2006 (7) TMI 621 - HC - VAT and Sales Tax

whether the decision of the Tribunal in coming to the conclusion that after the merger of the two companies, there could not have been a sale of any goods between the two companies (during the assessment years 1995-96 and 1996-97), is sustainable in law.

Issues Involved:
1. Whether the decision of the Tribunal that post-merger transactions between the holding and subsidiary companies are stock transfers and not sales is sustainable in law.
2. Whether the petitioner is entitled to a refund of excess tax paid.
3. Legality of the Deputy Commissioner's order withholding the refund under section 33C of the APGST Act.

Issue-Wise Detailed Analysis:

1. Tribunal's Decision on Post-Merger Transactions:
The primary issue examined was whether the Tribunal's conclusion that transactions between the holding company and its erstwhile subsidiary post-merger (effective from April 1, 1995) were stock transfers and not sales, was legally sustainable. The Tribunal relied on the Supreme Court's decision in Marshall Sons and Co. (India) Ltd. v. Income-tax Officer, which held that in the absence of a court-specified date, the effective date of amalgamation is the date specified in the scheme. Consequently, from this date, the subsidiary ceases to exist as a separate legal entity, and any transactions between the two entities are considered internal stock transfers. The Court upheld this view, stating that the legal fiction created by the amalgamation must be carried to its logical extent unless expressly curtailed by law. Therefore, the transactions in question were indeed stock transfers, not sales, and not subject to tax under the Central Sales Tax Act.

2. Entitlement to Refund of Excess Tax Paid:
The petitioner sought a refund of excess tax paid for the assessment years 1995-96 and 1996-97. The Court noted that under section 33BB of the APGST Act, a refund is not automatic following a judicial finding of illegal tax collection. The dealer must prove to the satisfaction of the assessing authority that the tax was not passed on to the purchaser. This principle, rooted in preventing undue enrichment, applies to Central Sales Tax refunds as well, as per section 9(2) of the CST Act. Thus, the petitioner must establish that the tax burden was not transferred to the purchasers to claim a refund. The Court directed the petitioner to make an appropriate application for a refund, which the respondents must consider in accordance with the law.

3. Legality of Withholding Refund under Section 33C:
The Deputy Commissioner withheld the refund pending the outcome of T.R.C. No. 44 of 2003, invoking section 33C of the APGST Act. The petitioner argued that this decision was illegal as it did not originate from the assessing authority but directly from the Deputy Commissioner. The Court acknowledged a technical violation of the letter of the law but emphasized the practical aspect that the ultimate decision rests with the Deputy Commissioner, a higher authority. The Court found no legal flaw in the Deputy Commissioner's decision to withhold the refund, even without a proposal from the assessing authority, as it aligns with the legislative intent to ensure careful consideration before withholding refunds.

Conclusion:
The Court dismissed the tax revision case and disposed of the writ petitions. It upheld the Tribunal's decision that post-merger transactions between the holding and subsidiary companies are stock transfers. It also clarified that the petitioner is not automatically entitled to a refund of excess tax paid and must prove that the tax was not passed on to purchasers. Lastly, it found no legal flaw in the Deputy Commissioner's decision to withhold the refund under section 33C. The petitioner was granted four weeks to make a representation for the refund, which the respondents must consider within eight weeks thereafter.

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