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TMI Blog2015 (1) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... at a business owned by a dealer, is under the control of the said receiver or manager or person, whatever be his designation, who in fact manages the business on behalf of the dealer. The aforesaid rule expressly provides that tax shall be levied upon and recoverable from such receiver, manager, etc., in the same manner, as it would be leviable upon and recoverable from the dealer. Such tax liability may be incurred by any person managing or conducting the business on behalf of the dealer. The tax liability incurred by such person will be equivalent to the liability which would be levied upon the dealer if he were conducting such business. Further that under Rule 233 of the Rules, 1959, for the purposes of acquiring and retaining possession of the property of the company in liquidation, the Official Liquidator would be in the same position as a receiver. Official Liquidator had issued a notice inviting tenders for the sale of the assets of the Company. The offer of the auction purchaser was accepted and duly confirmed by the High Court. However, the dispute herein arose in respect to determination of which party would be exigible to sales tax. - It can be concluded that an Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Rules, 1963, the liability to pay sales tax is borne by the Official Liquidator as a manager or receiver of the property of the company in liquidation. Therefore, we are of the considered opinion that the Official Liquidator would be required to pay the tax payable on the sale of the assets of the company in liquidation. - in view of facts and circumstances of the case, the auction purchaser would not be liable to pay sales tax. The offer of the auction purchaser, as accepted by the Official Liquidator and confirmed by the High Court, was inclusive of all taxes. It would have been the bounden duty of the Official Liquidator to have separated an amount for the payment of taxes under the Act, 1963 to avoid any liability. It would be gainsaid in repeating that the Special Government Pleader (Taxes), on behalf of the Revenue, before the learned Single Judge of the High Court had clearly stated that the liability to pay sales tax would be on the Official Liquidator. - Decided in favour of Revenue. - CIVIL APPEAL NOS. 354-355 OF 2015 (SPECIAL LEAVE PETITION (C) NOS.7939-7940 OF 2004 - - - Dated:- 13-1-2015 - H.L. DATTU, CJI AND S.A. BOBDE, J. JUDGEMENT Per: H L Dattu: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liabilities of the Company and to deal with the same in accordance with the provisions of the Act, 1956 and the Rules framed thereunder. 6. Pursuant to the aforesaid order, the Official Liquidator issued a notice inviting tenders, in respect of the sale of assets of the Company in liquidation, dated 26.11.2001. The aforesaid assets included land with factory building, workshop building, canteen building, godowns, quarters and other auxiliary buildings and also plant and machinery of the company in liquidation. The Terms and Conditions of the sale of the assets of the Company expressly provided, inter alia, that such sale would be subject to confirmation by the High Court and further subject to any subsequent terms and conditions as may be imposed by the High Court. 7. Respondent No.1-auction purchaser, in response to the notice inviting tenders issued by the Official Liquidator, offered to purchase Lot Nos.1-2 for a total amount of ₹ 5,76,00,000/- (Rupees Five Crore Seventy Six Lakh only), by an offer letter dated 18.12.2001. It was expressly stated therein that the said amount would be inclusive of all statutory levies such as Sales Tax, Central Sales Tax, Excise Duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt by an order passed in M.F.A. No.1394 of 2002, observed that the Official Liquidator would not fall within the definition of dealer under the Act, 1963, dated 11.02.2003. Accordingly the appeal was dismissed and the order of the learned Single Judge was confirmed. 12. Aggrieved by the aforesaid order dated 11.02.2003, the appellant filed Review Petition No.191 of 2003 before the High Court. In the Review Petition, a new plea was advanced by the appellant claiming that even if the Official Liquidator did not fall within the definition of dealer under the Act, 1963, section 5A of the said Act would be attracted insofar as the auction purchaser is concerned. 13. By the impugned judgment(s) and order(s) passed in Review Petition No.191 of 2003, dated 21.03.2003, the High Court held that the Official Liquidator cannot be treated as a dealer under the Act, 1963, and therefore it is not exigible for payment of sales tax. However, the Court was of the view that the auction purchaser is liable to pay purchase tax under section 5A of the Act, 1963. ISSUES:- 14. The issues that arise for the consideration in the present appeals are firstly, whether the Official Liquida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutory functions of selling the assets of the Company in liquidation, he cannot be perceived to be carrying on business as defined under the Act, 1963 and thus cannot be exigible to tax. 18. Shri S.K. Bagaria, learned senior counsel for the auction purchaser would submit that the question of payment of purchase tax could not arise because firstly, the contention was raised for the first time in the review petition, and secondly, the said tax is a singlepoint levy at the first point of sale. He would contend that the auction purchaser could not be made liable for a tax that was not even imposed or demanded by the competent authority. He would then contend that the Official Liquidator makes the sale on behalf of the Company and not as the owner. Lastly, Shri Bagaria would refer to Rule 54 of the Kerala General Sales Tax Rules, 1963 (for short, the Rules, 1963 ) and section 17 of the Central Sales Tax Act, 1956 (for short, the CST Act ) to demonstrate that the liability to pay sales tax was clearly on the Official Liquidator. 19. We have heard the learned counsel for the parties to the lis and also carefully perused the orders passed by the courts and the forums below. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals with the powers of the Official Liquidator. As per the rule, the duties imposed on the Court under section 467(1) of the Act, 1956 concerning the collection of the assets of the company and the application of the assets in discharge of the company's liabilities must be discharged by the Official Liquidator as an officer of the Court. The discharge of the aforesaid functions would be subject to the control of the Court and to the proviso in section 643(2) of the Act, 1956. Rule 233 states that in discharge of the duties imposed upon the Official Liquidator, pursuant to section 467(1) of the Act, 1956, and for the purpose of acquiring and retaining possession of the property of the company, he must be treated as a Receiver of the property appointed by the Court. 24. Section 2 of the Act, 1963 provides for the meaning of certain expressions in the said Act. Section 2(vi) defines business as follows: (vi) Business includes: - (a) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce, or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment, or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act. (g) a bank or a financing institution, which, whether in the course of its business or not, sells any gold or other valuable article pledged with it to secure any loan, for the realisation of such loan amount. Explanation I: - Bank for the purposes of this clause includes a Nationalized Bank or a Schedule Bank or a Co-operative Bank; Explanation II: - Financing Institution means a financing institution other than a bank; 26. On perusal of the aforementioned definitions, it would appear that the term business has been given a broad meaning by including within its ambit both incidental and ancillary transactions. Further, it has also eliminated the requirement of a profit motive as being an essential component. The definition of dealer has also been given a wide ambit. It includes any person carrying on business of, inter alia, buying, selling, supply or distribution of goods, whether directly or otherwise. All modes of payment whether by way of cash, commission, remuneration or other valuable consideration have been include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Wards, Administrator General, Official Trustee, Receiver or Manager in like manner and on the same terms as it would be leviable upon and recoverable from the dealer if he were conducting the business himself, and all the provisions of the Act and Rules made there under shall apply accordingly. 30. The aforementioned Rule contemplates a scenario wherein a business, owned by a dealer, is under the control of, inter alia, the official trustee or receiver or manager, including any other person who manages the business of the said dealer, who is appointed by an order of a Court. In such an event, tax would be recoverable from such a person who controls the business of the dealer in the same or like manner, as would have been recoverable from the dealer itself. DISCUSSION:- 31. At the outset, it would be necessary to make reference to the Statement/Affidavit filed by the Special Government Pleader (Taxes), appearing for the Revenue, before the learned Single Judge of the High Court. In the said Statement/Affidavit, the Revenue has stated that a sale by the Official Liquidator, whether by auction or otherwise, is a sale by the Central Government and therefore the Offici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it can be concluded that any person or entity that carries on any activity of selling goods, could be categorized as a dealer under the Act, 1963. To test the aforesaid conclusion in the context of the issue at hand, we would delve into the interpretation ascribed by this Court to the term dealer . A careful reading of the definition of dealer under the Act, 1963, would make it evident that the legislature intended to provide for an inclusive criterion and broaden the ambit of the said classification. The legislature did not propose to restrict the scope of the term as perceived in common parlance. 36. The definition of a dealer under various sales tax legislations has been given a wide import by several decisions of this Court. In Chowringhee Sales Bureau (P) Ltd. v. CIT, (1973) 1 SCC 46, inter alia, a challenge was made to the explanation to the definition of dealer under the Bengal Finance (Sales Tax) Act, 1941 on the ground that is sought to levy a tax on a person who is neither a seller nor a purchaser. A three-Judge Bench of this Court, rejecting the said challenge, held that the term dealer would include an auctioneer who carries on the business of selling and wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The reference to a casual dealer in the second definition also renders it immaterial that the assessees may not have intended to be regular dealers in sleepers, timber, firewood or charcoal but that this was something casual or incidental to the acquisition and exploitation of a forest for running a plantation. 39. In State of T.N. v. M.K. Kandaswami, (1975) 4 SCC 745, this Court while determining the interpretation of the term dealer under the Madras General Sales Tax Act, 1959 gave a broad interpretation to include a person who not only carries on business of selling, supplying or distributing goods but also the one who carries on the business of buying only. 40. In Karya Palak Engineer, CPWD v. Rajasthan Taxation Board, (2004) 7 SCC 195, this Court held that a contractor, despite not being the owner but merely the custodian of the goods, as a dealer under the Rajasthan Sales Tax Act, 1994. 41. In State of Orissa v. Titaghur Paper Mills Co. Ltd., 1985 Supp SCC 280, while ascertaining whether the Central Government or its agents could be treated as be dealer , this Court observed as follows: 26. What is pertinent to note about the new definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax liability in case of goods specified in the First or Second Schedule to the Act, 1963 at the rates and only at the points specified against such goods in the said Schedules. Serial No.84(i) of the First Schedule stipulates the rate of tax payable on sale of, inter alia, machinery. In this regard, the point of levy of sales tax is at the point of first sale in the State by a dealer who is liable to tax under section 5 of the Act, 1963. 45. Thus, pursuant to section 5 of the Act, 1963, in the case of goods specified in the First and Second Schedule, the single point tax could be levied only at the rates and points specified against such goods in the said Schedules. The First Schedule specifies that the point of levy of tax for the goods in question could be only at the point of first sale in the State by a dealer. In the instant case, the dealer under the Act, 1963 would be liable to pay sales tax for the machinery sold at the point of first sale, as per section 5 read with the First Schedule of the Act, 1963. In light of the above, we are of the considered opinion that the transaction in question in the present appeal would be exigible to tax under Section 5(1) of the Act, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfy itself with the adequacy of the price fetched. It may also be appropriate to consider Rule 232 of the Rules, 1959 which enumerates the duty of an Official Liquidator in the collection and application of the assets of the company, which is discharged by him as an officer of the Court. 50. In the case of Hari Prasad Jayantilal Co. v. V.S. Gupta, Income Tax Officer, Ahmedabad Anr., AIR 1966 SC 1481, this Court held that the liquidator is merely an agent of the company to administer its property for the purposes prescribed by the Act, 1956. The Court held that while distributing the assets, including accumulated profits, the liquidator acts merely as an agent or administrator for and on behalf of the company. The Court observed as follows: 7. ...The property of the Company does not vest in the liquidator: it continues to remain vested in the Company. On the appointment of a liquidator, all the powers of the Board of directors and of the managing or whole-time directors, managing agents, secretaries and treasurers cease (s. 491), and the liquidator may exercise the powers mentioned in s. 512, including the power to did such things as may be necessary for windin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder rule 195. The tax is a consequence of the realisation of the assets in the course of the winding up of the company. That realisation was a necessary step in the liquidation; that is to say, in the administration of the insolvent estate. The fact that in the event there may be nothing available for the unsecured creditors does not, in my view, mean that the realisation was not a step taken in the interests of all who have claims against the company. Those claims must necessarily be met out of the available assets in due order of priority. Superior claims may baulk inferior ones, but the liquidator's duty is to realise the assets for the benefit of all in accordance with their rights. If in consequence of the realisation, the company incurs a liability, the discharge of such liability must, in my judgment, constitute a charge or expense incurred in the winding up within section 267 of the Companies Act 1948 and must also, in my view, fall within rule 195. 53. Further, the House of Lords in Ayerst (Inspector of Taxes) v. C K (Construction) Ltd., (1975) 2 All ER 537, held that a company, pursuant to a winding up order, ceases to have the custody and control of its assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by any person managing or conducting the business on behalf of the dealer. The tax liability incurred by such person will be equivalent to the liability which would be levied upon the dealer if he were conducting such business. Further that under Rule 233 of the Rules, 1959, for the purposes of acquiring and retaining possession of the property of the company in liquidation, the Official Liquidator would be in the same position as a receiver. 56. Since the Official Liquidator is akin to an agent employed for the purpose of winding up of a company, he steps into the shoes of the Directors of the said Company for the purposes of discharging the statutory functions of an Official Liquidator. Thus, during the said proceedings, the Directors cease to exercise any functions from the date on which the Official Liquidator is appointed and all powers and functions for carrying on the business of the company thereafter vest with the official liquidator. 57. Having glanced through the settled principles of law, we would revert back to the controversy in the present appeals. The first issue canvassed before this Court by the learned counsel for the parties to the lis, is whether the Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf. Therefore, it can be concluded that the liability to pay sales tax, in the present case, would be on the Official Liquidator in the same manner as the dealer, that is, the Company in liquidation. 62. Pursuant to section 5 of the Act, 1963, the Company in liquidation, as a dealer, will incur liability to pay sales tax at the point of first sale as incurred by any other dealer under the said Act. By placing reliance upon Rule 54 of the Rules, 1963, the liability to pay sales tax is borne by the Official Liquidator as a manager or receiver of the property of the company in liquidation. Therefore, we are of the considered opinion that the Official Liquidator would be required to pay the tax payable on the sale of the assets of the company in liquidation. 63. As regards the liability of the auction purchaser, this Court, in an order passed in Civil Appeal No.5048 of 2003, has observed that in view of facts and circumstances of the case, the auction purchaser would not be liable to pay sales tax. The offer of the auction purchaser, as accepted by the Official Liquidator and confirmed by the High Court, was inclusive of all taxes. It would have been the bounden duty of the Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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