1962 (12) TMI 48 - HC - VAT and Sales Tax

Issues Involved:
1. Construction and validity of section 17 of the Bengal Finance (Sales Tax) Act, 1941.
2. Liability of successors in business for tax and penalties.
3. Constitutional validity of section 17 under Article 19(1)(f) and (g) of the Constitution.
4. Interpretation of the term "transfer" in section 17.
5. Applicability of principles of natural justice in tax assessment.

Detailed Analysis:

1. Construction and Validity of Section 17 of the Bengal Finance (Sales Tax) Act, 1941:
The court examined the construction of section 17, which deals with the transfer of ownership of a business and the consequent liabilities. The petitioners argued that section 17 applies only to transfers by act of the registered dealer and not to intestate succession. The court rejected this contention, stating that the term "is transferred absolutely" is broad enough to include transfers by operation of law, including intestate succession. The legislative history and amendments to section 17 did not indicate any limitation to transfers by the owner. The court concluded that section 17 applies to all absolute transfers, including those by inheritance.

2. Liability of Successors in Business for Tax and Penalties:
The court addressed the issue of whether the petitioners, as successors, were liable for the tax and penalties due from the business during the period when their father carried on the business. Section 17 deems the transferee to be the registered dealer for all purposes of the Act, thus making them liable for the tax and penalties. The court held that the petitioners, having carried on the business after their father's death, were liable to discharge the duties and liabilities imposed on the registered dealer for the relevant period.

3. Constitutional Validity of Section 17 under Article 19(1)(f) and (g) of the Constitution:
The petitioners challenged the constitutional validity of section 17, arguing that it imposed succession duty in the guise of sales tax and infringed their fundamental rights under Article 19(1)(f) and (g). The court found no substance in this contention, stating that the liability arises from carrying on the business and not from succession. The court further held that section 17 imposes reasonable restrictions in the interest of the general public and is thus saved by Article 19(5) of the Constitution. The section does not render the transferee punishable for the acts and omissions of the original dealer under section 22.

4. Interpretation of the Term "Transfer" in Section 17:
The court interpreted the term "transfer" in section 17 to include transfers by operation of law, such as intestate succession. The court emphasized that the word "transfer" is of general import and should be understood in a broad sense to include all forms of transfer, not limited to acts of parties. This interpretation ensures that the liabilities of the transferees are clearly defined and consistent with the legislative intent of the Act.

5. Applicability of Principles of Natural Justice in Tax Assessment:
The court examined whether the principles of natural justice were violated in the tax assessment process. The petitioners were heard at every stage of the proceedings, except before the Board of Revenue, where their petition was considered without a hearing. The court found no violation of natural justice, as the Bengal Finance Act entitles the assessee to be heard and adduce evidence. The court also noted that the rate of tax was not so unreasonable as to restrict business, and the Act was not intended to stop business but to ensure tax collection.

Conclusion:
The court upheld the validity of section 17 of the Bengal Finance (Sales Tax) Act, 1941, and confirmed the liability of the petitioners for the tax and penalties due from the business during their father's period of operation. The constitutional challenge under Article 19(1)(f) and (g) was rejected, and the interpretation of "transfer" was broadened to include transfers by operation of law. The principles of natural justice were found to be upheld in the tax assessment process. The rule was discharged with no order as to costs.

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