1967 INSC 0337
Seth Sheo Prasad (Decd., By His Legal Representatives)
v.
State of Uttar Pradesh and Others
(Supreme Court Of India)
HON'BLE JUSTICE J. C. SHAH HON'BLE JUSTICE VAIDYNATHIER
RAMASWAMI HON'BLE JUSTICE V. BHARGAVA
Civil Appeal No. 593 of 1967 | 05-12-1967

SHAH, J.

1. A firm styled "Lallamal Hardeo Das Cotton Spinning Mills Company",
hereinafter called the "firm", commenced at Hathras the business of
manufacturing cotton yarn in a factory owned by it. Tn 1944 a partner of the
firm filed a suit in the Court of the Civil Judge, Agra, for dissolution of the
partnership and for accounts. During the pendency of the suit, the court
appointed a receiver of the business of the firm. On July 21, 1949, the
Government of U.P. passed an order purporting to exercise power under section
3(f) of the U.P. Industrial Disputes Act, 1949, appointing the appellant, Seth
Sheo Prasad, "authorised controller" of the undertaking of the firm and directing
him to take over possession of the factory to the exclusion of the partners, the
receiver and the managers and to run the undertaking subject to the general
supervision of the District Magistrate of Aligarh. The Union of India passed an
order in supersession of the order of the Government of U.P. purporting to
exercise the power under section 3(4) of the Essential Supplies (Temporary
Powers) Act, 1946, appointing the appellant "authorised controller", and
directed him to run the factory on the same terms and remuneration as ordered
by the Government of U.P.

2. The appellant conducted the undertaking between July, 1949, and February,
1953, and the goods manufactured in the factory were sold by him as
"authorised controller". In a petition under Article 32 of the Constitution filed in
this court, the orders passed by the Government of U.P. and by the Central
Government appointing the appellant "authorised controller" and empowering
him to manage the undertaking of the factory were "quashed as illegal and ultra
vires".The Sales Tax Officer assessed the firm as a registered dealer for

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payment of sales tax under the U.P. Sales Tax Act, 1948, for the assessment
years 1949-50 to 1953-54 in respect of the turnover from sale of yarn produced
by the factory, and a sum exceeding Rs. 2 lakhs was assessed as tax. Only a
small amount out of the tax assessed was recovered and for the balance the
Sales Tax Officer started proceedings for recovery against nine out of the
sixteen partners of the firm. Those partners filed petitions in the High Court of
Allahabad challenging the right of the Sales Tax Officer to recover the tax, and
the High Court quashed the proceedings for recovery of sales tax from the
applicants. The Sales Tax Officer thereafter by notice dated April 2, 1959,
called upon the appellant to pay Rs. 1, 01, 487.16 paise as sales tax due by the
firm. The appellant then moved a petition in the High Court of Allahabad for an
order quashing the notice dated April 2, 1959, and the recovery proceeding. It
was the case of the appellant that in selling the products of the factory, he was
acting as authorised controller under the orders first of the State Government
and thereafter of the Central Government and not on his own behalf and that the
proceeding against him for recovery of tax assessed against the firm was illegal.
A Single Judge of the High Court rejected the application and the order was
confirmed in appeal.

3. The appellant sold goods produced in the factory as "authorised controller",
appointed to run the undertaking of the firm. The Sales Tax Officer did not
assess the appellant in his capacity as authorised controller. The proceedings for
assessment were taken against the firm and the Sales Tax Officer sought to
recover the tax assessed against the firm from the appellant. The High Court
distinguished the earlier judgments relating to the liability of the partners of the
firm to pay tax assessed against the firm on the ground that the "appellant being
instrumental in selling the goods could be properly rendered liable to pay the
tax unpaid".We do not propose to consider at this stage whether in the
circumstances of the case any distinction existed between the liability of the
appellant and of the other partners who were absolved by orders of the court to
pay tax assessed against the firm. It may be recalled that a suit initially a court
receiver was appointed and then the appellant was appointed "authorised
controller" to administer the undertaking of the firm. The High Court did not
consider whether during the relevant years of assessment there existed any
taxable entity which could be then the appellant was assessed to tax they
assumed that because the appellant was at one time a partner, and he had
entered into the transactions of sale as "authorised controller", liability to pay
tax assessed against the firm could be enforced against him. The assumption is
unwarranted. The appellant has not been assessed to pay tax as an authorised

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controller, and therefore the circumstance that the turnover which was assessed
to tax included the price of goods sold by the appellant as authorised controller
was irrelevant. The only circumstance that could be taken into account in
enforcing the liability by the orders of assessment was that the appellant was at
one time a partner of the firm. But before liability on that account can be
enforced, it was necessary to decide whether during the relevant years of
assessment the partnership agreement was in force and that the appellant was in
those years a partner of a subsisting firm. That the High Court has foiled to do.
We are unable, therefore, to maintain the order of the High Court.

4. The appeal is allowed. The order passed by the High Court is set aside. The
case is remanded to the High Court for deciding the petition of the appellant
according to law and in the light of the observations made in this judgment.
There will be no order as to costs in this appeal. Costs before the Single Judge
and the Division Bench will be costs in the petition.

5. Appeal allowed. Case remanded.

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