P.A. AZEEZ Versus THE STATE TAX OFFICER STATE GOODS AND SERVICE TAXES, PERUMBAVOOR, THE ASSISTANT COMMISSIONER OF STATE TAX, MUVATTUPUZHA, THE COMMISSIONER OF STATE TAX, THIRUVANANTHAPURAM, THE DEPUTY TAHSILDAR, MUVATTUPUZHA, THE VILLAGE OFFICER MULAVUR, MUVATTUPUZHA AND SRI. C.E. ALI, PERUMBAVOOR – 2018 (11) TMI 716 – KERALA HIGH COURT – TMI – Surety Bond – VAT registration – Effect of Withdrawal of sureties – discharge from liability of being surety – Rule 19(4) of the Kerala Value Added Tax Rules, 2005 – Held that:- Rule 19(2)(d) mandates that the bond should be in Form No.6 and that two sureties should sign it. If only one surety withdraws, then the bond remains with a single surety, though the Rule mandates it should contain two sureties. As seen from sub-rule (4), it does not provide for substitution of sureties. It only provides for the substitution of the bond, as one of many alternatives – In this case, the first bond has become unenforceable. If the Department's plea is to be
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d with P.A. Azeez, the petitioner, and Kathiru Pilla, as the two sureties. Later, Kathiru Pilla wanted to withdraw from being the surety. Therefore, he invoked Rule 19(4) of the Kerala Value Added Tax Rules, 2005. As seen from the record, even Azeez submitted the Ext.P4, dated 07.10.2014, declaring his intention that he too must be discharged from the liability of being a surety. Then Ali, the dealer, had to execute a new bond with two other persons as sureties. He did execute, but the Department claims that it was for a different purpose. So it asserts that there are two bonds. The Department, yet, maintains that Kathiru Pilla stood discharged from the obligation, but not Azeez. Is it so? We will answer. 2. Later, because of Ali s default, the Department wanted to invoke both the bonds: the one executed in 2011, in the which Azeez and Kathiru Pilla were the sureties; and the other, executed in 2014. So the Department served on Azeez the Exts. P5 and P6 notices. Aggrieved, he has filed
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nder Rule 19(4) of the Rules. 5. Dr. James accepts that Azeez, too, requested the authorities to discharge him from the liability. Though the Department informed Ali, she stresses, he has so far not come forward to execute a new bond. In this context, she contends that both the bonds could be pressed into service. In other words, Azeez cannot get absolved of his responsibility or liability because to replace him, Ali has produced no new bond with other sureties. 6. Heard Sri Aji V. Dev, the petitioner's counsel, and Dr. Thushara James, the learned Government Pleader. 7. Indeed, the facts are not in dispute. Azeez stood surety for Ali in 2011 and executed a bond under Section 17 of the Act, read with Rule 19 of the Rules. Evidently, he is one of the two sureties. Later, as the record reveals, both the sureties, that is Kathiru Pilla and Azeez, wanted to withdraw as the sureties. For whatever reason, Ali pressed the other surety's cause and volunteered to execute a new bond. And
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ever, be demanded from a dealer who applies for registration as a dealer under sub-section (5) of Section 6. (2) The security or additional security may be furnished by the dealer in any of the following ways, namely:- (a) . . . (b) . . . (c) . . . (d) executing a security bond for such amount in Form No.6 with two sureties, solvent enough for the amount assured and acceptable to the said authority; or (e) . . . (f) . . . (g) . . . (h) . . . (3) The security or additional security furnished shall be maintained in full so long as the registration certificate continues to be in force and may, in the event of default of payment of any tax or any other amount due under the Act be liable to adjustment towards such tax or other amount due, after due intimation to the dealer. (4) Where a person who stood as surety by signing the bond in Form 6 furnished under sub-rule (2) desires to withdraw from the bond, he shall duly serve on the dealer who had executed the bond and to the registering auth
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rceable. If the Department's plea is to be accepted-that is, the second bond is to meet the additional demand on the dealer-then sub-rule (4) of Rule 19 remains unanswered. For the discharge of Kathiru Pilla, the Department, in its own admission, has failed to take a new bond. In that event, with one surety's release and without notice to or the consent of the other surety, the first bond becomes unenforceable. The Rule is emphatic: if a surety notifies his intention to withdraw from the bond, neither the dealer nor, as it seems, the Department has an option. Within sixty days, the dealer must furnish new security in the manner specified under sub-rule (2). And the withdrawal will operate from the date the new security is furnished. 11. Even otherwise, Section 133 of the Contract Act may also come in the way of the Department s defence. Without the surety s consent, if the principal debtor and the creditor vary the contractual terms, then, that variation discharges the surety f
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