2016 (7) TMI 1634 - HC - Indian Laws

Liability of arrears of commercial tax dues - company purchased the property of another company under liquidation through auction - HELD THAT - In the case in hand, the respondent No.1 is not a party to the contract nor any terms and conditions are incorporated by the respondent No.2 when respondent No.1 purchased the property in auction. The auction / purchaser cannot be held liable to clear the arrears of commercial tax of previous onwers in absence of there being a specific statutory provision in that regard. Reliance to be placed in the decision of Mahaveer Enterprises vs. State of M.P. Ors. reported as 2008 (8) TMI 1006 - MADHYA PRADESH HIGH COURT , where it was held that the Commercial Tax Department has absolutely no justification or jurisdiction to order the attachment and sealing of the property of the petitioner, which had been purchased by it from M. P.F.C. Both the writ appeals were dismissed on the ground that the property purchased by the respondent No.1 Company from the Corporation cannot be put to auction by the Commercial Tax Department of the State Government for recovery of the arrears of commercial tax from the erstwhile owners - Appeal dismissed.

Summary

Issues:
Liability of auction purchaser for arrears of commercial tax dues against erstwhile company owners.

Analysis:
The case involved a dispute regarding the liability of a company, which purchased another company's property through auction, to pay the arrears of commercial tax dues outstanding against the previous owners. The respondent, a company, had purchased a factory premises through auction from M.P. Financial Corporation, which had taken over the property due to non-repayment of a loan by the previous owner. The Commercial Tax Department sought to recover dues from the respondent, claiming that the property was liable for the arrears. The High Court analyzed the provisions of the M.P. Commercial Tax Act, 1994, and the State Financial Corporation Act, 1951, to determine the extent of liability of the auction purchaser.

The Court noted that the respondent was the highest tenderer and the sale was confirmed in its favor. It was highlighted that the respondent did not purchase the entire business of the previous owner but only acquired the leasehold rights of the plot and factory building. The Court emphasized that under Section 49 of the M.P. Commercial Tax Act, the transferee is liable to pay tax dues only when the entire business is transferred. In this case, the respondent did not acquire the entire business, and therefore, the liability for tax dues did not extend to the respondent.

The Court also examined the agreement to sale executed by the respondent, which stated that the purchaser was satisfied with the title and interest of the property and would not be liable for any loss due to defects. Referring to Section 29(2) of the State Financial Corporation Act, the Court held that the title acquired by the purchaser should be free from encumbrances. Citing a precedent from the Supreme Court, the Court emphasized that auction purchasers cannot be held liable for liabilities not incurred by them, especially in the absence of specific statutory provisions.

Ultimately, the Court dismissed the writ appeals, affirming that the property purchased by the respondent from the Corporation could not be auctioned by the Commercial Tax Department for recovering arrears from the previous owners. The judgment clarified the limited liability of auction purchasers in such transactions and upheld the principle that liabilities should not be imposed on third parties without proper legal basis.

This detailed analysis of the judgment showcases the legal reasoning applied by the High Court in resolving the issue of liability of an auction purchaser for commercial tax dues, providing a comprehensive overview of the case and the relevant legal principles involved.