1963 (9) TMI 46 - HC - VAT and Sales Tax

Summary

Issues:
1. Validity of rule 21-A under the Madras General Sales Tax Act, 1939.
2. Interpretation of liability under an instrument of transfer regarding sales tax.

Analysis:

Issue 1: Validity of rule 21-A under the Madras General Sales Tax Act, 1939:
The case involved a challenge to the validity of rule 21-A, which was framed by the State Government under the Madras General Sales Tax Act, 1939. The rule aimed to shift the liability of unpaid sales tax from the transferor to the transferee in cases of business transfer. The Court analyzed the provisions of the Act, emphasizing that the liability to pay sales tax is imposed on a person defined as a dealer, based on their turnover. The Court noted that the rule exceeded the rule-making power of the Government as it attempted to redefine the concept of a dealer through a legal fiction, which was not within the scope of the Act. The Court also highlighted that the rule did not further the purposes of the Act and acted beyond the authority granted under sections 19(1) and 19(2)(c) of the Act. The Court concluded that the rule was ultra vires and invalid.

Issue 2: Interpretation of liability under an instrument of transfer regarding sales tax:
The Court also examined the interpretation of the liability under an instrument of transfer concerning sales tax. The judgment under review had concluded that the transferee undertook to pay the liabilities of the transferor, including sales tax accrued due. However, the Court emphasized that an inter vivos deed between the parties does not establish a liability between the State and the transferee regarding sales tax. Even if the instrument of transfer indicated the transferee's agreement to pay sales tax, it did not confer the authority to assess the transferee or impose statutory obligations and penalties. The Court held that such liabilities and obligations could only be enforced through the provisions of the statute and not solely based on a private agreement. Consequently, the Court ruled in favor of the appellant, declaring the assessment on the transferee as illegal.

In conclusion, the Court allowed the appeal, finding in favor of the appellant on both issues. The Court held that rule 21-A was invalid as it exceeded the rule-making power under the Act and that the liability for sales tax could not be solely determined based on an instrument of transfer between parties. The appellant was granted costs throughout the proceedings.