2012 (7) TMI 870 - HC - VAT and Sales Tax

Solveny v/s insolvency - cancellation of registration - Held that - The very fact that a registered dealer had himself sought to be declared as an insolvent would disable that dealer from carrying on any further business which would necessarily involve money transaction and applying liquid and other assets of the dealer to the transactions in the business. That, according to us, is good and sufficient reason for cancellation of registration. The question of law regarding whether the filing of an insolvency petition by the debtor/dealer himself would disentitle the debtor/dealer from carrying on the business and having continued registration; has to be answered against the dealer and in favour of the Revenue. At this stage the petitioner has withdrawn the application to be adjudged as insolvent. It is for the petitioner to work out his remedies and apply for fresh registration or renewal of registration in accordance with law. Revision petition rejected.

Summary

Issues:
Cancellation of registration under the Kerala Value Added Tax Act, 2003 based on insolvency petition and revenue interest.

Analysis:
The petitioner, a registered dealer in coconut oil and related products, had his registration canceled under section 16(10) of the Kerala Value Added Tax Act, 2003 due to filing an insolvency petition, rendering him unable to conduct business. Despite failed appellate attempts, the petitioner challenged the cancellation, questioning its legality and impact on state revenue.

Upon review, it was revealed that the petitioner defaulted on taxes for 2003-2006, leading to revenue recovery actions and insolvency petition filing, including Sales Tax Department dues. Subsequently, registration cancellation proceedings were initiated, culminating in the cancellation order. The petitioner's appeal for continued registration was granted by the Division Bench under strict conditions, including a payment requirement of five lakhs rupees.

However, the petitioner failed to comply with the payment condition, leading to non-payment and subsequent sale of his property to recover arrears. The petitioner's conduct displayed an attempt to evade tax payment while seeking to retain registration, showcasing disregard for legal obligations and court orders.

Both appellate authorities upheld the cancellation citing the petitioner's insolvency petition, non-compliance with payment directives, and substantial tax arrears. The court emphasized that a dealer seeking insolvency cannot continue business operations involving financial transactions and asset utilization, justifying the cancellation based on good and sufficient reasons under section 16(10) of the KVAT Act.

As the petitioner withdrew the insolvency application, the court rejected the revision petition, advising the petitioner to pursue legal remedies for registration renewal if desired. The judgment upheld the cancellation, emphasizing the importance of compliance with legal obligations and the impact of insolvency on business operations and revenue interests.

In conclusion, the court dismissed the revision petition while allowing the petitioner to explore alternative legal avenues for registration renewal in adherence to the law.