TMI Blog2008 (8) TMI 804X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner had also carried on business in association with her son Biju Anirudhan and participated in the business of M/s. Anjaneya Motors, stated to be owned by Sri Biju Anirudhan. - WP (C) No. 16460 of 2008 - - - Dated:- 19-8-2008 - GIRI V. , J. V. GIRI J. The petitioner, inter alia, challenges the validity of section 26 of the Kerala Value Added Tax Act, 2003 (hereinafter referred to as, the VAT Act ). She also challenges the orders passed by the second respondent levying penalty on the petitioner purportedly under section 19C of the Kerala General Sales Tax Act, 1963 (for short, the KGST Act ) read with section 26 of the VAT Act. The orders levying penalty, exhibits P-11 and P-12, are appealable in terms of the provisions of the Act. Since the learned counsel for the petitioner and learned Special Government Pleader made submissions as regards the constitutional validity of the provisions under challenge as also on the jurisdiction over the action taken by the authorities concerned, I have considered the contentions on merits, without relegating the petitioner to the alternate remedy available under the Act in circumstances where I was convinced that apart from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT Act. These notices relate to the years 200102 to 2006-07. Exhibits P-4 to P-9 are almost identically worded, at least, insofar the portions therein relating to the petitioner are concerned. Since the submissions made by counsel referred to the contents of the notices and since the arguments had also centered around the exercise of jurisdiction by the second respondent under section 19C of the KGST Act or under section 26 of the VAT Act, as the case may be, it would be useful to refer to the relevant portion of exhibit P-4, which reads as follows: 6. Further enquiry also revealed that Smt Vasantha Anirudhan, mother of the dealer, has invested money in the business for a common interest of sharing profit on account of deposit of money in cash. Due to this reason, she has mortgaged her property in Union Bank of India for raising fund for the business of M/s. Anjaneya Motors which was a running business from 2000-01 in which she has invested money in cash and cheques. For example, she received cheques as follows: Federal Bank Ltd. A/c. No. 1686 Date Cheque No Amount July 17, 2002 504982 Rs. 50,000 April 26, 2003 555389 Rs. 1,00,000 May 7, 2003 555394 Rs. 3,00,000 May 7, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge in this writ petition. Since the counsel for the petitioner had raised a contention that the objections to the proposals to levy penalty, though dated May 24, 2008, were actually served in the office of the second respondent prior to the date by exhibits P-12 and P-13, i. e., April 3, 2008, I had called for the files leading to exhibits P-12 and P-13 and Special Government Pleader Mr. Vinod Chandran has made available the same. The precise date on which the orders were despatched from the office of the second respondent was not clearly available from the files as such. But the orders themselves show that an opportunity of hearing, as such, was not afforded to the petitioner before the passing of exhibits P-12 and P-13 orders. I heard learned counsel for the petitioner Sri C.K. Thanu Pillai and the learned Special Government Pleader Sri Vinod Chandran. I heard learned counsel on both sides on the question of validity of section 26 of the VAT Act and on the question touching upon the jurisdiction of the second respondent to pass an order under section 26 of the VAT Act. The challenge against the constitutionality of section 26 of the VAT Act, I dare say, seems to be mounte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sri Thanu Pillai's contention is that it might be open to the assessing authority to rope in any person, who is associated with the assessee as agent, employee, manager, power of attorney holder or any such like capacity. But, a guarantor as such, stands on a different footing. The contention is that an agent, in law, is entitled to represent the principal and in several cases, he is the alter ego of the latter. An employee or a manager, it is contended, would be a participant in the business. A power of attorney is another species of an agency. All these jural relationships, it is contended, contemplate a participation in the business of the principal, albeit to a limited extent. But a guarantor shares a different kind of jural relationship with the assessee. A contract of guarantee , as defined under section 126 of the Contract Act, treats the principal, creditor and guarantor as three different entities. The contract of guarantee is imprinted with certain specific characteristics and operates in a limited sphere. A guarantor, on the strength of a contract of guarantee, can never be a participant in the business run by the principal, and therefore, the Legislature has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of an assessee, would be automatically vulnerable to be proceeded against under section 26 of the VAT Act merely by reason of the fact that they are placed in such a jural relationship with the assessee as such. It is not the existence of a jural relationship between the principal and the agent, or an employee/employer or a principal and power of attorney holder that enables the assessing authority to invoke the power under section 26 of the VAT Act. It is the association of the non-assessee with the assessee in the pursuit of business that would satisfy the jurisdictional factors contemplated under section 26 of the VAT Act. Once this position is accepted, then it follows, as a logical sequence that a guarantor as such is contemplated by section 26 of the VAT Act only as a measure of making it clear that if a non-assessee is associated with the assessee, in the pursuit of the latter's business, the mere fact that there is a jural relationship of a principal debtor and a guarantor will not stand in the way of the assessing authority legitimately proceeding under section 26 of the VAT Act, provided the jurisdictional factors which are otherwise provided for are satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events all these show that self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability.' The court must always remember that 'legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry'; 'that exact wisdom and nice adaption of remedy are not always possible' and that 'judgment is largely a prophecy based on meagre and uninterpreted experience'. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what may one call trial-and-error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as an expression of nebulous content, affiliated with the vice of arbitrariness. I hold that section 19C does not confer any arbitrary or undivided power making it offensive of article 14 of the Constitution of India. For all the reasons mentioned above, I am of the view that the challenge to the validity of section 26 of the VAT Act deserves to be repelled and I do so. Learned counsel for the petitioner Sri Thanu Pillai then submits that notwithstanding the existence of jurisdiction with the second respondent to invoke the power under section 26 of the VAT Act, the same is conditioned by certain factors which obviously will have to be satisfied. He refers (1)Here italicised. to the words reason to believe as occurring in section 26 of the VAT Act and submits that the said collocation of words has a definite meaning in law. Reference is made to the following passage in the judgment of the Supreme Court in Ganga Saran Sons Pvt. Ltd. v. Income-tax Officer [1981] 130 ITR 1; AIR [1981] SC 1363: It is well-settled as a result of several decisions of this court that two distinct conditions must be satisfied. First, he must have reason to believe that the income of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural relationship that springs into existence by reason of this? The petitioner becomes a guarantor or a surety for a loan obtained by her son. Does that by itself satisfy the jurisdictional conditions necessary for invoking the power under section 26 of the VAT Act? It does not. As I have found above, the fact that a person had stood as a guarantor vis-a-vis an assessee, does not, by itself, render him vulnerable to a protective assessment under section 26 of the VAT Act. The crucial factor necessary to render him liable for a protective assessment is that he must have participated in the business of the assessee and therefore, the mere fact that he could claim the position of an employee/agent or a guarantor vis-a-vis the assessee, should not help him to wriggle out of the liability which otherwise is statutorily fastened on him or capable of being fastened on him, as the case may be. In the circumstances, the mere fact that the petitioner has stood as a guarantor for her son for availing a loan from the bank does not, ipso facto, make her vulnerable for a protective assessment under section 26 of the VAT Act. I am of the view that the reasons, which have been given by the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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