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2018 (3) TMI 1473 - HC - VAT and Sales TaxRecovery of sugarcane purchase tax and arrears of sales tax - legality and validity of the attachment order - auction - SARFAESI Act - Held that - Admittedly, respondent No.3 had no licence to run Sugar Factory. It is not the case of any of the respondents that it was being run by respondent No.3 for manufacturing sugar until issuance of public notice for auction sale on 16th January, 2012 and even thereafter till it was given in possession of the petitioner on 22nd November, 2012. If the petitioner makes such defunct factory functional and starts manufacturing sugar under its own licence, it cannot be said that the petitioner purchased the business interest of respondent no. 4. It is, thus, clear that the petitioner has not purchased and succeeded the business interest of respondent NO. 4. Respondent NO. 2 cannot recover the dues payable from respondent No. 4 by enforcing any charge against the secured assets purchased by the petitioner in the auction - The issue of priority between the Sales Tax Authorities and respondent No. 3 shall be decided in appropriate proceedings before the appropriate forum in accordance with law - petition allowed.
Issues Involved:
1. Recovery of sugarcane purchase tax and arrears of sales tax from the petitioner. 2. Whether the petitioner had notice of the outstanding dues against the secured assets. 3. Liability of the petitioner as a transferee of business interest. 4. Enforcement of charge against the secured assets purchased by the petitioner. Detailed Analysis: 1. Recovery of Sugarcane Purchase Tax and Arrears of Sales Tax from the Petitioner: The petitioner challenged the communications dated 29th November 2016 and 23rd January 2017, issued by respondent No. 2, seeking recovery of ?7,04,10,624 from the petitioner, which were dues from respondent No. 4. The petitioner argued that it purchased only the secured assets of respondent No. 4 and not its business interest, and thus, the dues against respondent No. 4's business could not be recovered from it. 2. Whether the Petitioner Had Notice of the Outstanding Dues Against the Secured Assets: The petitioner contended that the dues were not disclosed at the time of the auction or when the sale certificate was registered. The charge was not reflected in the Record of Rights of the lands, and the petitioner had no constructive notice of the charge. The court noted that the auction sale was concluded on 16th February 2012, and the communication regarding the dues was made on 6th March 2012, which was after the auction. Therefore, the petitioner could not be attributed with knowledge of the charge. 3. Liability of the Petitioner as a Transferee of Business Interest: The petitioner argued that it did not purchase a running business but only the secured assets of a defunct factory. The court observed that respondent No. 4's sugar factory was defunct and not operational at the time of the sale. The petitioner started its sugar manufacturing business under its own license, and thus, it could not be considered as having purchased the business interest of respondent No. 4. The court referred to the judgment in National Steel and Agro Industries Limited, which held that sales tax dues are against the business, not the property, and the transferee of a defunct business is not liable for the transferor's dues. 4. Enforcement of Charge Against the Secured Assets Purchased by the Petitioner: The court referred to the case of Sherwood Resorts Pvt. Ltd., where it was held that a charge cannot be enforced against a transferee without notice of the charge. The court found that the petitioner was a bona fide purchaser without notice of the charge. The court concluded that respondent No. 2 could not enforce the charge for ?7,04,10,624 against the secured assets purchased by the petitioner. Conclusion: The court held that respondent No. 2 could not recover the dues from the petitioner by enforcing any charge against the secured assets purchased in the auction. The impugned communications were set aside, but the court clarified that respondent No. 2 could proceed against respondent No. 4 in appropriate proceedings. The issue of priority between the Sales Tax Authorities and respondent No. 3 was not decided and left for appropriate proceedings. Judgment: The Writ Petition was allowed, and the Rule was made absolute. The parties were directed to bear their own costs.
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