2017 (9) TMI 592 - HC - VAT and Sales Tax

Lifting of Corporate veil - Separate registration under TNGST and CST Act - according to Revenue separate registration has been taken solely for the purpose of avoiding payment of additional sales tax - Held that - the conclusion arrived at by the respondent to state that the petitioner was incorporated only for the purpose of avoiding additional sales tax is of little avail and the formation of new company could have no impact on the levy and payment of additional sales tax as this liability is on the seller/principal with effect from 01.01.2007 when the TNVAT Act 2006 came into force - A sample bill raised by the grower/seller of Tea was produced before this Court which shows that the seller is Tea Estates India Limited the buyer is A.V.Thomas & Company Limited and the agent is the petitioner herein - impugned proceedings are totally flawed and therefore liable to be set aside - petition allowed - decided in favor of petitioner.

Summary

Issues:
Cancellation of registration under Tamil Nadu General Sales Tax Act, 1959 based on lifting the corporate veil to avoid payment of Additional Sales Tax.

Analysis:
The petitioner, a company incorporated under the Indian Companies Act, had its registration under the Tamil Nadu General Sales Tax Act, 1959 proposed for cancellation by the respondent. The respondent alleged that the petitioner had taken separate registrations under TNGST and CST to evade Additional Sales Tax. The respondent intended to lift the corporate veil and club the petitioner's turnover with another company. The petitioner objected, asserting its separate legal entity status and independent business operations. Despite objections, the respondent confirmed the proposal for cancellation.

The petitioner's parent company, established in Calcutta in 1987, operated as agents for Tea, while the petitioner's company, incorporated in 2002, obtained separate registrations under TNGST and CST. The petitioner held a distinct PAN number, filed regular returns, and obtained a license from the Tea Board of India. The respondent alleged that the separate registration was solely to avoid paying additional sales tax, leading to the proposed cancellation of registration.

The court highlighted that even if the impugned order was confirmed, the respondent could not demand additional sales tax from the petitioner due to specific provisions. The Commissioner of Commercial Taxes clarified the liability of principals to pay additional sales tax on agents' turnover. The court emphasized that the petitioner, as a separate legal entity, was entitled to conduct business as per its memorandum of association.

The court found the reasons for cancellation erroneous, emphasizing that the formation of a new company did not impact the levy and payment of additional sales tax, which was the seller/principal's responsibility. The court reviewed a sample bill indicating the seller, buyer, and agent involved, demonstrating the flawed nature of the proceedings. Consequently, the court allowed the writ petition, setting aside the impugned order, and closed the connected miscellaneous petition without costs.