2022 (3) TMI 1314 - HC - VAT and Sales Tax

Court dismisses petition challenging recovery proceedings for defaulting dealer payments under TNGST Act

K.G. Mills Versus The Assistant Commissioner (CT) II, The Deputy Commissioner (CT), Tamilthai Traders, Rajapalayam.

K.G. Mills Versus The Assistant Commissioner (CT) II, The Deputy Commissioner (CT), Tamilthai Traders, Rajapalayam. - TMI Issues:Challenge to impugned proceedings seeking recovery of payments made to third respondent, interpretation of Section 26 of TNGST Act regarding liability of a creditor for payments made to a defaulting dealer.Analysis:1. The petitioner challenged the proceedings of the first respondent seeking to recover payments made to the third respondent. The petitioner, a registered dealer under TNVAT Act and TNGST Act, purchased cotton from the third respondent. The first respondent issued notices regarding arrears owed by the third respondent, leading to the impugned proceedings dated 12.12.2011.2. The impugned notice alleged that the petitioner made payments to the third respondent despite being aware of the arrears owed by the latter. The petitioner contended that they were only obligated to pay a specific amount mentioned in an earlier notice and were not liable for additional payments under Section 26 of the TNGST Act and TNGST Rules.3. The court examined Section 26 of the TNGST Act, which allows the assessing authority to recover arrears from a defaulting dealer's creditor. The law holds that a creditor who pays in compliance with a notice is discharged from liability. However, any payment made after receiving the notice renders the creditor personally liable to the extent of the payment or the dealer's liability, whichever is less.4. Despite the petitioner's argument that they were not properly notified under Section 26, the court found that subsequent notices clearly indicated the third respondent's arrears. The petitioner continued making payments to the third respondent, denying revenue to the government. The court held that the petitioner violated Section 26 and is liable to pay the amount, with liberty to recover from the third respondent.5. The court dismissed the writ petition, emphasizing the petitioner's responsibility to adhere to Section 26 of the TNGST Act. The judgment highlights the importance of creditors being cautious and seeking clarification from tax authorities before making payments to defaulting dealers to avoid personal liability.6. The judgment provides a detailed analysis of the legal provisions and factual circumstances, concluding that the petitioner's actions contravened Section 26 of the TNGST Act, leading to the dismissal of the petition with no costs.