1955 (11) TMI 25 - HC - VAT and Sales Tax

Summary

Issues:
1. Liability of transferees for sales tax arrears of the transferor.
2. Interpretation of relevant provisions of Sales Tax Act.
3. Recovery of tax from assets of a deceased assessee.
4. Fundamental right to carry on trade.

Analysis:
The case involved a petition under Article 226 of the Constitution regarding the liability of transferees for sales tax arrears of the transferor. The petitioners had purchased a rolling mill free of encumbrances, but the previous owner had unpaid sales tax for the years 1949 to 1954. The Additional District Magistrate ordered attachment of the mill's machinery and building for tax recovery, leading to the petition. The main issue was whether the transferees were liable to pay the sales tax levied on the transferor. The Sales Tax Act imposes the tax liability on the dealer, defined as a person carrying on the business of buying or selling goods. The Act does not provide for recovery from a transferee, and recovery is typically from the dealer or their assets.

The relevant provisions of the Sales Tax Act were analyzed to determine the liability for tax payment. Section 3 imposes tax on the dealer based on turnover, while Section 7 mandates return submission and assessment. Recovery of tax is specified in Section 8, allowing for recovery as arrears of land revenue from the liable person or their assets. The Act does not authorize recovery from a transferee, making the machinery or property of the mill not liable for tax payment. The petitioners, as business owners using the machinery, were not liable for the transferor's tax debts unless the sale deed was invalidated.

The judgment highlighted the fundamental right of the petitioners to carry on their trade without undue interference. It was emphasized that the tax department could challenge the sale deed's validity through legal proceedings but could not recover tax from the petitioners without setting aside the sale deed. Therefore, the petition was allowed, issuing a writ of mandamus to restrain tax recovery from the petitioners unless the sale deed was invalidated through appropriate legal channels. The petitioners were also awarded costs for the petition, emphasizing the protection of their rights in the matter.