1968 (7) TMI 50 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of Section 19(4) of the Bombay Sales Tax Act, 1959.
2. Determination of whether the petitioners succeeded to the business of M/s. Kailas Oil Mills.
3. Liability of the petitioners for the sales tax dues of M/s. Kailas Oil Mills.

Detailed Analysis:

1. Validity of Section 19(4) of the Bombay Sales Tax Act, 1959:
The petitioners challenged the constitutionality of Section 19(4) of the Bombay Sales Tax Act, 1959, arguing that it was ultra vires the provisions of Article 19(1)(f) and (g) of the Constitution of India. The Court, however, did not find merit in this argument and focused on the interpretation and application of Section 19(4) to the facts of the case.

2. Determination of whether the petitioners succeeded to the business of M/s. Kailas Oil Mills:
The petitioners contended that they only purchased the machinery of M/s. Kailas Oil Mills and not the business itself. They argued that M/s. Kailas Oil Mills had already ceased operations and disposed of its stock and other assets before the sale of the machinery. The Court examined the nature of the transaction and the relevant legal tests for determining business succession.

The Court referred to the Supreme Court's decisions in A.C.A. & L Society v. Workmen and Commissioner of Income-tax, Madras v. K.H. Chambers, which laid down the tests for determining business succession. These tests include the continuity of the business, the transfer of goodwill, the similarity of the business post-transfer, and whether the business was a going concern at the time of the transfer.

The Court found that the petitioners did not purchase the business as a going concern. They only bought the machinery and not the goodwill, stock-in-trade, or other assets of M/s. Kailas Oil Mills. The business had already ceased operations, and there was no transfer of tenancy rights. The petitioners negotiated a new lease with the landlord and started their own business under a different name.

3. Liability of the petitioners for the sales tax dues of M/s. Kailas Oil Mills:
The respondent, the Sales Tax Officer, argued that the petitioners were liable for the sales tax dues of M/s. Kailas Oil Mills under Section 19(4) of the Bombay Sales Tax Act, 1959, as they had succeeded to the business. The Court, however, disagreed with this interpretation.

The Court held that Section 19(4) applies only when there is a transfer of the business or part thereof, not merely the assets. Since the petitioners only purchased the machinery and not the business, they could not be held liable for the sales tax dues of M/s. Kailas Oil Mills. The Court emphasized that a transfer of business requires the continuity and integrity of the business, which was not present in this case.

Conclusion:
The Court concluded that the respondent erred in treating the petitioners as transferees of the business of M/s. Kailas Oil Mills and seeking to recover the sales tax dues from them. The Court allowed the special civil application, quashed the notice and assessment orders, and issued a writ of mandamus permanently restraining the respondent from enforcing the notice and assessment orders against the petitioners. The application was allowed with costs.