1997 (7) TMI 643 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of imposition of tax on the value of movable assets transferred against equity shares.
2. Whether the transaction constitutes an exchange or a sale.
3. Applicability of sales tax on the transfer of movable assets.
4. Whether the transfer of the blending plant as a whole constitutes a sale of a going concern.

Issue-wise Detailed Analysis:

1. Legality of Imposition of Tax on Movable Assets:
The applicants, M/s. IBP Co. Ltd. (IBP) and its Deputy Manager, challenged the imposition of tax on the value of movable assets transferred to a Joint Venture Company (JVC) against equity shares. The applicants argued that the transaction was an exchange, not a sale, and hence not subject to sales tax. The respondents contended that the allotment of shares was valuable consideration for the transfer of property in goods, making it a taxable sale.

2. Whether the Transaction Constitutes an Exchange or a Sale:
The applicants relied on Supreme Court decisions, arguing that the transaction was an exchange of the blending plant for shares, and not a sale. However, the Tribunal noted that the Supreme Court in similar cases did not conclusively determine the nature of the transaction, emphasizing the need to ascertain the real nature of the transaction. The Tribunal found that the transaction involved two separate but linked transactions: the sale of assets and the allotment of shares in satisfaction of the price, thus constituting a sale.

3. Applicability of Sales Tax on the Transfer of Movable Assets:
The Tribunal examined the agreements and found that the transfer was described as a sale in several clauses. The consideration for the transfer was to be paid by allotment of shares, and the transaction was subject to sales tax. The Tribunal referred to the Supreme Court's observation that the legal character of the transaction, not its nomenclature, determines taxability. The Tribunal concluded that the transfer of movable assets was a sale within the meaning of section 2(g) of the Bengal Finance (Sales Tax) Act, 1941, and thus subject to sales tax.

4. Whether the Transfer of the Blending Plant as a Whole Constitutes a Sale of a Going Concern:
The applicants argued that the blending plant was sold as a whole and as a going concern, and hence not taxable. The Tribunal noted that the transfer did not include stock, stores, and other current assets, and was not a sale of the entire business. The Tribunal distinguished the case from precedents where entire businesses were sold, finding that only specific assets were transferred. The Tribunal held that the sale of movable assets did not constitute the sale of a going concern and was taxable.

Conclusion:
The Tribunal dismissed the application, upholding the assessment of sales tax on the transfer of movable assets. The Tribunal emphasized the need to ascertain the real nature of the transaction and found that the transfer constituted a sale, not an exchange. The Tribunal also rejected the argument that the transfer of the blending plant as a whole was a sale of a going concern, finding that only specific assets were transferred. The application was dismissed without any order as to costs.