Strict construction of sales tax arrear liability: new partnership not liable for discontinued joint Hindu family's past dues.

Section 3-C of the U.P. Sales Tax Act was construed strictly to distinguish liability on discontinuance from liability on transfer of a continuing business. Where a joint Hindu family concern had discontinued business, sub-section (1) fastened arrears on the persons who were members at the time of discontinuance, while its proviso was confined to changes in constitution of a firm or association and did not extend to a discontinued joint Hindu family. Sub-section (2) applied only to transfer of a running business; it did not cover a newly formed partnership after discontinuance. The new partnership was therefore not liable for the old sales tax arrears, and recovery could not be sustained against it.

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Issues: Whether arrears of sales tax due from a discontinued joint Hindu family concern could be recovered from a newly constituted partnership firm under section 3-C of the U.P. Sales Tax Act.

Analysis: Section 3-C creates liability in separate situations. Sub-section (1) applies where a firm, association of persons, or joint Hindu family discontinues business, making the persons who were members at the time of discontinuance jointly and severally liable for the tax due. The proviso to sub-section (1) is confined to a change in the constitution of a firm or association and does not extend to a joint Hindu family that has discontinued business. Sub-section (2) applies only where the ownership of a continuing business is transferred, and contemplates transfer of a running business. As the business of the joint Hindu family had admittedly been discontinued, there was no transfer of a continuing business within the meaning of sub-section (2), nor could the newly formed partnership be treated as the transferee liable for the old arrears.

Conclusion: The newly constituted partnership firm was not liable for the arrears of sales tax of the discontinued joint Hindu family under section 3-C.

Final Conclusion: The recovery proceedings against the new partnership firm could not be sustained, while the liability for the arrears remained confined to the defaulting Hindu family concern and its members in accordance with the statute.

Ratio Decidendi: A provision imposing liability for tax arrears on a transferee or reconstituted entity must be strictly confined to the statutory situation it covers, and does not extend to a new partnership formed after discontinuance of the original business.

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