In a recent judgment the Madras High Court observed that there is no Criminal Liability of Guarantor for failure to pay Arrears of Value Added Tax(VAT) and Goods and Service Tax (GST) as in Undertaking.
The first accused,P.K.Ali, is a proprietor of a concern in the name and style of M/sAl-Safa Chicken Agencies which is involved in selling chicken.The primary allegations that have been made against the first accused is that the returns filed by the first accused did not tally with the monthly returns filed by him against actual sales made by the concerned.
The second accused / petitioner, Santhosh, had executed an undertaking on a stamped paper by revealing his intention that he would pay the tax assessed on the first accused to the commercial tax department from time to time by standing as a guarantor to the extent of tax arrears in respect of the business done by the first accused. He had also stated that he would clear the tax due on behalf of the first accused on receipt of return intimation from the tax department.
In pursuant to the undertaking given by the second accused, the demand was made to him to pay the arrears of the tax of the first accused. Even then the second accused neglected the demand and did not come forward to pay the tax arrears of the first accused to the Commercial Tax Department.
The Court of Justice R N Manjula, observed that “Unless the second petitioner is the assessee in the eyes of the Act he cannot be implicated as an accused for the default committed on the part of the first accused, who alone is the assessee.Since the complaint has been given against this petitioner by presuming culpability on his part for failing to pay the tax I feel there is no basis for this criminal case.”
“The undertaking or the guarantee executed by the second accused in favour of the 1 st accused to the department can be at the best called as an agreement and for which the petitioner can be attached with contractual liability but not criminal liability” the Court noted.
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