1991 (3) TMI 336 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Whether the sales of machinery of plant No. 2 and stock-in-trade were liable to tax under the Gujarat Sales Tax Act, 1969.
2. Whether the sales were made in the course of business.
3. Whether the sales were made under compulsion and not by free will.

Issue-Wise Detailed Analysis:

1. Liability of Sales to Tax under the Gujarat Sales Tax Act, 1969:

The primary issue was whether the sales of machinery of plant No. 2 and stock-in-trade were liable to tax under the Gujarat Sales Tax Act, 1969. The Tribunal and lower authorities held that these sales were liable to tax. The appellant contended that these sales were not made in the course of business and were under compulsion due to a court-sanctioned scheme. However, the court found that the appellant-mill company was carrying on its business during the assessment period, filing returns, and maintaining its registration certificate. Therefore, the sales were considered to have been made in the course of business and were liable to tax.

2. Sales Made in the Course of Business:

The appellant argued that the sales were not made in the course of business as the manufacturing activity had ceased. However, the court noted that the appellant-mill company had only suspended its manufacturing activity and had not closed down. The company continued to file sales tax returns and had not canceled its registration certificate. The court concluded that the appellant-mill company was carrying on its business during the relevant period, and the sales were made in the course of business.

3. Sales Made Under Compulsion:

The appellant contended that the sales were made under compulsion due to the court-sanctioned compromise scheme and were not voluntary. The court examined whether the sales were made under compulsion or with free will. It was found that the appellant-mill company and its creditors voluntarily approached the court under section 391 of the Companies Act for the sanction of the compromise scheme. The scheme allowed the appellant to sell its assets with the consent of the Union Bank of India and under the scrutiny of a committee. The court determined that the appellant-mill company had the volition to sell its assets and that the transactions were made with free will. The stipulations in the compromise scheme were intended to safeguard the interests of creditors and did not impose any compulsion on the appellant-mill company.

Conclusion:

The court concluded that the transactions of sales of machinery and stock-in-trade were liable to tax under the Gujarat Sales Tax Act, 1969. The sales were made in the course of business and were not under compulsion. The court answered the question in the affirmative, in favor of the department, and against the assessee. There was no order as to costs.