Natural justice bars tax recovery from an alleged partner without reliable proof of partnership and liability.

Andhra Pradesh HC held that arrears of sales tax of a concern could not be recovered from an said to be a partner unless the department first established the partnership and personal liability through reliable material. The Court found that no registered partnership deed or proper enquiry with an opportunity of hearing supported the claim against the petitioner, and the documents relied on were insufficient, while other papers indicated a different person as proprietor. Recovery could not rest on assumptions or unsupported statements, and fair procedure and natural justice were required before fastening liability. The impugned demand notice was quashed.

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Issues: Whether arrears of sales tax allegedly due from M/s. Sri Sai Wines could be recovered from the petitioner on the footing that he was a partner of the concern, and whether the impugned demand was sustainable without proper enquiry or reliable material.

Analysis: The material placed before the Court did not establish, by any registered partnership deed or by any proper enquiry affording the petitioner an opportunity of hearing, that he was a partner of M/s. Sri Sai Wines or personally liable for its tax arrears. The documents relied upon by the department were found insufficient to fasten liability on the petitioner, while the licence and distraint papers pointed to another person as proprietor of the concern. The Court held that recovery proceedings could not be founded on assumptions or unsupported statements, and that fair procedure and reasonable opportunity were essential before imposing liability.

Conclusion: The impugned notice fastening liability on the petitioner was quashed, and the issue was answered in favour of the petitioner.

Final Conclusion: The petitioner was not liable to be proceeded against for the alleged arrears of M/s. Sri Sai Wines, and the recovery action based on the disputed assumption of partnership could not stand.

Ratio Decidendi: Tax liability of a concern cannot be fastened on an alleged partner unless the department first establishes the relationship and liability through reliable material and a fair procedure consistent with natural justice.

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