2025 (3) TMI 116 - HC - VAT / Sales Tax

Entitlement to the benefit of prospective effect as contemplated under Section 56 (2) of the MVAT Act - Appellant Trust is a deemed dealer under section 2 (8) of MVAT Act 2002 liable for registration and payment of tax under MVAT Act or not - whether it is not necessary for levy of Sales Tax that the Appellant must carry on business in the capacity of the dealer? - sale of movable or immovable property to be ascertained by the field officers at the appropriate stage. Whther the appellant is a deemed dealer as contemplated under the explanation to section 2 (8) of the MVAT Act? - HELD THAT - The Appellant became the full and absolute owner of the loans and the stressed assets by virtue of the Transfer Deed dated 30th September 2004 and the only person legally entitled to recover those loans or any part thereof. To ensure that the Appellant could in fact avail of quick remedies of recovery under the provisions of the RDDB Act 1993 as well as the SARFAESI Act 2002 the Government in exercise of powers conferred by sub-clause (ii) of clause (h) of Section 2 of the RDDB Act 1993 specified/notified the Appellant to be a financial institution for the purposes of the said clause. On perusing the clauses of the Trust Deed as well as the Transfer Deed it is clear that the objects of the Appellant Trust were for recovering debts of defaulting borrowers by disposing of the stressed assets inter alia under the provisions of the SARFAESI Act 2002. The deemed dealer provision under the MVAT Act becomes operational when the categories thereunder sell any goods whether by auction or otherwise. The Explanation which introduces the deeming provision further stipulates that the deemed dealer provision would operate notwithstanding anything contained in Section 2 (4) the definition of the word business or any other provisions of the MVAT Act - The Explanation in clear terms provides that the enumerated entities would be deemed to be a dealer when they sell any goods by auction or otherwise. Thus the definition itself specifies that the sale of goods whether by auction or otherwise would render the person/body/entities enlisted in the clauses to the Explanation to be a dealer. Whether the Appellant would fall within any of the ten clauses as set out in the Explanation to Section 2 (8) of the MVAT Act? - HELD THAT - Clause (x) of the Explanation clearly stipulates that any corporation company body or authority owned or constituted by or subject to the administrative control of the Central Government any State Government or any local authority would be deemed to be a dealer for the purposes of the MVAT Act. It can hardly be disputed that the Appellant is a body constituted by the Central Government. This is abundantly clear from the Trust Deed which in fact constitutes and sets up the Appellant as a Trust and the settlor of this Trust is the Central Government. The Appellant therefore is clearly a body constituted by the Central Government. Once this is the case we find that the Appellant is certainly a deemed dealer for the purposes of the MVAT Act. Denial of benefit of prospective effect to the DDQ order (u/s 56(2) of the MVAT Act) - HELD THAT - Under Section 56 (1) if any question arises regarding inter alia a person being a dealer or whether such person is required to be registered as a dealer or any particular thing done to any goods amounts to or results in the manufacture of goods or any transaction is a sale or purchase etc. and such a question/s is posed to the Commissioner the Commissioner shall determine such question/s in terms of Section 56 (1) of the MVAT Act. Section 56 (2) gives the power and discretion to the Commissioner to direct that the determination made by him under sub-section (1) shall not affect the liability under the MVAT Act in respect of any sale or purchase effected prior to the determination - the Commissioner has the power and discretion to put a quietus to transactions entered into prior to his DDQ Order. It is of course needless to clarify that this discretion has to be exercised on sound judicial principles and cannot be on the ipse dixit of the Commissioner. Whether the Petitioner had made out a case for getting the benefit of prospective effect to the DDQ Order? - HELD THAT - There is a force in the argument of Ms. Badheka that by virtue of Article 285 of the Constitution of India the Appellant was of the bona fide opinion that it being set up and constituted by the Central Government and all the proceeds that it recovers from sale of stressed assets are to go to the Central Government coupled with the fact that if for any reason the stressed assets are not sold during the tenure of the Trust the same would vest in the Central Government it was not liable to collect any tax on the sale of securities of the stressed assets - the Appellant ought to have been extended the benefit of prospective effect to the DDQ Order. Conclusion - The Appellant is a deemed dealer under the MVAT Act and liable for sales tax on the sale of movable properties. However the Appellant is granted prospective effect to the DDQ Order exempting it from liability for past transactions. Appeal disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment addresses two primary issues:

• Whether the Appellant Trust is a "deemed dealer" under Section 2(8) of the Maharashtra Value Added Tax Act, 2002 (MVAT Act) and thereby liable for registration and payment of tax under the MVAT Act.
• Whether the Appellant is entitled to the benefit of prospective effect to the Determination Order (DDQ Order) under Section 56(2) of the MVAT Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Appellant as a "Deemed Dealer"

• Relevant Legal Framework and Precedents: The definition of "dealer" under Section 2(8) of the MVAT Act includes a "deemed dealer" provision through an Explanation that lists entities which, when selling goods, are deemed dealers regardless of whether they carry on business as defined under Section 2(4) of the MVAT Act.
• Court's Interpretation and Reasoning: The Court emphasized the statutory fiction created by the deeming provision, which applies to entities listed in the Explanation to Section 2(8), irrespective of their engagement in business activities. The Court noted that the Appellant falls within this category.
• Key Evidence and Findings: The Appellant, a trust set up by the Central Government, was involved in selling stressed assets, including movable properties, to recover debts. The sale of movable properties was documented through separate sale certificates.
• Application of Law to Facts: The Court found that the Appellant is a body constituted by the Central Government, thus falling under clause (x) of the Explanation to Section 2(8), making it a deemed dealer.
• Treatment of Competing Arguments: The Appellant argued that it was not carrying on business and hence not a dealer. However, the Court held that the deeming provision overrides the requirement of carrying on business.
• Conclusions: The Court concluded that the Appellant is a deemed dealer under the MVAT Act and liable to pay sales tax on the sale of movable properties.

Issue 2: Prospective Effect of the DDQ Order

• Relevant Legal Framework and Precedents: Section 56(2) of the MVAT Act allows the Commissioner to direct that a determination shall not affect liability for transactions prior to the determination.
• Court's Interpretation and Reasoning: The Court considered the Appellant's bona fide belief, based on Article 285 of the Constitution, that it was exempt from state taxes as it was constituted by the Central Government. The Court also noted the lack of objection from auditors regarding sales tax liability.
• Key Evidence and Findings: The Appellant had not collected sales tax from purchasers, relying on its understanding of its tax obligations. The Court found that this understanding was reasonable under the circumstances.
• Application of Law to Facts: The Court held that the Appellant should be granted prospective effect to the DDQ Order to avoid hardship, as it would be unable to recover sales tax from past transactions.
• Treatment of Competing Arguments: The Revenue argued that ignorance of law is no excuse and that the Appellant should have been aware of its tax obligations. The Court, however, emphasized the unique circumstances and the Appellant's reliance on its understanding of the law.
• Conclusions: The Court granted the Appellant the benefit of prospective effect to the DDQ Order, thereby relieving it of liability for sales tax on transactions prior to the determination.

3. SIGNIFICANT HOLDINGS

• Core Principles Established: The judgment clarifies the application of the deeming provision under the MVAT Act, emphasizing that entities listed in the Explanation to Section 2(8) are deemed dealers regardless of their business activities. It also highlights the discretion available under Section 56(2) for granting prospective effect to determinations, particularly in cases of bona fide misunderstanding of tax obligations.
• Final Determinations on Each Issue: The Court held that the Appellant is a deemed dealer under the MVAT Act and liable for sales tax on the sale of movable properties. However, the Appellant was granted prospective effect to the DDQ Order, exempting it from liability for past transactions.