1998 (10) TMI 525 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the sale of an undertaking as a going concern with all assets and liabilities for a lump sum without stipulating any price for individual items constitutes a sale of goods within the meaning of section 2(n) read with sections 2(h) and 2(s) for charging tax u/s 5 of the Andhra Pradesh General Sales Tax Act.
2. Whether the sale of an entire business or a division thereof can be considered as a sale in the course of business.
3. The applicability and interpretation of rule 6(1)(h) of the Andhra Pradesh General Sales Tax Rules, 1957.

Summary:

Issue 1: Sale of an Undertaking as a Going Concern
The Full Bench was asked to determine whether the sale of an undertaking as a going concern with all assets and liabilities for a lump sum, without stipulating any price for individual items, could be considered a sale of goods within the meaning of section 2(n) read with sections 2(h) and 2(s) for charging tax u/s 5 of the Andhra Pradesh General Sales Tax Act. The Court concluded that in such transactions, no sales tax could be levied on the value of the stock in trade and other goods as if the transaction was one of sale of goods, especially when the sale deed does not mention separate price for these items. The intention was to sell the concern in its entirety, not the individual goods.

Issue 2: Sale in the Course of Business
The Court examined whether the sale of an entire business or a division thereof could be considered a sale in the course of business. It held that the sale of movables involved in such transactions cannot be regarded as a sale in the course of business, nor can the seller be treated as having been engaged in any business activity in disposing of the entire undertaking. The transfer of property in goods as an integral part of the agreement is not "in the course of business" because the seller intends to cease its business. The Court emphasized that the transaction should have some integral connection with the ongoing business, which was not the case here.

Issue 3: Rule 6(1)(h) of the APGST Rules
The Court addressed the applicability and interpretation of rule 6(1)(h) of the Andhra Pradesh General Sales Tax Rules, 1957. It clarified that rule 6(1)(h) provides for deductions from the turnover of a dealer and does not exempt from taxation the turnover realized from the sale of the business as a whole. The rule was framed on the assumption that in a case of sale of business as a whole, the proceeds of sale may be taxable. However, the rule cannot go counter to the charging provision and other provisions of the Act. If there is no sale within the meaning of section 2(1)(n) of the Act, the liability to tax cannot arise from the operation of this rule.

Conclusion:
The Court allowed the tax revision case and writ petitions, setting aside the orders of the Sales Tax Appellate Tribunal and quashing the impugned assessment orders and demand notices. The sale of an entire business or a division thereof was not considered a sale in the course of business, and rule 6(1)(h) did not render the transactions taxable. The writ petition challenging rule 6(1)(h) was dismissed as unnecessary.