R. Dandayudhapani vs Commercial Tax Officer, Lalapet and Others

Ramesh Ranganathan, J.—The distrait notice in Form-I dated 01.06.2004 passed by the first respondent, seeking to attach the properties of the petitioner for recovery of arrears of tax of the third respondent firm amounting to Rs. 7,84,042/- for the years 1995-96, 1996-97 and 1997-98, is under challenge in this Writ Petition. The petitioner stood as surely for the sales tax dues of the third respondent who had applied for grant of Registration Certificate to the first respondent. The surety bond furnished by the petitioner states that, if any taxes are due under the Andhra Pradesh General Sales Tax Act, 1957 (for brevity, ''the Act'') and Central Sales Tax Act, 1956 from the third respondent, who had applied for issuance of a Registration Certificate, they would be paid by the petitioner and he stood as surety for the same; he had immovable property worth Rs. 2,00,000/- for which he had enclosed a photostat copy of the title deed; and he would not alienate the said property without the permission of the first respondent.

Section 12(7) of the Act stipulates that, where it appears necessary to the authority to whom an application is made under sub-section (6) so to do for the proper realization of the tax and other dues payable under the Act, the rules made and the notifications issued thereunder, he may, by an order in writing and for reasons to be recorded therein, impose, as a condition for the issue of a certificate of registration, a requirement that the dealer shall furnish in the prescribed manner, and within such time as may be specified in the order, such security as may be specified for all or any of the aforesaid purposes.

Rule 28(8) of the Andhra Pradesh General Sales Tax Rules, 1957 (for brevity, ''the Rules'') stipulates that the registering authority may require an applicant for registration to furnish, within such time as may be specified by such authority, security not exceeding an amount equal to the tax payable under the Act and other dues payable under the Act and/or for the proper custody and use of the forms referred to in the Act, the rules made and the notification issued thereunder. Form-D is the application for registration as a dealer under the Act. Clause (19) of the said Form relates to the estimated turnover for the year in which an application is submitted.

Sri S. Krishna Murthy, learned counsel for the petitioner, would submit that as a ''year'' is defined in Section 2(u) of the Act to mean the twelve month period ending on the 31st day of March, and as surety was furnished by the petitioner on 24.10.1994, it is only the tax payable by the third respondent, for the year 1994-95, which can be recovered from the petitioner; and not tax due from them for the years 1995-96, 1996-97 and 1997-98. Learned counsel would rely on Gullapudi Someswara Rao Vs. The Commissioner of Commercial Taxes, Government of A.P. and Others Judgment in W.P. No. 17017 of 2002 dated 12.04.2005 and New Kamal Bar and Cafe Vs. State of A.P. and Another, .

On the other hand, Sri P. Balaji Verma, learned Special Standing Counsel for Commercial Taxes, would submit that the requirement of Rule 28(8) of the Rules is for the registering authority to specify the security to be furnished for issuance of a Registration Certificate; the surety amount, so specified, cannot exceed an amount equal to the tax payable under the Act for a year as estimated by the registering authority; and it is this estimated amount which can be recovered from the surety towards the tax liability of the defaulting dealer. Learned Standing Counsel would submit that both the judgments of this Court, in Gullapudi Someswara Rao Judgment in W.P. No. 17017 of 2002 dated 12.04.2005 and New Kamal Bar and Cafe Vs. State of A.P. and Another, , necessitate reconsideration.

In Gullapudi Someswara Rao Judgment in W.P. No. 17017 of 2002 dated 12.04.2005 a Division Bench of this Court held that the impugned notice, which required the petitioner therein to pay tax for the years 1999-2000 and 2000-2001 as well as penalty, was impermissible in law; the respondent was entitled to proceed against the petitioner for realization of an amount equal to the tax payable by the defaulting dealer for a year as assessed by the authority, but not more than that; and no proceedings could be initiated against the petitioner, for realization of the whole of the amount due and payable by the defaulting dealer, since the petitioner''s liability as a surety was restricted only for an amount equal to the tax payable for a year as estimated by the authority. Following the said judgment, a Division Bench of this Court, in New Kamal Bar and Cafe Vs. State of A.P. and Another, held that the effect of Section 12(7) of the Act, and Rule 28(8) of the Rules and Clause (19) in Form-D, were that, if a surety was given by a person on behalf of the assessee, that surety would remain in force against the tax payable for a year as estimated by the assessee.

It is wholly unnecessary for this Court to examine the scope of Rule 28(8) of the Rules for, even if the submission of Sri P. Balaji Verma, learned Special Standing Counsel for Commercial Taxes, were to merit acceptance, the registering authority was required to have estimated the amount of tax payable under the Act for a year; and to have called upon the petitioner to produce a surety for the said sum. Neither has any such exercise been undertaken by the registering authority nor has any material been produced before this Court to show that the petitioner was required to furnish a surety for the estimated sum. The surety bond dated 24.10.1994, placed before this Court, merely records the statement of the petitioner that he stood as surety for the tax due under the Act from the third respondent; and that their immovable properly was worth Rs. 2,00,000/-. This surety bond cannot be construed as if the petitioner had undertaken to furnish surety for Rs. 2,00,000/-. While failure of the registering authority, to estimate the tax payable under the Act for a year, may well absolve the petitioner of his liability as a surety to pay the said amount, we see no reason to delve on this aspect any further as Sri S. Krishna Murthy, learned counsel for the petitioner, has fairly stated that the liability of the surety is for the tax due and payable by the defaulting dealer for the assessment year 1994-95. Leaving it open to the respondent to recover the tax due, if any, of the defaulting dealer, for the assessment year 1994-95, from the petitioner herein the distraint orders are set aside as they relate to the subsequent assessment years. The Writ Petition stands disposed of accordingly. The miscellaneous petitions pending, if any, shall also stand disposed of. There shall be no order as to costs.