2007 (12) TMI 426 - HC - VAT and Sales Tax

Retired partners remain liable for penalties under tax law if not properly informed about retirement

Danesh Kumar Gupta Versus INSPG. ASST. Commissioner (INV. Branch), Calicut and others

The court held that retired partners are liable for penalties under the Kerala General Sales Tax (KGST) Act if they do not inform the assessing officer ... Penalty levied under section 45A of the KGST Act - Held that:- It is seen from exhibit P16 order that petitioners have not ventured to prove that sales were effected in U.P. after transfer of goods from Kerala to Kanpur on consignment basis. The petitioners could have produced consignment agency agreements, sale particulars, details of commission paid and even details of tax paid in U.P. for establishing their case. However, it is seen that not even an attempt is made to prove the transaction as consignment transfers as claimed by them before the lower authorities. In the circumstances, levy of penalty under section 45A of the KGST Act for evasion of tax is perfectly justified. So far as quantum of penalty is concerned, penalty originally levied was ₹ 59,68,240 which was reduced by the Commissioner to around ₹ 18 lakhs after partially accepting the petitioner's claim. Therefore, the petitioner is not entitled to any quantum relief also. Issues:1. Liability of retired partners for penalty under KGST Act.2. Requirement of notice of retirement under KGST Rules.3. Liability of partners for acts done after dissolution under Indian Partnership Act.4. Challenge against penalty levied under section 45A of KGST Act for evasion of tax.Analysis:1. The judgment dealt with the liability of retired partners for penalty under the Kerala General Sales Tax (KGST) Act. The petitioners argued that after the retirement of two partners, the remaining partner continued the business as a proprietorship, and therefore, only the continuing partner should be liable for any penalties. However, the court referred to section 45 of the Indian Partnership Act, which states that partners continue to be liable for acts done after dissolution until public notice is given. The court held that if retiring partners do not inform the assessing officer about their retirement, they remain liable for penalties even after retirement.2. The judgment also discussed the requirement of notice of retirement under the KGST Rules. It was noted that the partners who retired did not give notice to the assessing officer as required under the rules. The court emphasized that the procedural requirements must be followed, including giving notice of retirement to the authorities, and failure to do so can result in continued liability for the retired partners.3. Regarding the liability of partners for acts done after dissolution under the Indian Partnership Act, the court highlighted that partners who hold out to be members of the firm to third parties will continue to be liable if retirement or dissolution is not informed through public notice. This principle was found to be incorporated in the KGST Rules, which necessitate statutory notice to the assessing officer about the dissolution of the firm.4. The judgment also addressed the challenge against the penalty levied under section 45A of the KGST Act for evasion of tax. The petitioners contended that the consignment sales were legitimate, but the assessing officer found discrepancies in the documentation, indicating potential tax evasion. The court upheld the penalty, noting that the petitioners failed to provide sufficient evidence to prove the legitimacy of the transactions, as required by the Central Sales Tax Act and related rules.In conclusion, the court dismissed the original petitions related to the liability of retired partners for penalties but allowed recovery from the continuing partner. The challenge against the penalty for evasion of tax was also dismissed, as the petitioners failed to substantiate their claims with adequate evidence.