2002 (11) TMI 666 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction and authority of the Collector of Sales Tax.
2. Applicability of Section 32 of the Delhi Sales Tax Act, 1975.
3. Concept of lifting the corporate veil.
4. Authority to issue show-cause notice.
5. Legitimacy of the transfer of business and its implications on tax liability.

Issue-wise Detailed Analysis:

1. Jurisdiction and Authority of the Collector of Sales Tax:
The petitioner challenged the Collector's power to determine that Byford and the petitioner were the same entity, arguing that no law authorizes the Collector to lift the corporate veil. The respondents contended that the petitioner was part of the Byford group, controlled by the same family, and the Collector was justified in treating the petitioner as the defaulter company.

2. Applicability of Section 32 of the Delhi Sales Tax Act, 1975:
Section 32 imposes liability on the transferee for the transferor's unpaid tax dues if the business is transferred. The petitioner argued that since the business of waste management was not subject to sales tax, Section 32 did not apply. The court held that Section 32 applies only when the transferred business is exigible to tax. Therefore, the Collector's order on this aspect was not sustained.

3. Concept of Lifting the Corporate Veil:
The court discussed the principle of lifting the corporate veil, citing several Supreme Court decisions. It held that the corporate veil could be lifted even without a statutory provision if the corporate entity is used to evade tax obligations. The court found that the business transfer from Byford to the petitioner was intended to evade tax dues, justifying the lifting of the corporate veil.

4. Authority to Issue Show-Cause Notice:
The petitioner questioned the Collector's authority to issue the show-cause notice. The court referred to notifications appointing the officer as Deputy Commissioner, Sales Tax, and conferring powers of Collector for recovering sales tax dues. The court found no illegality in the issuance of the show-cause notice.

5. Legitimacy of the Transfer of Business and Its Implications on Tax Liability:
The court examined the transfer of the waste management business from Byford to the petitioner. It found that the transfer was a strategy to evade tax dues, as the businesses were interlinked and controlled by the same family. The court upheld the Collector's finding that the petitioner was liable for Byford's tax dues.

Conclusion:
The petition was dismissed, and the court upheld the Collector's authority to lift the corporate veil and treat the petitioner as liable for Byford's tax dues. The court emphasized that Section 32 applies only to businesses exigible to tax and found no procedural impropriety in the Collector's actions. All interim orders were vacated.