2015 (1) TMI 908 - SC - VAT and Sales Tax

Liability of official liquidator to pay sales tax - Dealer - whether an Official Liquidator is a dealer within the meaning of section 2 (viii) of the Kerala General Sales Tax Act 1963 (for short the Act 1963 ) and therefore would be required to collect sales tax in respect of the sales effected by him pursuant to winding up proceedings of a company in liquidation - Held that - An Official Liquidator- (i) derives its authority from the provisions of the Act 1956; (ii) acts on behalf of the company in liquidation for the purposes prescribed by the Act 1956; (iii) is appointed by and is under the control and supervision of the Court while discharging his duties. It would now be appropriate for this Court to look into the nature of liability if any imposed on the Official Liquidator for the purposes of taxation. For this purpose we require to consider Rule 54 of the Rules 1963 which imposes liability inter alia on a receiver or manager or other person appointed by an order of the court in the event that a business owned by a dealer is under the control of the said receiver or manager or person whatever be his designation who in fact manages the business on behalf of the dealer. The aforesaid rule expressly provides that tax shall be levied upon and recoverable from such receiver manager etc. in the same manner as it would be leviable upon and recoverable from the dealer. Such tax liability may be incurred by any person managing or conducting the business on behalf of the dealer. The tax liability incurred by such person will be equivalent to the liability which would be levied upon the dealer if he were conducting such business. Further that under Rule 233 of the Rules 1959 for the purposes of acquiring and retaining possession of the property of the company in liquidation the Official Liquidator would be in the same position as a receiver. Official Liquidator had issued a notice inviting tenders for the sale of the assets of the Company. The offer of the auction purchaser was accepted and duly confirmed by the High Court. However the dispute herein arose in respect to determination of which party would be exigible to sales tax. - It can be concluded that an Official Liquidator is an officer of the Court and that for the purpose of discharging statutory obligations imposed under the Act 1956 the Official Liquidator merely steps into the shoes of the company in liquidation. By virtue of the notice issued by the Official Liquidator for inviting tenders dated 26.11.2001 it is amply evident that the liquidator intended to conduct a transfer of the said goods in liquidation. Since the conduct of an auctioned sale involved transfer of goods it falls within the wide ambit of section 2(viii)(f) of the Act 1963. It can be concluded that an Official Liquidator is an officer of the Court and that for the purpose of discharging statutory obligations imposed under the Act 1956 the Official Liquidator merely steps into the shoes of the company in liquidation. By virtue of the notice issued by the Official Liquidator for inviting tenders dated 26.11.2001 it is amply evident that the liquidator intended to conduct a transfer of the said goods in liquidation. Since the conduct of an auctioned sale involved transfer of goods it falls within the wide ambit of section 2(viii)(f) of the Act 1963. Company in liquidation is a dealer with regard to the sale of its assets by way of an auction under a winding up order. Further we have noticed the settled law that an Official Liquidator steps into the shoes of the Director of the company in liquidation and performs his statutory functions in accordance with the directives of the Court. Furthermore Rule 54 of the Rules 1963 contemplates a situation where a business owned by a dealer is under the control of a receiver or manager or any other person irrespective of his designation who manages the business on behalf of the said dealer. In the said scenario the said person in-charge of the business on behalf of the dealer would be exigible to sales tax in the same manner as it would have been leviable upon and recoverable from the dealer itself. Therefore it can be concluded that the liability to pay sales tax in the present case would be on the Official Liquidator in the same manner as the dealer that is the Company in liquidation. Pursuant to section 5 of the Act 1963 the Company in liquidation as a dealer will incur liability to pay sales tax at the point of first sale as incurred by any other dealer under the said Act. By placing reliance upon Rule 54 of the Rules 1963 the liability to pay sales tax is borne by the Official Liquidator as a manager or receiver of the property of the company in liquidation. Therefore we are of the considered opinion that the Official Liquidator would be required to pay the tax payable on the sale of the assets of the company in liquidation. - in view of facts and circumstances of the case the auction purchaser would not be liable to pay sales tax. The offer of the auction purchaser as accepted by the Official Liquidator and confirmed by the High Court was inclusive of all taxes. It would have been the bounden duty of the Official Liquidator to have separated an amount for the payment of taxes under the Act 1963 to avoid any liability. It would be gainsaid in repeating that the Special Government Pleader (Taxes) on behalf of the Revenue before the learned Single Judge of the High Court had clearly stated that the liability to pay sales tax would be on the Official Liquidator. - Decided in favour of Revenue.

Summary

Issues Involved:
1. Whether the Official Liquidator is a "dealer" within the meaning of the Kerala General Sales Tax Act, 1963.
2. Whether the Official Liquidator is required to pay sales tax in respect of sales effected pursuant to winding up proceedings.

Detailed Analysis:

1. Definition and Status of "Dealer":
The primary issue was whether the Official Liquidator qualifies as a "dealer" under Section 2(viii) of the Kerala General Sales Tax Act, 1963. The Act defines a "dealer" as any person engaged in the business of buying, selling, supplying, or distributing goods, including various forms of transactions. The definition is broad and includes entities such as auctioneers and government bodies when they engage in such activities.

The Court noted that the term "business" under Section 2(vi) of the Act is also broadly defined, encompassing any trade, commerce, or manufacture, irrespective of profit motive. The inclusive nature of these definitions suggests that any entity involved in selling goods could be considered a "dealer."

The Court examined precedents where the term "dealer" had been interpreted broadly under various sales tax legislations. For instance, in Chowringhee Sales Bureau (P) Ltd. v. CIT, an auctioneer was deemed a dealer. Similarly, in State of U.P. v. Union of India, the Central Government was considered a dealer when involved in buying and selling.

Given this broad interpretation, the Court concluded that the Company in liquidation, whose assets were sold by auction, qualifies as a "dealer" under the Act, 1963.

2. Tax Liability of the Official Liquidator:
The next issue was whether the Official Liquidator is required to pay sales tax on sales conducted during the winding-up process. Section 5 of the Act, 1963 is the charging provision, which imposes tax liability on the sale or purchase of goods by a dealer. The First Schedule specifies that the point of levy for machinery is at the first sale in the State by a dealer liable to tax under Section 5.

The Court observed that the Official Liquidator, who steps into the shoes of the company's directors during liquidation, acts as an agent of the company. Under Rule 54 of the Kerala General Sales Tax Rules, 1963, tax liability is imposed on any receiver, manager, or person managing the business on behalf of the dealer. Thus, the Official Liquidator, managing the business of the company in liquidation, would be liable for sales tax in the same manner as the company itself.

The Court also considered Rule 233 of the Companies (Court) Rules, 1959, which equates the Official Liquidator to a receiver for the purpose of acquiring and retaining possession of the company's property. Therefore, the Official Liquidator, acting as a receiver, would bear the tax liability.

3. Auction Purchaser's Liability:
The Court addressed the auction purchaser's liability, referring to a separate order in Civil Appeal No.5048 of 2003, which held that the auction purchaser would not be liable for sales tax as the offer was inclusive of all taxes. The Special Government Pleader (Taxes) had also stated that the tax liability would be on the Official Liquidator.

Conclusion:
The Court concluded that the Official Liquidator is indeed a "dealer" under the Act, 1963, and is required to pay sales tax on sales conducted during the winding-up process. The auction purchaser, having made an inclusive offer, was not liable for the sales tax. The appeals were allowed, and the impugned judgments and orders of the High Court were set aside.