Garnishee recovery cannot attach a contingent security deposit under a subsisting licence agreement

Section 14 garnishee recovery under the Karnataka Sales Tax Act applies only to money presently due, or held under an existing enforceable obligation to pay, to the dealer. A security deposit under a subsisting licence agreement is contingent and does not constitute a debt in existence while the contract continues, because refund becomes due only on expiry or termination. On that basis, the security deposit was not attachable at the time of the notices, and the attachment notices were quashed.

---

---

Issues: Whether the security deposit held by the petitioner-corporation under a subsisting licence agreement could be attached under section 14 of the Karnataka Sales Tax Act, 1957 for recovery of the licensee's tax arrears.

Analysis: Section 14 authorises recovery from a person from whom money is due or may become due to the dealer, but the machinery operates only where there is a subsisting relationship of debtor and creditor and an existing obligation to pay on the date of notice. A contingent liability, or money that becomes payable only on expiry or termination of the contract, is not a debt in existence for the purpose of garnishee attachment. A security deposit paid to secure due performance of a licence stands on a different footing from a present debt; it becomes payable only after the contract expires or is terminated, and while the contract subsists the licensor is not under an enforceable obligation to refund it. The Revenue may attach the amount only when it has actually become payable to the assessee.

Conclusion: The security deposit was not attachable under section 14 at the time of the impugned notices, and the challenge to the garnishee notices succeeded.

Final Conclusion: The writ petitions were allowed and the notices attaching the security deposit were quashed.

Ratio Decidendi: Garnishee recovery under section 14 can be invoked only against money that is presently due or held under a subsisting enforceable obligation to pay, and not against a contingent security deposit payable only on expiry or termination of the underlying contract.

---