2010 (1) TMI 1109 - HC - VAT and Sales Tax

Court rules attachment of self-acquired property for partnership firm's tax arrears unjustified. Notices quashed.

The court ruled in favor of the petitioner, holding that the attachment of the petitioner's self-acquired property for sales tax arrears of a partnership ... Arrears of sales tax due from the second respondent-firm demanded via notice dated September 25, 2009 and to proceed against the property of the petitioner invoking the provisions of the Andhra Pradesh Revenue Recovery Act, 1864 Held that:- Section 15B does not enable the first respondent to attach the petitioner's immovable properties for arrears of sales tax due from the second respondent-firm in which the petitioner's wife is a partner. The impugned notice dated September 25, 2009 does not even record a finding that the property sought to be attached belongs to the Hindu undivided family of which the petitioner's wife is also a member. The petitioner's contention that the property is his self acquired property is not disputed by the first respondent. Even if it were to be held that the petitioner's wife is a member of a Hindu undivided family, the first respondent could only have attached the property of the Hindu undivided family and not the self-acquired property of the petitioner. The impugned notice dated September 25, 2009 and the consequential notices in form 4 dated August 20, 2009 and form 5 dated October 24, 2009 are, accordingly, quashed. Issues:1. Interpretation of provisions of Andhra Pradesh General Sales Tax Act, 1957 and Rules regarding attachment of property for sales tax arrears.2. Determination of liability to attach property based on ownership status and relationship with partner in a firm.3. Application of Section 15B of the Act in cases of discontinuance of business or dissolution.4. Quashing of notices demanding arrears of sales tax and proposed attachment of property.Analysis:1. The petitioner claimed ownership of two properties, one acquired through succession and the other self-acquired. The petitioner offered his self-acquired property as security for the tax liability of a partnership firm where his wife was a partner. The court examined the legality of attaching the petitioner's property for arrears of sales tax due from the firm. The court emphasized that the security bond stood discharged after the first assessment year, and the liability did not extend to the petitioner's self-acquired property.2. The first respondent issued notices demanding arrears of sales tax from the petitioner based on his relationship with a partner in the firm. The petitioner contended that being the husband of a partner did not entitle the respondent to attach his self-acquired property. The court analyzed the legal basis for attachment, noting that the impugned notice failed to establish the property as belonging to the Hindu undivided family. The court held that even if the petitioner's wife was a member of the family, the respondent could only attach family property, not the petitioner's self-acquired property.3. The first respondent relied on Section 15B of the Act to justify attaching the petitioner's property due to sales tax arrears from the firm. The court examined the provisions of Section 15B regarding discontinuance of business or dissolution. It was clarified that Section 15B did not authorize the attachment of the petitioner's immovable properties for the firm's tax arrears. The court emphasized that the respondent could only attach property of the Hindu undivided family, not the petitioner's self-acquired property.4. The court quashed the notices demanding arrears of sales tax and proposed attachment of the petitioner's property. It was held that the impugned notices failed to establish the property's ownership status and did not provide sufficient grounds for attachment. The court allowed the writ petition, emphasizing that the order did not prevent the respondent from taking lawful steps for sales tax recovery. The judgment clarified that the respondent could conduct further inquiries to determine the property's ownership status before proceeding with recovery actions.