1970 (7) TMI 69 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Entitlement of a transferee to notice of pending assessment proceedings against the transferor under the Bombay Sales Tax Act, 1959.
2. Validity of recovery notices issued without giving the transferee an opportunity to contest the assessment.

Detailed Analysis:

Issue 1: Entitlement of a Transferee to Notice of Pending Assessment Proceedings
The primary question in this case was whether a transferee of a business, who has incurred liability to pay sales tax under section 19(4) of the Bombay Sales Tax Act, 1959, is entitled to a notice of pending assessment proceedings against the transferor.

The court examined the relevant provisions of the Bombay Sales Tax Act, 1959, particularly sections 19(4), 33, and 34. Section 19(4) stipulates that when a dealer liable to pay tax transfers his business, both the dealer (transferor) and the person succeeding (transferee) shall be jointly and severally liable to pay the tax due. Section 34 extends the provisions of the Act to the transferee as if he were the dealer himself.

The court concluded that section 34 implies that all relevant provisions of the Act, including those pertaining to assessment, apply to the transferee as if he were the dealer. This interpretation means that the transferee is entitled to the same procedural rights, including notices of assessment, as the original dealer.

Issue 2: Validity of Recovery Notices Issued Without Notice to the Transferee
The petitioners argued that the recovery notices issued to them were invalid because they were not given an opportunity to contest the assessment or show that they were not liable as transferees of Azad Moulding Works. The court noted that the assessment proceedings for the period from 1st April 1958 to 31st March 1961 were pending when the business was transferred on 1st November 1961, and the petitioners were not notified of these proceedings.

The court found that the Bombay Sales Tax Act, 1959, or the Rules framed thereunder, do not explicitly require notice to be given to a transferee. However, section 34 provides sufficient guidance by treating the transferee as a dealer, thereby entitling them to the same procedural rights, including notices under section 33(3). The court held that the failure to serve notice to the transferee before completing the assessment rendered the assessment and subsequent recovery actions invalid.

The court rejected the argument of the learned Government Pleader that the term "tax due" in section 34 should be interpreted differently from section 19(4). The court emphasized that "tax due" includes unquantified tax liabilities and that the provisions of section 34 apply to all aspects of the Act, not just recovery.

The court also dismissed concerns about practical difficulties for the department in knowing when a business is transferred, noting that the Act contains provisions requiring dealers to inform the department of such changes.

Conclusion
The court declared the impugned recovery notices and the consequential actions taken by the department as illegal. A writ of mandamus was issued quashing the recovery notice, attachment, and other actions taken pursuant to the said notices. The rule was made absolute without any order as to costs.