Karnataka High Court
S.M. Suligavi vs The Judicial Magistrate, Court First ... on 16 June, 1980
Equivalent citations: ILR1980KAR1461, 1980(2)KARLJ141, [1980]46STC335(KAR)
JUDGMENT Rama Jois, J.
1. These two revision petitions are presented by the petitioner under sub-section (4) of section 13 of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as the Act). The facts of the case in brief are as follows :
The petitioner was a partner along with three others a partnership firm under the name and style of M/s. Ganesh Trading Company at Bagalkot. It is not in dispute that the firm was dissolved in or about the year 1975. Thereafter by virtue of the power vested in the authority under the Act under sub-section (2) of section 15 of the Act assessments were made against the dissolved firm for the assessment years 1974-75 and 1975-76. Thereafter, applications were filed under section 13(3)(b) of the Act before the Court of the Judicial Magistrate, First Class, Bagalkot, for the recovery of the tax due from the firm. In the application though the firm was shown as respondent, in the note below the application, the names and addresses of all the four partners were furnished. After the application was filed, the Magistrate passed orders attaching the properties of the some of the partners. Thereafter, the petitioner and another filed their objections before the Magistrate objecting to the legality of the proceedings. The objection was that as the petitioner and another had only 35 per cent share in the dissolved firm, their liability to pay the tax was only to that extent and, therefore, the entire tax due could not be recovered from them on the ground of default in payment of tax by the firm. The objection was overruled by the learned Magistrate on the ground that the liability of the partners of a dissolved firm was joint and several and if the entire tax due from the firm was recovered from the petitioner and another, their remedy was to obtain reimbursement from other partners by taking appropriate proceedings. Aggrieved by the said orders of the learned Magistrate, these two revision petitions have been presented to this Court.
2. In the revision petitions, the main contention urged by the petitioner is that the application filed under section 13(3)(b) of the Act before the learned Judicial Magistrate was not preceded by a notice of demand served on the petitioner and, therefore, the petitioner was not a defaulter in terms of section 13(2) of the Act and, consequently, the proceeding before the Magistrate was without the authority of law.
3. In the meanwhile, it appears, the Magistrate had sent requisition to the revenue authorities for taking action to recover the tax due by selling the properties attached and, accordingly, the properties of some of the partners have been sold and the auction purchasers have got themselves impleaded as respondents to these revision petitions.
4. The learned counsel appearing for the second respondent, the Assistant Commissioner of Commercial Taxes (Assessment), Belgaum, submitted as follows :
The partnership firm of which the petitioner was a partner was dissolved and the fact of dissolution was published in the issue dated 2nd November, 1975, of the Samyuktha Karnataka paper. Section 15(2) of the Act empowers the department to assess a dissolved firm. The said sub-section also empowers the department to serve notice of demand only on one of the partners and, therefore, the department had served a notice of demand only on H. Kankanmali who was one of the partners and who had been authorised by the other partners to represent them in the assessment proceedings. In support of the last submission, he produced a postal acknowledgment which indicates that notice of demand had been served on H. Kankanmali on 27th June, 1977. Though the learned counsel did not dispute that no notice of demand under section 13(1) of the Act had been served on the petitioner and other partners, he urged that service of demand notice on one of the partners was sufficient in view of section 15(2) of the Act read with sub-rule (2) of rule 43 of the Rules and the receipt of notice by such partner was on behalf of the firm.
5. Therefore, the question for consideration is that in respect of the tax due under the Act by a dissolved firm, whether individual notices to each ex-partner under section 13(1) was necessary before filing an application before the Magistrate under section 13(3) of the Act for enforcement of recovery. Sub-section (2) of section 15 of the Act read as follows :
"15. (2) When a firm liable to pay the tax or penalty is dissolved, the assessment of the tax and imposition of penalty shall be made as if no dissolution of the firm had taken place, and every person who was at the time of dissolution a partner of the firm and legal representative of any such person who is deceased, shall be jointly and severally liable to pay the tax or penalty assessed or imposed."
The first part of the sub-section empowers the authority to make an assessment in respect of the tax under the Act from a dissolved firm as if no dissolution had taken place. The second part of the said sub-section declares that every person who was a partner at the time of dissolution or the legal representative of any such person, if deceased, shall be jointly and severally liable to pay the tax assessed or the penalty imposed. The twin objects of the said sub-section therefore are to provide for making as assessment on a dissolved firm which would have been impossible but for the said provision and also to declare the liability of the erstwhile partners to pay such tax. But before a partner can be regarded as a defaulter, a notice of demand under sub-section (1) of section 13 is mandatory. Unless a notice is issued under sub-section (1) of section 13 and in the manner prescribed under the Rule to an ex-partner and such person fails to make payment of the tax within the time specified in such notice, the does not become a defaulter, and unless an ex-partner becomes a defaulter, no application under sub-section (3) of section 13 can be made before the Judicial Magistrate. In other words, the existence of the liability of a person to pay tax is the basis for the issue of the demand notice under sub-section (1) of section 13 and the failure to comply with the demand notice served under sub-section (1) of section 13 is the basis for making an application for recovery under sub-section (3) of section 13 of the Act. By virtue of sub-section (2) of section 15 only the first condition is satisfy as admittedly the assessment has been made against the dissolved firm and petitioner was one of the partners of the firm at the time of the dissolution. But the second condition has not been satisfied as admittedly no demand notice had been issued to the petitioner. We are unable to agree that the second part of sub-section (2) of section 15 authorises the department to serve a notice of demand under section 13(1) of the Act on any one of the ex-partners and then file an application before a Magistrate under section 13(3) against all the ex-partners. Sub-rule (2) of rule 43 of the Rules only empowers the authority to serve a notice of demand for recovery of tax due from a dissolved firm on any ex-partner as each ex-partner is liable for the whole tax due, but it does not authorise the authorities to serve demand notice on any one of the ex-partners and to treat other ex-partners on whom no notice of demand is served as defaulters and to proceed to recover the tax from them by making an application under section 13(3) of the Act. The said rule does not also provide that the service of notice on any one person shall be deemed to be a service on all other persons so as to make others individually liable to be proceeded against under section 13(3) of the Act.
6. The learned counsel for the respondent however submitted that service of a notice on one of the partners and the receipt of such notice by one of the partner on behalf of the firm was sufficient to make every one of the other partners defaulters for purposes of enabling the authorities to make an application under section 13(3) of the Act. He submitted that every partner should be demand to be deemed to be an agent of all other partners and therefore the petitioner could not plead that he did not receive any notice as notice had been received by one of the partners on behalf of the firm. We are unable to agree. After the dissolution of the firm, every partner is not the agent of the other partners and as far as the submission made that a demand notice was received by one of the partners on behalf of the firm, the submission is untenable because the firm had gone out of existence after dissolution. Therefore, after the firm was dissolved demand notices could be served only individually on ex-partners as their individual liability to pay tax is declared by sub-section (2) of the section 15 of the Act.
7. In the present case, as the application filed before the Magistrate against the petitioner was not preceded by the serving of an individual notice of demand on him under section 13(1) of the Act, the Magistrate would have no jurisdiction to proceed further. As this objection was not specifically taken, the learned Magistrate has not considered this aspect. However, as this serious legal defect in making application has been established before us, We hold that in the absence of a notice of demand, the application was not maintainable and, consequently, all further actions taken by the learned Magistrate were also contrary to law.
8. The learned counsel appearing for the auction purchaser submitted that a huge sum of Rs. 40,000 towards auction sale has been deposited with the revenue authorities and, therefore, a direction may be issued for the immediate refund of that amount. This is a matter in respect of which the auction purchasers should make appropriate application before the learned Magistrate. If such an application is made, the Magistrate is directed to dispose of the application expeditiously.
9. For the reasons stated above, we make the following order :
The orders of the Judicial Magistrate, First class, Bagalkot, overruling the objections of the petitioner are set aside and he is directed to proceed to pass appropriate orders in the light of this judgment.
10. Ordered accordingly.