of the Andhra Pradesh General Sales Tax Act and Rules, 1957, and the law laid down by this Court in New Kamal Bar and Cafe v. State of Andhra Pradesh (2006) 42 APSTJ 77.

2. Liability of the Petitioner as a Surety:
The petitioner, who had provided surety for her son's partnership firm, argued that her liability was limited to the tax estimated in the Form-A return, which was ?8,000/- on an estimated taxable turnover of ?2,00,000/- from a gross turnover of ?20,00,000/-. She contended that the demand for payment of ?2,78,533/- was contrary to Section 12 read with Rule 28(8). The counter-affidavit by the second respondent stated that the petitioner's liability as a surety was for the tax dues of the firm for the first year, 1997-98, and not limited to ?8,000/-.

3. Interpretation of the Estimated Turnover and Total Turnover:
The petitioner argued that her liability as a surety was only to the extent of the admitted tax liability of ?64,791/-, not on the turnover determined under best judgment assessment. The respondents countered that the estimated total turnover for the year was ?20,00,000/-, and thus, the surety was liable for the tax dues on this amount. The court noted that the Form-D application submitted by the dealer only required details of the estimated total turnover, not the estimated turnover. The court concluded that the estimated turnover referred to in Rule 28(8) is the estimated total turnover referred to in column 19 of Form-D.

4. Applicability of Previous Judgments and Circulars:
The petitioner relied on the circular issued by the Commissioner of Commercial Taxes dated 21.07.1997, which stipulated a security deposit of ?6,000/-. The court observed that this circular did not stipulate the security deposit as the security for the tax dues for the entire year. The court also referenced the judgment in R. Dandayudhapani v. Commercial Tax Officer (2014) 59 APSTJ 130, noting that the failure of the registering authority to estimate the tax payable for a year could absolve the petitioner of her liability as a surety to pay the said amount.

5. Recovery of Tax Dues from the Surety:
The court concluded that the tax payable on the net turnover, as determined by the assessing authority, would form the basis of its recovery from the surety. As the estimated total turnover declared in Form-D was ?20,00,000/-, the liability of the surety was to repay the tax dues on this estimated total turnover. The court set aside the impugned demand notice to the extent that the surety was called upon to pay an amount in excess of ?80,000/-.

Conclusion:
The court held that the respondents could recover the arrears of tax due from the partnership firm up to a limit of ?80,000/- from the petitioner-surety under the Revenue Recovery Act. The respondents were also allowed to proceed against the partnership firm or its partners for the recovery of the balance arrears of tax due, in accordance with law. The Writ Petition was disposed of accordingly, without costs.

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