9911796707
TMI Blog1998 (12) TMI 570X X X X Extracts X X X X X X X X Extracts X X X X ..... ted (defaulter company), Bhiwadi, was one such industrial unit. On June 28, 1991 the petitioner-company addressed a communication to the Corporation requiring it to specify the conditions of auction sale in respect of fixed assets of defaulter company. In answer to this communication the Corporation on July 2, 1991 informed the petitioner-company about these conditions which, inter alia, provided that the auction purchaser would have to clear the dues of RIICO, RSEB and PHED and it was further made clear that the prospective purchaser would not be required to clear the dues of banks and other sundry debtors. The petitioner-company acting upon these assurances offered the bid which was accepted. The Corporation on August 21/23, 1991 finally approved the sale of the fixed assets of the said defaulter company. It has further been alleged that the Corporation had granted loan and other credit facilities to defaulter company which defaulted in the payment of dues. Resultantly the Corporation acting under section 29 of the State Financial Corporations Act, 1951 (the SFC Act) took over the possession of the fixed assets which were later sold by it in a public auction and which were purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration. These assets were put to auction. The petitioner-company purchased them. At the time of auction the petitioner-company paid 25 per cent of the total sale price. The remaining amount has not been paid. The petitioner-company purchased and took over assets on as is where is basis. The Corporation did not know about the sales tax dues. The petitioner-company has stepped into the shoes of the defaulter company. The Corporation has no role to play in the dispute between respondents Nos. 1, 2 and 3 on the one hand and the petitioner-company on the other. 6.. In the rejoinder filed on behalf of the petitioner-company most of the averments contained in the writ petition have been reiterated and there is nothing which deserves our attention. S.B. Civil Writ Petition No. 1587 of 1992 (R.T.T. No. 120 of 1996): 7. This petition also proceeds on the line similar to the one which is detailed in S.B. Civil Writ Petition No. 6464 of 1993 (R.T.T. No. 38 of 1995). Thus we need not burden this judgment with inessentials. In this writ petition the land and building and plant and machinery of M/s. Laxmi Oil and Extraction Mills Limited (defaulter firm) at plot Nos. 67-68 Industria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly land and building and one part of the plant and machinery. It did not purchase the stock-in-trade, goodwill, other receivables, various licences, furniture and fixtures and the right to carry on business. At the time of auction when the sale did take place the defaulter unit was not a running business in existence. It had already closed down. The plant and machinery so purchased were of scrap value and no part thereof was used by the petitioner-company for its own business. It was dismantled and stacked away as disposable scrap. The Corporation thereafter sanctioned a term loan of Rs. 57,40,000 to the petitionercompany against a project cost of Rs. 88 lakhs for purchase of machinery as also for renovation and extension of the building for establishment of a 50 TDP cement plant. None of the employees of the defaulter unit continued in the employment of the petitioner-company. It started off as a separate unit, took a new excise licence and got itself registered separately with the Central sales tax and Rajasthan sales tax authorities. A separate ISI certification was also obtained. There was absolutely no business connection between the petitioner-company and the defaulter unit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e counter-filed on behalf of the Corporation the factual position has not been disputed. It took possession of the assets of the defaulter unit under section 29 of the SFC Act. In the agreement itself it was made clear that the petitioner-company would be liable to clear the entire dues of RSEB, RIICO (water authorities) and of other Government department. It has the first charge over the assets of the defaulter unit. 13.. We have heard the arguments and examined the material on record. S.B. Civil Writ Petition No. 2287 of 1991 (R.T.T. No. 157 of 1997): 14.. The main thrust of the attack launched by Shri Sunil Nath, learned counsel for the petitioner-company, is that since there was no transfer of the entire ownership of the business from the defaulter unit to the petitioner-company the question of the petitioner-company being liable for the payment of the sales tax arrears to the department did not arise. Before we deal with this contention we think it proper to quote section 9(1) of the RST Act as hereunder: 9. Liability on transfer of business or on discontinuance or dissolution of business of a firm, etc.-(1) When the ownership of the business of a dealer liable to pay t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26, 1988. Some of the important contents of its preamble and those of clauses 1, 8 and 11 are as hereunder: Whereas M/s. Shree Ram Cement Works, Sikar failed to make the payment of the instalments of the loan and interest and hence the Corporation has taken over the possession of M/s. Shree Ram Cement Works, Sikar in exercise of the powers conferred under section 29 of the SFC Act, 1951, the unit was auctioned by inviting sealed tenders and the highest offer of Rs. 11,05,000 (rupees eleven lakhs five thousand only) for purchase of the assets of the unit was that of the purchaser on the terms and conditions hereinafter mentioned. The purchaser has agreed to purchase assets of M/s. Shree Ram Cement Works, Sikar and the Corporation has agreed to sell the unit to the purchaser on the terms and conditions hereinafter mentioned: Now this agreement to sell witnesseth as follows: 1.. The Corporation has sold by inviting sealed tenders the assets of M/s. Shree Ram Cement Works, Sikar and the purchaser M/s. Maharana Cements P) Ltd., has agreed to purchase the unit in consideration of a sum of Rs. 11,05,000 (rupees eleven lakhs five thousand only). The details of the assets agreed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred either in a running condition or in a condition where the transferred unit is running at a loss or has closed down. The business so transferred may have or may not have the stock-in-trade or receivables. Goodwill is generally considered as a part of the business but it does not constitute the be-all and end-all of business. We have to look to the core of the problem and find out as to whether there was the transfer of entire ownership of the business. In this case we come to the conclusion that there was a transfer of the entire business of the defaulter unit. 17.. The learned counsel for the petitioner-company has placed his reliance upon certain authorities none of which is of any help to the case of the petitionercompany. In Kalaria Oil Mills v. State of Gujarat [1968] 22 STC 477 (Guj), the provisions of section 19(4) of the Bombay Sales Tax Act, 1959 came in for consideration. It was held that what constitutes succession in business is a transfer of a business or a part thereof as such and not merely the transfer of some of the assets of the business. There was a transfer of certain machinery. Such a transfer cannot make the purchaser liable for the payment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll (Private) Ltd. [1991] 82 STC 59 (Mad.) certain shares in the company were given as consideration for the transfer of plant and machinery by a dealer to the company. It was a case not of transfer of business but of cancellation of one debt by another debt. 18.. The learned counsel for the petitioner-company has pressed into service decision in Isha Marbles v. Bihar State Electricity Board (1995) 2 SCC 648, wherein the question was whether the auction purchaser was liable to meet the liability of old consumer of electricity to premises which were purchased by him in the auction sale from the State Financial Corporation under section 29(1) of the Corporations Act, 1951. The auction purchaser applied for re-connection of the electricity to the premises purchased by him. It was held that supply of electricity to the auction purchaser could not be refused. It was further held that no liability for the payment of dues outstanding against the previous owner can be fastened on the auction purchaser. It was so held because the demand for arrears arose from contractual liability as against the statutory liability against the previous owner. Further there was no provision either in the El ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip of a business of a dealer for purpose of enforcing the liability of the dealer against the transferee of the business, all the provisions of the Act and the rules of recovery are made applicable to the transferee as well. Under section 15(1) of the Act, the transferee becomes a dealer for the purpose of the Act and hence is treated as a defaulter liable to pay the tax under the Act. The petitioner, therefore, cannot avoid the liability to pay the tax that was due from the owner of the business, the dealer. This liability is transmitted to him by virtue of the provisions of section 15, which is enacted to extend the liability to the transferee of the business. Along with the ownership of the business, which is transferred, the liability of the transferor under the Act in respect of the transactions prior to the date of transfer, is also transmitted to the transferee along with the business. The transferee, thus, takes over not only the assets but also the liability to pay the tax, if any, due in respect of the business prior to the date of sale. That the petitioner, in the present case, purchased the concern in an auction held by the KSFC, should not make any difference as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business is transferred to him, the transferee can be proceeded against for recovery of any tax due from the transferor as if he were the dealer liable to pay the tax. An argument was advanced by Shri Gururajan that the transferor of the business was the KSFC and not the dealer and that, therefore, the provisions of section 15 can be made applicable only in a case of a direct transfer by the dealer. This argument has to be rejected in the light of the special provisions of section 29 of the State Financial Corporations Act under which the transfer is made by the KSFC in the capacity of a deemed owner which status is conferred on the KSFC to takeover the possession of the industrial concern and all its assets. 20.. Having considered the authorities we find ourselves in agreement with the view expressed by the Karnataka High Court. The reason is not far to seek. The Corporation had advanced loan to the defaulter unit. It put to auction the assets of the defaulter unit for the realization of the loan amount. Thus the Corporation was in the position of the deemed owner with regard to the assets sold at auction. It may also be said that the Corporation was functioning in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is established that there was the transfer of the entire ownership of the business. The entire business was not transferred. This is a position which has been disputed by the department. The list of the assets transferred is dated October 11, 1991. It shows that the petitioner-company took possession of buildings, plant and machinery and other miscellaneous items including furniture and fixtures. An examination of these various items goes to show that there was the transfer of the entire business to the petitioner-company through the Corporation. Once it is established that there was transfer of entire business the petitioner-company is liable to clear the dues outstanding against the defaulter company. The provisions of section 9 of the RST Act will apply with force. 25.. The second ground on which the claim of the department is preferred is based on the provisions of section 11-AAAA of the RST Act which is as hereunder: 11-AAAA. Liability under this Act to be the first charge.-Notwithstanding anything to the contrary contained in any law for the time being in force, any amount of tax, penalty, interest and any other sum, if any, payable by a dealer or any other perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SFC Act were not inconsistent with those of section 11-AAAA. The provisions of the SFC Act and those of RST Act operate in areas different from each other. There is no clash between them. The provisions of section 29(4) are as hereunder: 29. Rights of Financial Corporation in case of default.-(4) Where any action has been taken against an industrial concern under the provisions of subsection (1), all costs, charges and expenses which in the opinion of the Financial Corporation have been properly incurred by it as incidental thereto shall be recoverable from the industrial concern and the money which is received by it shall, in the absence of any contract to the contrary be held by it is in trust to be applied firstly, in payment of such costs, charges and expenses and secondly, in discharge of the debt due to the Financial Corporation and the residue of the money so received shall be paid to the person entitled thereto. 27.. The provisions of section 46-B of the SFC Act are as hereunder: 46-B. Effect of Act on other laws. The provisions of this Act and of any rules or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of a trustee on the trust property for expenses properly incurred in the execution of his trust, and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge. 30. Shri Bafna further contends before us that the petitioner-company is not the assessee within the provisions of the RST Act. He contends that the recovery can be made only from a person who is an assessee. This contention has no legs to stand upon. Here in this case we are considering the right of the department to recover the dues from the petitioner-company because of the first charge created against the property or assets in the hands of the petitioner-company. There is a statutory charge under section 11-AAAA of the RST Act. 31.. On both grounds, namely, the transfer of the entire business as also on the creation of first charge the claim of the department deserves to be accepted. S.B. Civil Writ Petition No. 1587 of 1992 (R.T.T. No. 120 of 1996): 32.. As regards the transfer of entire business, the position taken up by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned. Apart from this it is a contractual obligation which is pitted against the statutory obligation. It is the latter which will have the overriding effect upon the former. The agreement dated November 17, 1990 is not a statutory agreement. 35.. Shri Rastogi further contends that there may be several State Acts which may constitute the first charges upon the property so transferred. This contention is hypothetical in its nature and does not deserve to be discussed at length. Apart from this where there are more charges then one of the nature specified in section 11-AAAA of the RST Act there can be a pro rata division of assets. 36. Shri Rastogi contends that the petitioner-company is in the dark about the details of the dues which are sought to be recovered from it. It is not clear whether they relate to the business which was transferred. It is also not clear as to the period to which they relate. The Sales Tax Department may in its discretion inflate the dues and the petitioner-company will have no remedy to dispute their correctness. This point deserves to be clarified. It is clear from a bare perusal of section 9(1) of the RST Act that the dues which can be claimed a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
