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2016 (9) TMI 407 - ANDHRA PRADESH HIGH COURT

2016 (9) TMI 407 - ANDHRA PRADESH HIGH COURT - [2016] 96 VST 497 (T&AP) - 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. .....

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8377; 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. - Writ Petition No. 9629 of 2015 - Dated:- 23-8-2016 - ACJ Ramesh Ranganathan And Sri U. Durga Prasad Rao, JJ. For the Petitioner: Dr. S.R.R. Viswanath For the Respondents : Sri Shaik Jeela .....

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Caf v. State of Andhra Pradesh (2006) 42 APSTJ 77. In the affidavit filed in support of the Writ Petition, the petitioner states that she is living in house bearing No.3-8-23 along with her son, daughter-in-law and grandson; she does not have any other property, and is eking out her livelihood with great difficulty; her son was a partner in Sri Devi Dhall Mill; the said firm had applied for registration, under Section 12 of the A.P.G.S.T Act, 1957, in Form-D on 13.10.1997; along with the Form-D .....

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the Andhra Pradesh Revenue Recovery Act demanding that she, as the surety, should pay the tax dues of the partnership firm; the tax dues from the firm, for the years 1997-98 and 1998-99, were ₹ 2,78,533/- and ₹ 6,95,566/- respectively; she addressed a letter to the first respondent requesting him to furnish a copy of the Form-D application filed by the firm, a copy of the surety bond executed by her, a copy of the Form-A return of estimated turnover filed by the firm, a copy of the .....

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retys liability; in view of the law declared by this Court, in New Kamal Bar and Cafe1, a surety can be enforced to the extent of the tax liability estimated in the Form-A return; the tax estimated, in the Form-A return, was only ₹ 8,000/- on the estimated taxable turnover of ₹ 2,00,000/- from out of the gross turnover of ₹ 20,00,000/-; hence the demand for payment of tax of ₹ 2,78,533/- was contrary to Section 12 read with Rule 28(8); service of the assessment order by a .....

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r 2014. According to the petitioner, in view of the law laid down by this Court in New Kamal Bar and Cafe1, her liability as a surety was only to discharge the tax liability for a year as estimated in the Form-A return; attachment of her dwelling house, without furnishing a copy of the Form-A return, was illegal; her liability as a surety was only to the extent of the admitted tax liability of ₹ 64,791/-, and not on the turnover determined under best judgment assessment; the respondents ha .....

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the house at that time was approximately ₹ 1.00 Lakh, and her son had applied for registration as a partner of the firm; the petitioner had also enclosed photostat copies of the documents of title along with the surety bond; she had stated in the bond that, in case her son defaulted in making payment of the tax due to the Government, she would pay the same, and the surety bond was executed by her voluntarily; she had further stated that, along with the Form-D application, the firm had als .....

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certain documents; most of the documents sought for were furnished to her; the partnership firm did not file the Form-A return while filing the Form-D application for registration; the firm had, however, filed Form-A application which related to issuance of registration certificate under the Central Sales Tax Act; in Column 19 of the Form-D application, the firm had estimated the turnover for the year as ₹ 20.00 Lakhs; the petitioners tax liability as surety is for the tax dues of the firm .....

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o, the petitioner asserted that, along with the Form-D application, she had filed the Form A return of estimated turnover under Rule 28(8); she had offered surety only to the extent of her sons share in the firm not exceeding ₹ 8,000/-; the tax estimated in Form A was only ₹ 8,000/-, and her liability as a surety was only to that extent; the Form A application, for registration under Section 7(1)/7(2) of the CST Act, is different; the Form A, as prescribed under Rule 9 of the APGST R .....

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read with Rules 9 and 28(8), the surety shall not exceed the amount equal to the tax payable under the Act for the year as estimated; failure of the registering authority, to estimate the tax payable under the Act for a year, absolved the petitioner of her liability as held by this Court in R. Dandayudhapani v. Commercial Tax Officer (2014) 59 APSTJ 130 ; while the term total turnover includes turnover which is exempt from tax, the term turnover represents the taxable turnover; Section 5 of the .....

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ties to demand an amount in excess of ₹ 8,000/- is contrary to law. Dr. S.R.R. Viswanath, Learned Counsel for the petitioner, would submit that the amount which can be collected from the surety is the tax due on the estimated turnover for the first assessment year; the meaning of the expression total turnover is different from estimated turnover; the circular of the Commissioner dated 21.07.1997, issue long prior to the assessment order and even prior to registration of the firm as a deale .....

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le turnover; as per clause 19 of Form D, the firm had only estimated the total turnover as ₹ 20,00,000/-; the tax rate, prescribed during the relevant period, was only 4%; in any event the respondents were not justified in recovering from a surety the tax dues beyond ₹ 80,000/-; and the liability of a surety is limited only to the tax due on the turnover estimated by the assessee, and not on the net turnover determined by the assessing authority. Learned Counsel would rely on Nagappa .....

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urety is for payment of the tax dues of the firm for one year; and, as the firm had estimated its turnover as ₹ 20,00,000/-, the surety was liable to discharge this liability of the firm for the first assessment year. Learned Standing Counsel would rely on Sunkara Narayanamma v. The Deputy Commercial Tax Officer ((2015) 61 APSTJ 246); and Gullapudi Someswara Rao v. The Commissioner of Commercial Taxes [(judgment in WP No.17017 of 2002 dated 12.04.2005)]. As the assessment order passed on 1 .....

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nd that it is only the security deposit of ₹ 6,000/- which can be recovered from a surety, is misplaced. After examining certain problems, which arose on the department insisting on security deposits/sureties for registration of dealers under Section 12 of the A.P.G.S.T. Act, and on the representations made by dealers on the arbitrary fixation of the security deposit, third party surety on stamp paper etc, the Commissioner of Commercial Taxes, Andhra Pradesh issued Circular dated 21.07.199 .....

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ng authority from a dealer. The dealers, who had applied for registration and were required to furnish security deposit, were grouped into two categories i.e., (a) dealers applying for A.P.G.S.T. registration only, and (b) dealers applying for A.P.G.S.T. and C.S.T. registrations; for dealers, who applied for A.P.G.S.T. registration, a security deposit of ₹ 2,000/- was directed to be demanded, and for those who had applied for registration both under the A.P.G.S.T. and the C.S.T. Acts, a se .....

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deposit is independent of the liability of a surety to bear the tax arrears, due from the defaulting dealer, for a period of one year. Section 12(5) of the APGST Act stipulated that no dealer, who is liable to get himself registered under sub-section (1) or sub- section (2) or sub-section (4), shall carry on business as a dealer unless he has been registered and is in possession of a certificate of registration. Section 12(6) stipulated that an application for registration shall be made to the p .....

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condition for the issue of a certificate of registration, a requirement that the dealer shall furnish in the prescribed manner, and within such time as may be specified in the order, such security as may be specified for all or any of the aforesaid purposes. Rule 28(1) of the APGST Rules stipulated that every dealer, liable to get himself registered under sub-section (1) of Section 12 of the Act, shall submit an application for registration to the registering authority. Rule 28(6) provided that .....

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ct, the rules made and the notification issued thereunder. Rule 28(9) stipulated that the security, referred to in sub-rule (8), may be in any of the following forms, namely: (a) deposit in Government Treasury by cash, (b) government promissory notes, loan bonds, post office savings bank deposits, National Saving Certificates, deposits made in the scheduled banks or Andhra Pradesh State Cooperative Bank or Central Cooperative Bank duly pledged to the registering authority, (c) surety bond, (d) g .....

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Form D, the application form prescribed for registration as a dealer under Section 12 of the APGST Act, required, among others, the applicant-dealer to furnish information regarding the goods ordinarily purchased by him, the sale in the course of inter-state trade or commerce, export outside the State, and details of goods, if any, imported into the State by the dealer from foreign countries or from other States in India. In addition thereto the applicant dealer was also required, in column 17 .....

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00,000/- (Rupees twenty lakhs only). While Dr. S.R.R. Viswanath, Learned Counsel for the petitioner, would submit that the surety is required to be furnished only on the estimated turnover, and not on the estimated total turnover of a dealer for the year, it is necessary to note that the prescribed Form D did not require the applicant to furnish information regarding the estimated turnover, but stipulated that they provide details of the estimated total turnover for the year. Rule 9 of the APGST .....

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tails. The said statement contains, in column 3 thereof, the estimated total turnover, in column 4 the estimated turnover on which exemption is claimed, and in column 5 the estimated net turnover. In the Circular dated 21.07.1997, the Commissioner of Commercial Taxes had also held that most of the information required for registration was covered by the application in Form D; if all the information, required in the Form D application was furnished, the application for registration should be cons .....

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turnover. Rule 28(8) of the APGST Rules, which required the applicant seeking registration to furnish security for an amount not exceeding an amount equal to the tax payable under the A.P.G.S.T. Act for the year as estimated by him, relates only to the estimated total turnover for the year as referred to in column 19 of Form D. Form A on the other hand, as stipulated under Rule 9 of A.P.G.S.T. Rules, required the dealer to furnish information regarding the estimated total and net turnover. It wo .....

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Dr.S.R.R.Viswanath, Learned Counsel for the petitioner, that the authority cannot neglect to do that which the law mandates and requires doing, failure of the authority to discharge its statutory duty cannot prejudice the other party (Kusheswar Prasad Singh6), if a certain statutory formality is required to be complied with, or permission is required to be obtained, the said requirement must be complied and a party may not be permitted to take advantage of his own wrong in not taking steps to c .....

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r, and restrain the respondents from collecting the tax arrears, admittedly due and payable by the assessee-dealer, on the specious plea that the respondents had failed to obtain Form-A from them. Such a contention has only to be noted to be rejected. A surety is considered a "favoured debtor" and his liability is strictissimi juris. (M.S. Anirudhan v. The Thomcos Bank Ltd. [AIR 1963 SC 746 = (1963) Supp 1 SCR 63]). A surety is bound to the letter of his engagement. Beyond the proper i .....

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strictly construed, and any ambiguity therein should go to the benefit of the surety. (Nagappa Naik3; Pannaji Devchand v. Basappa Virappa [AIR 1943 Bom 243 = 45 Bom L R 510]). The rule that a security bond must be strictly construed according to its own terms is certainly true where there is no ambiguity in the terms but, where there is a contradiction in terms, Section 95 of the Evidence Act allows a reference to antecedent circumstances. (Jiban Krishna Mukherjee4; Mohendranath v. Satish Chand .....

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sing that intention in suitable language. If on the other hand, on a fair reading of the Bond in the light of the surrounding circumstance, the Court considers that the contingency in which the security is sought to be availed of falls reasonably within the language of the condition which is sufficiently wide to comprehend it, there is no rule compelling the Court to adopt the stricter of the two constructions to both of which the language may be susceptible. (Jiban Krishna Mukherjee4; Elaya Pil .....

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for registration; in case her son defaulted in payment of the tax due to the Government, she would pay the same; and the surety bond was executed and filed by her voluntarily. While a surety can only be bound by the letter of his/her engagement (i.e the letter of surety furnished by him/her), the surety bond, in the present case, makes no reference to the estimated tax, and refers only to the petitioner having voluntarily agreed to pay the tax dues to the Government in case her son defaulted in .....

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nd the turnover estimated therein is different from the estimated total turnover referred to in the Form D application filed on behalf of the dealer. Dr. S.R.R. Viswanath, Learned Counsel for the petitioner, would submit that the security required to be furnished under Rule 28(8), not exceeding an amount equal to the tax payable under the Act for the year as estimated by the authority, is with reference to the estimated net turnover in Form A, and not the estimated total turnover in Form D. He w .....

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rrived at only after deducting certain amounts from out of the gross turnover. (Guduthur Thimmappa and Son v. The State of Andhra Pradesh [(1964) 15 STC 299 (A.P)]). As noted hereinabove what is referred to in column 19 of Form D (application for registration) is the estimated total turnover, and the said Form neither makes any reference nor does it separately provide for details being furnished of the estimated turnover as distinct from the estimated total turnover. It is evident, therefore, th .....

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the balance tax due of ₹ 2,78,533/-. The contention, that the net turnover as stated by the assessee should form the basis of recovery of the tax due from the surety, is only to be noted to be rejected. If the said net turnover was to form the basis then the assessee, having paid the tax thereon of ₹ 64,791/-, would not be liable to pay any other amount, and consequently no tax would remain due to be recovered from the surety. We are satisfied that the tax payable on the net turnover .....

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is Court to examine the scope of Rule 28 (8) of the Rules for, even if the submission of Sri P.Balaji Verma, learned Special Standing Counsel for Commercial Taxes, were to merit acceptance, the registering authority was required to have estimated the amount of tax payable under the Act for a year; and to have called upon the petitioner to produce a surety for the said sum. Neither has any such exercise been undertaken by the registering authority nor has any material been produced before this Co .....

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o estimate the tax payable under the Act for a year, may well absolve the petitioner of his liability as a surety to pay the said amount, we see no reason to delve on this aspect any further as Sri S.Krishna Murthy, learned counsel for the petitioner, has fairly stated that the liability of the surety is for the tax due and payable by the defaulting dealer for the assessment year 1994- 95. Leaving it open to the respondent to recover the tax due, if any, of the defaulting dealer, for the assessm .....

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