2007 (7) TMI 606 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of Rule 6 of the Kerala General Sales Tax Rules, 1963 regarding the liability of a surety for a dealer's tax arrears.
2. Validity of the demand notice issued to the surety for the dealer's tax arrears.
3. Rights and liabilities of a surety under the Sales Tax Act.

Interpretation of Rule 6 of the Kerala General Sales Tax Rules, 1963:
The case involved the interpretation of Rule 6 of the Kerala General Sales Tax Rules, 1963, concerning the liability of a surety for a dealer's tax arrears. Rule 6(1) mandates that a dealer may be directed to furnish security not exceeding one half of the tax payable on the turnover for the year. The security can be in various forms as specified in sub-rules (2) of Rule 6. The court clarified that the surety's liability is determined by the bond executed, not by Rule 6(1). The security bond remains in force as long as the dealer's registration certificate is valid, enforceable in case of tax default by the dealer. The surety has no right to challenge the authority's direction under Rule 6(1) as it is a matter between the authority and the dealer.

Validity of Demand Notice and Surety's Rights:
The appellant, a surety for a dealer under the Kerala General Sales Tax Act, challenged the demand notice issued against him for the dealer's tax arrears. The appellant argued that his liability should not exceed one half of the tax payable by the dealer or the sum assured in the bond. However, the court held that the liability of the surety is as per the bond executed, not limited by the dealer's tax liability. The court emphasized that the surety's liability is independent of the dealer's obligations under Rule 6. The surety's rights and liabilities are governed by the terms of the bond and Rule 6(3), ensuring the security remains in force during the dealer's registration.

Conclusion:
The court dismissed the writ petition, upholding the validity of the demand notice and the surety's liability as per the bond executed. The appellant's contention that his liability should be linked to the dealer's tax liability was deemed unfounded and contrary to Rule 6 of the Rules. The court clarified that the surety's obligations are determined by the bond, not by the dealer's tax liabilities. The writ appeal was dismissed, affirming the lower court's decision, and the appellant was denied any relief in this matter.