1974 (10) TMI 92 - HC - VAT and Sales Tax

Summary

Issues:
- Whether the karta of a Hindu undivided family, which has discontinued business, could be arrested in the course of recovery proceedings for the realization of arrears of sales tax and penalty due from the family for the period before the discontinuance of its business?

Analysis:
The judgment by the Allahabad High Court addresses the question of law referred to a Full Bench regarding the arrest of the karta of a Hindu undivided family for recovery of sales tax arrears. The case involved a family firm that discontinued business, leaving outstanding tax and penalty amounts. The court examined conflicting decisions, including one where it was held that each member of the family is deemed a 'dealer' under the U.P. Sales Tax Act. Section 3-C(1)(b) of the Act imposes joint and several liability on every member of a family for tax and penalties, treating them as individual 'dealers'. The court emphasized that even after discontinuance of business, tax liabilities remain on all members, including the karta, who can be arrested for non-payment.

The court analyzed the provisions of the Act, particularly section 3-C, which allows for the assessment and imposition of penalties on a family even after business discontinuation. It clarified that the liability extends to every member of the family, including the karta, as if they were individual dealers. The legal fiction introduced by section 3-C(1)(b) makes each member liable for tax and penalties, enabling recovery proceedings against any defaulting member, such as the karta. The court disagreed with a previous decision and concluded that the karta of a Hindu undivided family could indeed be arrested for recovery of arrears of sales tax and penalties, provided they are mentioned in the recovery certificate under section 33 of the Act.

In a subsequent judgment by a different Division Bench, the court reiterated the Full Bench decision. It emphasized the importance of the karta being mentioned in the recovery certificate for proceedings to be valid. If the karta's name is not included in the certificate, the recovery proceedings cannot continue against them. The writ petition was dismissed, subject to the condition that the karta must be properly identified in the recovery certificate for arrest and recovery proceedings to be lawful.

In conclusion, the judgments clarify the legal position regarding the arrest of the karta of a Hindu undivided family for recovery of sales tax arrears, emphasizing the joint and several liability of all family members under the relevant provisions of the U.P. Sales Tax Act.