9911796707
TMI Blog2024 (6) TMI 489X X X X Extracts X X X X X X X X Extracts X X X X ..... te Tax (for short, "reviewing authority") under Section 25 of the Maharashtra Value Added Tax Act, 2002 (for short "MVAT Act") exercising the review jurisdiction. By the impugned order, respondent no. 2 has reviewed the order dated 16 March, 2015 passed by the assessing officer finalizing the petitioner's assessment for the financial year 2010-11. Consequent to the impugned order, a notice of demand dated 31 March, 2021 is issued to the petitioner under Section 32 of the MVAT Act, which is also assailed by the petitioner. 2. Thus, the primary question which arises for consideration in the present proceedings is as to whether the respondents in the facts of the case could tax sale of the petitioner's 'Base Domestic Formulation Business' as a "going concern" (slump sale) under the provisions of the Maharashtra Value Added Tax Act, 2002. A. Facts:- 3. The facts as discerned from the petition are:- During the financial year 2010-11, the petitioner entered into a Business Transfer Agreement dated 21 May, 2010 (for short "BTA") with one M/s. Abbott Healthcare Pvt. Ltd. (for short "Abbott Healthcare") to sell, assign, transfer, convey and deliver to Abbott Healthcare "the Base Domest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferred, as a part of the business transfer. 8. The petitioner responded to such notice by its reply dated 05 May, 2017 contesting the revenue's case in the review notice. In its reply, the petitioner inter alia contended that the itemized value of assets does not affect the nature of the transaction as a "transfer of business". The petitioner also contended that transfer under BTA was in the nature of "transfer of business" as a going concern would not attract tax under the provisions of the MVAT Act, hence, it was not taxable. There were several other contentions raised on facts and law. 9. On such notice, a personal hearing was held by respondent no. 2 on 22 August, 2017 and 22 March, 2021 when the authorized representative of the petitioner made extensive submissions, on the basis of the case as made out in the petitioner's reply. Also, the representative of Abbott Healthcare was heard by teleconference. The petitioner also submitted a synopsis of its case under the petitioner's letter dated 22 March, 2021. 10. It is on such backdrop, respondent no. 2 passed the impugned order dated 31 March, 2021 and consequent thereto, issued the impugned notice under Section 32 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence contended that this Court ought not to entertain the present petition owing to the reason that the petition requires this Court to dwell on the factual controversy, also for such reason, this writ petition ought not to be entertained. 14. On merits of the petitioner's case, it is contended that initiation of an action for review of the assessment order dated 16 March, 2015 by issuing show cause notice and the order passed on the review proceedings and the consequent demand notice, are well within the jurisdiction of respondent No. 2 under the provisions of Section 25 of the MVAT Act, hence, it is not correct for the petitioner to contend that the proceedings are without jurisdiction or in excess of jurisdiction or they are on wrongful assumption of jurisdiction. Also the allegations of the petitioner that the impugned order is in violation of the principles of natural justice, is stated to be too casual for the reason that right from the issuance of show cause notice till the impugned order was passed, the petitioner was heard through its representative on a number of occasions. Hence, as sufficient opportunity of a hearing was afforded not only to the representative of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cability of service tax does not in any manner exclude applicability of VAT. It is contended that it is established that the transaction in question is amenable to VAT, as held in the impugned order. The contention of the petitioner to the effect that the impugned order accepts the transaction to be a Business Transfer is denied, in contending that this would amount to an erroneous interpretation of the impugned order by the petitioner. The petitioner's contention that itemized valuation of the assets as transferred would not be relevant, when the sale of business was as a going concern is alleged to be untenable from the interpretation of legal materials and the reading of the document(s) as a whole. It is next contended that the agreement for sale and clauses therein are not consistent with the transaction of sale of business as a going concern for the reason that there are several clauses which provide for exclusion of assets in sale of business transaction, which according to the Revenue, is inconsistent with the petitioner's claim of the sale of business. Although part of sale of assets is coupled with transfer of right to use, the definition of sale in Section 2 (24) incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms had recorded that the sale of the business of domestic and generic formulation was incorrectly accepted in the assessment order and on such issue and other allied issues, the review proceedings were being initiated. It is next contended that the petitioner's case that the impugned order is beyond the show cause notice cannot be sustained also for the reason that the petitioner had defended action of levy of tax on the transfer of Intellectual Property Rights and other intangible assets as is evident from copy of reply dated 05 May, 2017 and synopsis of submissions dated 22 March, 2021 of the petitioner. It is contended that the petitioner has not been taxed on the entire sale consideration of the business, as tax has been levied only on the value of Intellectual Property, and other intangible assets, for which a separate agreement was entered between the parties i.e. firstly the agreement dated 21 May, 2010 and thereafter the agreement dated 08 September, 2010 titled as 'Registered User Agreement and Trade Mark Licence Agreement'. 21. It is next contended that although the agreement is titled as BTA, however in essence the agreement comprises of transfer of business and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed:- "It is a case of slump sale not liable to tax according to the Petitioner, suffice it to say that the authority has not at all levied tax on the value of consideration for business transfer but levied tax on part of the assets such as intellectual property rights along with other intangible assets separately agreed to be transferred with restrictions and limitations." 25. It is next contended that proposal to levy tax under service tax law or dropping the same partially has no bearing on the taxability under MVAT Act. In such context, it is contended that under the definition of "business" as defined by Section 2 (4) of the MVAT Act and the Explanation (iv) thereto provides that any transaction in relation to the commencement or closure of business shall be deemed to be transaction comprised in business. It is stated that the transfer of business in question is covered under the definition of "business" and liable to tax. That slump sales are not being exempted from tax under the GST regime, it is also liable to be taxed under the MVAT, however, liable to tax at NIL rate which means it is taxable. Illustratively, it is contended that the Tamil Nadu VAT Act provides for sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n "in the course of business". (iii) In the present case, the petitioner has transferred the pharmaceutical business to Abbott Healthcare and as a consequence thereto, thereafter, has not conducted such business, post the date of the transfer. Since 2010, the buyer alone is conducting such business. Hence, applying the settled principles of law, there can be no levy of VAT in respect of the transaction, subject matter of the agreement. In supporting such submission, reliance is placed on (i) Deputy Commissioner (C.T.), Coimbatore vs. K. Behanan Thomas (1976) SCC OnLine Mad 421, (ii) Commissioner of Sales Tax, Maharashtra State, Bombay vs. Sundardas Harjiwan (1986) SCC OnLine Bom 404, (iii) Premier Automobiles Limited vs. Income-tax Officer & Anr. (2003) SCC OnLine Bom 1282, (iv) Coromandal Fertilisers Limited, Sec'bad vs. State of A.P. & Ors. (1998) SCC OnLine AP 615, (v) Ram Sahai vs. Commissioner S.T (1962) SCC OnLine All 232, (vi) Dy. Commissioner of Salestax vs. M.S. Dat Pathe (1985) SCC OnLine Ker. 105, (vii) M/s. Paradise Food Court vs, State of Telangana & Ors. 2017-TIOL-2672-HC-AP-VAT and (viii) Triune Projects Pvt. Ltd. vs. Dy. Commissioner of Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the public mind for the products, that too in pharmaceutical space, there was a compelling need for temporary use of the seller corporate name and corporate logo etc. in connection with the transferred business and the nature of business transaction under the BTA can be taken away or be different because of the mere temporary non-exclusive use allowed to achieve the principal objective of the business transfer. (vii) Such temporary/non-exclusive use does not derogate the agreement or the treatment of transfer of a business. (ix) It is submitted that the taxes sought to be imposed under the law are required to be levied on the true nature of the transaction. In such context it is submitted that it is well settled law that a composite and integrated contract cannot be vivisected to fasten a tax liability. In support of his submission, reliance is placed on the decision in Union of India Vs. Playworld Electronics Pvt. Ltd 1989(41) ELT 368 (S.C.) and The Commissioner, Central Excise & Customs, Kerala v. M/s. Larsen & Toubro Ltd. 2015 (8) TMI 749 (S.C.). The impugned order thus being in excess of jurisdiction, is required to be quashed and set aside. In this context, reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed party if it has any objections to the proposed order. It is submitted that in the present case, the notice in question forming the basis for review was to the effect that the transaction in question is not a slump sale for the reason that under Schedule 3.3 to the BTA included various assets and allocation of cash consideration for the purpose of stamp duty. The opinion of the department, therefore, was that the petitioner (dealer), had bifurcated the consideration of the different assets and for such reason, although the transaction was not a slump sale, incorrectly the petitioner was granted benefit of a slump sale by the assessing officer. It is for such reason, it was proposed to review the assessment order. On such backdrop, it is submitted that in passing the impugned order dated 31 March, 2021, reviewing the original assessment order, the proposed basis of the review has been completely forsaken and an entirely new basis was adopted. It is submitted that this is clear from the fact that the impugned order proceeds on the basis of some of the intellectual property rights namely corporate name, corporate logo and goodwill being not permanently transferred, but were transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it is submitted that although a specific ground was taken to this effect in the writ petition which has not been dealt in the reply affidavit dated 14 September, 2021 filed on behalf of the respondents, which according to the petitioner is the core issue of the maintainability of the impugned order. 31. It is next submitted that the impugned order and the impugned notice of demand are bad in law on the ground that there is no application of mind by the respondents for many reasons. In this context, it is submitted that the jurisdictional service tax authorities under the Finance Act, 1994 had also raised on the petitioner a service tax demand vide a notice dated 15 October, 2015, on identical issues as raised in the impugned order. The respondent authority had taken recourse to such order passed by the service authorities to the effect that the allegations from the service tax demand notice were verbatim copied as clearly seen from the impugned order. In this regard, a reference is made to paragraphs 13 to 26 and 30 to 31 of the impugned order, which when examined against paragraph 4, 5.1 to 5.4, 6.1 and 10 of the service tax order / demand notice would evidence that the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Maharashtra Sales Tax Tribunal which would be the competent forum to examine all issues as raised by the petitioner. It is submitted that merely making allegations of breach of principles of natural justice are not sufficient to maintain the petition under Article 226 of the Constitution of India. It is submitted that the petitioner intends to avoid pre-deposit of an amount of Rs. 15 crores as against the demand of Rs. 2607 crores. It is, therefore, submitted that the petition be dismissed on this count alone. ii. On the petitioner's contention that the impugned order is in violation of the principles of natural justice, it is submitted that it is not in dispute that the petitioner was heard by the Reviewing Authority before passing the impugned order. It is submitted that in fact the entire procedure as adopted by the respondent in adjudicating the review proceeding was lawful for the reason that a notice was issued to the petitioner and thereafter an opportunity was granted to the petitioner to respond to the notice, a personal hearing on the notice was given, and thereafter, the impugned order is passed. Hence, the contention that there is breach of principles of natural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner's contention that VAT is not payable on the BTA on the ground that the reviewing authority was considering the transaction in the manner as considered by the service tax authority, is not tenable. In such context it is submitted that the Supreme Court has held IPR to be goods in Vikas Sales Corporation Vs. Commissioner of Commercial Taxes (1996) 102 STC 106. Also as per the Entry 39 of Schedule "C" of the MVAT Act, intangible or incorporeal rights as per the notification issued by the State Government are taxable. vi. It is next submitted that the contention of the petitioner that the transaction cannot be vivisected in regard to its different components as the transaction under BTA is a slump sale, also ought not to be accepted as levy of tax is on transfer of rights to use intellectual property for a limited period, is a transfer of right to use, which would be deemed to be a sale under the definition of 'sale' as provided under Section 2 (24) of the MVAT Act. It is submitted that a levy of tax is on the transfer of rights to use intellectual property for a limited period, hence, it cannot be construed as a vivisection of the transaction, which is deemed to be a "sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the reason that the business itself is an asset of the petitioner and it is a valuable property. It is not an immovable property which is fastened to the land and/or attached to the earth, it is an intangible and incorporeal property, covered by the definition of 'goods' as defined under Section 2 (12) of the MVAT Act. As per Section 3 of the MVAT Act, the petitioner is a dealer and would be liable to pay tax till the petitioner's business certificate/licence is cancelled, as for a transaction of sale is liable to be taxed. Since on the date of the BTA, the certificate of the petitioner was not cancelled. ix. It is submitted that the case of the petitioner that the transaction of transfer is not in the course of business, it is submitted that since as per Section 2 (4) and Explanation (iv) below it, any transaction in connection with the commencement or closure of business shall be deemed to be a transaction comprised in a business. In this context, it is submitted that in the Tamilnadu Value Added Tax Act, the definition of "turnover" under Explanation (iii) excludes any amount realized by a dealer by way of sale of business as a whole, as it is not to be included in the tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the petitioner of a slump sale was incorrectly accepted and the turnover of sales being not brought to tax by the assessing officer was the issue called upon to be answered by the petitioner. It is submitted that the petitioner has not contended in the reply to the show cause notice that it has not understood the nature of the notice and in fact the petitioner at all material times was aware of such notice, hence, the show cause notice could not have been said to be a vague show cause notice. xv. In support of the above submissions, reliance is placed on the decision of the Supreme Court in the case of Vikas Sales Corporation Vs. Commissioner of Commercial Taxes (supra), a decision of the Bombay High Court in M/s Mestra A G Switzerland vs The State Of Maharashtra & Ors. Writ Petition No. 12297 of 2021 (Aurangabad Bench) decided on 16/02/2022 and Hal Offshore Ltd vs The State Of Maharashtra Writ Petition No. 202 of 2020 decided on 15/06/2022; 34. We have heard learned counsel for the parties and with their assistance, perused the record. F. Analysis and Conclusion:- 35. As seen from the foregoing paragraphs, the case revolves around the BTA dated 21 May, 2010 entered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Rule 30 of the MVAT Rules inter alia setting out the gist of the order proposed to be passed against the petitioner. As such notice has a significant bearing on the proceedings and as to what was called upon to be answered/replied by the petitioner, it may be necessary to extract the "Gist of the order proposed to be passed", which reads thus:- "Gist of the order proposed to be passed GIST While scrutinizing assessment record for F.Y. 2010-11 assessing authority has allowed transaction of sale of business of domestic and generic formulation to M/s. Abott Healthcare as slump sale along with assets and liabilities. However after perusal of business transfer agreement in general and Schedule 3.3 in particular it is noticed that the allocation of cash consideration for stamp duty purpose includes various types of assets as referred in schedule 3.3 annexed to the agreement. The dealer has bifurcated the consideration for Tangible immovable assets, Trademark & Associate Rights, brandwise breakup, rights under exclusive distribution agreement, Trademark Licences, Business Transfer Agreement and non-stampable assets. Thus I have reason to believe that the claim of sale of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on qua the nuances of the slump sale. The following primary contentions were raised by the petitioner alongwith supporting decisions, in its reply to the show cause notice to contend that sale of business as a going concern was not taxable under the MVAT Act:- (i) sale of business does not fall within the definition of 'goods'; (ii) sale of business is distinguishable from 'sale in the course of business'; (iii) the petitioner (noticee) does not qualify as a 'dealer' as defined under Section 2(8) of the MVAT Act qua the sale under the BTA; (iv) there is a clear distinction between 'transfer of business' vis-à-vis 'closure of business'; (v) transfer under the BTA was in the nature of 'transfer of business as a going concern' hence, it cannot fall under the definition of "turnover of sales"; (v) that the itemized value of assets and liabilities as set out in the BTA does not affect nature of transfer of business as a going concern. 39. It is on the above premise, a hearing was held before the reviewing authority on the review proceedings. The petitioner was represented at such hearing, as also the representative of Abbott Healthcare appeared by teleconferencing. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also observed that under Section 10.6 (n) of the BTA, Abbott Healthcare was described as 'purchaser of the goodwill', hence, as set out in the BTA, the intangible properties transferred by the seller (petitioner) to the buyer (Abbott Healthcare), included the petitioner's goodwill. For such reasons as along with the other rights namely permitting the use of the petitioner's corporate name and logo, the petitioner's goodwill having been transferred to Abbott Healthcare temporarily for a fixed period, it amounted to sale of goods so as to be included in the sales turnover of the petitioner for the financial year in question. 41. Insofar as the second issue in regard to non-competition and non-solicitation clause of the BTA to be observed by the petitioner and its affiliates, as contained in Section 10.6 of the BTA, it was observed that the scrutiny of the BTA revealed that the agreement inter alia included non-competition and non-solicitation clause for a period of 8 years from the date of closure of agreement, it is not a case of sale of business as a slump sale. Further considering that the petitioner had maintained that the transaction involved under the BTA was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to use' is covered under the definition of sale under the MVAT Act as per S.2 (24) quoted as above. (ii) There is 'goods' - as the intellectual property rights for which ownership rights are retained by the seller, is covered as 'goods' as per Schedule Entry C-39 of the MVAT act, which reads, "Goods of intangible or incorporeal nature as may be notified, from time to time, by the State Government in the Official Gazette." Also, with the intention to take back the proprietary rights after 9 months and 8 years, probably the dealer wants to continue in the business. (and has continued as PEL). Ideally, if the transfer of a business meets the conditions to be a Transfer of On Going Concern (TOGC), the seller may be required to deregister for VAT if it is no longer making any taxable supplies., (iii) There is sale 'in the course of business', as the proprietary rights intended to be kept as such, the transaction of sale of 'right to use of goods' is 'in connection with' or 'incidental to' or 'in the course of' business. Hence, all the essential conditions as pointed out by the dealer in his submissions are met. Whereas it appears that the provisions of Income Tax act, provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 has been determined by undersigned as per the Order No. B-3413 dated 31.03.2021 at Rs. 26067963675.00 as shown in the table below:- Description Amount in Rs. i) Balance Amount of VAT payable 8799312633.00 ii) Balance Amount of VAT Refundable 00.00 Iii) Interest payable 30(3) 17268651042.00 iv) Penalty payable 00.00 v) Amount forfeited if any 00.00 vi) Total Amount payable 00.00 Vii) Refund admissible 00.00 Viii) Refund already granted 00.00 ix) Balance refund admissible 00.00 x) Add: Interest u/s. 52, if any 00.00 xi) Net balance dues, if any 26067963675.00 xii) Net refund, if any 00.00 2. Total amount of Rs. 2606,79,63,675.00 should be paid into Government Treasury at MUMBAI within 30 days from the date of service of this Demand Notice. 3. If you do not pay the amount by the date specified above, the amount will be recoverable as an arrears of land revenue under section 32 (5) of the Maharashtra Value Added Tax Act, 2002. 4. Total amount of Rs. 0 refundable. 5. Any appeal against the order must be presented to the Joint Commissioner of State Tax (Appeal-4)-6 GST Office, BKC Bandra, Mumbai - withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.5(c) all of the shares of Seller owned by the Promoter Group in favor of the entry into this Agreement by Seller and the transactions contemplated hereby and to be bound by the terms of the no negotiation and non-compete covenants set forth in Sections 7.6 and 10.6 of this Agreement; WHEREAS, the Guarantor has agreed to guarantee the performance of all of Purchaser's obligations pursuant to this Agreement and to be bound by the terms of Section 7.18 of this Agreement; and WHEREAS, concurrently with the execution of this Agreement, Piramal Enterprises Limited, an Indian private limited company, has executed and delivered to Purchaser the Piramal Group Undertaking set forth on Exhibit C pursuant to which the Piramal Enterprises Limited guarantees the performance of the obligations of Seller and its Affiliates pursuant to this Agreement and the Ancillary Agreements. ..... ARTICLE 1 DEFINITIONS AND CONSTRUCTION .... .... ... "Business" means the business of researching, developing, formulating, manufacturing, selling, marketing, distributing, importing or exporting generic pharmaceutical products in finished form (including the Products and the R&D Products) and relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s" means all national, regional and international patents, patent applications, patent disclosures, utility models, utility model applications, petty patents, design patents and certificates of inventions, and all related re-issues, re-examinations, divisions, revisions, restorations, renewals, extensions, provisionals, continuations and continuations in part, and all registrations and applications for registration of any of the foregoing; .... "Trademarks" means (other than Seller Corporate Name or Seller's corporate logo) all trade dress, trade names, brand names, common law trademarks, logos, trademarks and service marks and related registrations and applications, including any intent to use applications, supplemental registrations and any renewals or extensions, and other identifiers of source or goodwill, all other indicia of commercial source or origin and all goodwill associated with any of the foregoing; ... ... ... ARTICLE 2 AGREEMENT TO SELL AND PURCHASE Section 2.1 Purchase and Sale. At the Closing and subject to the terms and conditions of this Agreement, Seller shall sell, convey, assign, transfer and deliver to Purchaser free and clear of all Encumbrance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tures, office equipment, communication facilities and capital work-in-progress, training materials and equipment, supplies, owned and leased motor vehicles, laptops, mobile phones and personal digital assistants used by the Transferred Employees, and other tangible property of any kind; (vii) except as set forth in Section 2.2(e) and subject to the provisions of Section 10.14, all rights under all Contracts (other than the Indebtedness Contracts and the In-License Agreements), including those listed on Schedule 2.1 (c) (vii): (viii) subject to the provisions of Section 10.14, all rights under the in-license Contracts listed on Schedule 2.1 (c) (viii) (the "In-License Agreements"); (ix) the rights granted to Purchaser under the Sanofi Sub-License Agreements; (x) all Registrations supported by and including: (A) the product dossiers and all original documents and all related data, records, and correspondence under the possession of Seller (or that are accessible to Seller using commercially reasonable efforts) evidencing the Registrations issued to Seller by a Governmental Authority, in each case to the extent assignable with or without the Consent of the issuing Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edures, product shipping or storing requirements and information, service and warranty records, equipment logs, operating guides and manuals, product specifications, product processes, engineering specifications, financial and accounting records, litigation files, personnel and employee benefits records to the extent transferable under applicable Law, and copies of all other personnel records to the extent Seller is legally permitted to provide copies of such records to Purchaser, (xvii) all claims, rights, credits, causes of actions, defenses and rights of set-off of any kind, in each case, whether accruing before or after the Closing, and including all attorney work-product protections, attorney-client privileges and other legal protections and privileges to which Seller may be entitled in connection with the Business or any of the Transferred Assets or Assumed Liabilities that are not excluded under Section 2.2(i) or Section 2.2(i): (xviii) all claims or benefits in, to or under any express or implied warranties, guaranties, indemnities or other contractual obligations or assurances from manufacturers or suppliers of goods or services relating to Inventory or other Transferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l minute books, records, stock ledgers, Tax records and other materials that Seller is required by applicable Law to retain; (g) all certificates for insurance, binders for insurance policies and insurance, and claims and rights thereunder and proceeds thereof; (h) subject to Section 2.1(c)(xx), all claims for refund of Taxes and other governmental charges of whatever nature arising out of Seller's operation of the Business or ownership of the Transferred Assets prior to the Closing; (i) all rights, title and interest of Seller and its Affiliates to assets used in connection with the Other Businesses, except to the extent that such assets are included in the Transferred Assets; (j) all intercompany Contracts between Seller and any of its Affiliates; (k) all rights of Seller or its Affiliates under confidentiality agreements to which Seller or its Affiliates is a party relating to the direct or indirect sale of the Business (or any part thereof) to any Person other than Purchaser or any of its Affiliates; (l) the Sanofi In-License Agreement and the Roche In-License Agreement; (m) the Distribution and Promotion Agreement entered into and effective as of March 19, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes solely with respect to the products of the Business) and royalty-free right and license (with the right to grant sublicenses and covenants not to sue) to use the Seller Mixed-Use Intellectual Property for purposes of making, having made, using, selling, offering to sell, importing or exporting pharmaceutical products in finished form. (b) Seller shall have the first right, but not the obligation, to commence, prosecute and defend any Proceedings involving Seller Mixed-Use Intellectual Property. Purchaser and its Affiliates shall be entitled to, but not obligated to, join in any such Proceeding at their own expense. Each Party shall be entitled to retain any and all amounts awarded to it in any such Proceeding. Seller hereby acknowledges and agrees that Purchaser shall have the right to file the present license with any registries in India or in any other country in order to preserve all rights and remedies available to Purchaser under applicable Law. (c) Effective as of the Closing, Seller, on behalf of itself and its Affiliates, shall grant to Purchaser and its Affiliates for a fixed-term of eight (8) years, an irrevocable, exclusive (even with respect to Seller and its Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject to Section 11.5 in relation to the Annual Installment Payments, Purchaser shall pay the Cash Consideration to Seller as follows: (i) At Closing, the Indian Rupee equivalent (calculated pursuant to Schedule 3.1(b)) of Two Billion One Hundred Twenty Million Dollars (USD 2,120,000,000) ("Initial Cash Consideration"); (ii) On the first (1st) anniversary of the Closing Date, the Indian Rupee equivalent (calculated pursuant to Schedule 3.1(b)) of Four Hundred Million Dollars (USD 400,000,000) (the "First Annual Installment Payment"); (iii) On the second (2nd) anniversary of the Closing Date, the Indian Rupee equivalent (calculated pursuant to Schedule 3.1(b)) of Four Hundred Million Dollars (USD 400,000,000) (the "Second Annual Installment Payment"); (iv) On the third (3rd) anniversary of the Closing Date, the Indian Rupee equivalent (calculated pursuant to Schedule 3.1(b)) of Four Hundred Million Dollars (USD 400,000,000) (the "Third Annual Installment Payment"); and (v) On the fourth (4th) anniversary of the Closing Date, the Indian Rupee equivalent (calculated pursuant to Schedule 3.1(b)) of Four Hundred Million Dollars (USD 400,000,000) (the "Fourth Annual Installmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment $395,000 18. Trademark License - Seller Corporate Name $6,000,000 19. Business Transfer Agreement between AHPL and PHL Pharma Private Limited $57,000 20. Business Transfer Agreement between ATPPL and PHL Pharma Private Limited $3,545,000 21. Non-stampable Assets $1,228,467,095 Total $3,800,000,000 48. On a careful perusal of the BTA and the specific clauses which we have noted hereinabove, the commercial scheme of the BTA is abundantly clear that what was intended between the parties, is the wholesome sale of the basic domestic formulation business as described in the agreement as a going concern on a slump sale basis. The slump sale "to be understood as defined under Section 2 (42C) of the Income Tax Act". The parties have specifically defined the business and all its material ingredients including the tangible and intangible assets as extracted by us hereinabove. Article 2 of the BTA under Section 2.1 specifically records the agreement between the parties that the petitioner/seller shall sell, convey, assign, transfer and deliver to the purchaser (Abbott Healthcare) free and clear of all encumbrances and the purchaser shall purchase and acquire the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit and whether or not any gain or profit accrues from such service, trade, commerce, manufacture, adventure or concern. Explanation.- For the purpose of this clause,- (i) the activity of raising of man-made forest or rearing of seedlings or plants shall be deemed to be business; (ii) any transaction of sale or purchase of capital assets pertaining to such service, trade, commerce, manufacture, adventure or concern shall be deemed to be a transaction comprised in business; (iii) sale or purchase of any goods, the price of which would be credited or, as the case may be, debited to the profit and loss account of the business under the double entry system of accounting shall be deemed to be transactions comprised in business; (iv) any transaction in connection with the commencement or closure of business shall be deemed to be a transaction comprised in business; ............ (8) "dealer" means any person who, for the purposes of or consequential to his engagement in or, in connection with or incidental to or in the course of, his business buys or sells, goods in the State whether for commission, remuneration or otherwise and includes,- (a) a factor, broker, commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... administrative control, of the Central Government, any State Government or any local authority. (12) "goods" means every kind of movable property not being newspapers, actionable claims, money, stocks, shares, securities or lottery tickets and includes live stocks, growing crop, grass and trees and plants including the produce thereof including property in such goods attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale; (24) "sale" means a sale of goods made within the State for cash or deferred payment or other valuable consideration but does not include a mortgage, hypothecation, charge or pledge; and the words "sell", "buy" and "purchase", with all their grammatical variations and cognate expressions, shall be construed accordingly; Explanation.- For the purposes of this clause,- (a) a sale within the State includes a sale determined to be inside the State in accordance with the principles formulated in section 4 of the Central Sales Tax Act, 1956 (74 of 1956); (b)(i) the transfer of property in any goods, otherwise than in pursuance of a contract, for cash, deferred payment or other valuable consideration; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the appointed day, holds a valid or effective certificate of registration or licence under any of the earlier laws or, who is liable to pay tax under any of the earlier laws, in the year ending immediately before the appointed day shall, if his turnover of sales or purchases has, in the said year under any of such earlier laws, exceeded rupees [five lakh], or, as the case may be, who was an importer in the said year 2[and his turnover of sales or purchases in the said year had] exceeded rupees one lakh, be liable to pay tax, with effect from the appointed day, in accordance with the provisions of this Act, till his certificate or licence is duly cancelled under this Act. ...... Section 6. Levy of sales tax on the goods specified in the Schedules:- (1) There shall be levied a sales tax on the turnover of sales of goods specified in column (2) in Schedule B, C, D or, as the case may be, E, at the rates set out against each of them in column (3) of the respective Schedule.] (2) Notwithstanding anything contained in sub-section (1), there shall be levied a sales tax, in addition to the sales tax leviable under sub-section (1), on the sales of any motor spirits specified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter examination, may, by serving on the dealer a notice in the prescribed form, pass an order to the best of his judgment, where necessary. (2) (a) For the purpose of the examination and passing of the order, the Commissioner may require, by service of notice in the prescribed form, the dealer to produce or cause to be produced before him such books of accounts and other documents or evidence which he thinks necessary for the purposes aforesaid. (b) No order under this section shall be passed after the expiry of five years from the end of the year in which the order passed by the subordinate officer has been served on the dealer. (c) Where in respect of any order or part of the said order passed by the subordinate officer, an order has been passed by any appellate authority including the Tribunal, or such order is pending for decision in appeal, or an appeal is filed, then, whether or not the issues involved in the examination have been decided or raised in appeal, the Commissioner may within five years of the end of the year in which the said order was passed by the subordinate officer has been served on the dealer, make a report to the said appellate authority including th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sales tax on the turnover of goods specified in the schedules B, C, D or, as the case may be, at the rates set out against each of them in column (3) of the respective schedule. Section 24 providing for 'rectification of mistakes' which is a power conferred on the Commissioner to be exercised within two years from the end of a financial year in which any order passed by him has been served, on his own motion, inter alia rectifying any mistake apparent on the record. Section 25 is the provision for review under which the impugned order has been passed, which inter alia provides that after any order which would include an assessment order is passed under the MVAT Act, by any officer or person subordinate to him, the Commissioner may, of his own motion or upon information received by him, call for the record of such order and after examining whether any turnover of sales or purchases has not been brought to tax or has been brought to tax at lower rate, or has been incorrectly classified, any claim is incorrectly granted or that the liability to tax is understated, or in any case, the order is erroneous, insofar as it is prejudicial to the interests of revenue, the Commissioner may, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice, any trade, commerce or manufacture, any adventure or concern in the nature of service, trade, commerce or manufacture. Section 2 (24) has defined "sale" to mean a sale of goods made within the State. 54. On a cumulative reading of the definition 'business' under Section 2 (4), 'goods' under Section 2 (12) and the definition of 'turnover of sales' as defined under Section 2 (33), it can be seen that neither the term 'sale of business' nor the term 'business' has been explicitly included under the definition of 'goods'. It also cannot be said that 'business' per se would amount to goods hence, it is difficult to conceive that sale of business can be categorized as any sale of goods so as to fall within the meaning of 'turnover of sale' as defined under Section 2 (33). There cannot be turnover of sale of businesses. 55. Having said so, we may observe that the reviewing authority has not disputed the position that what has been undertaken by the petitioner under the BTA is sale of business. However, the Reviewing Authority having examined various clauses of the BTA and purportedly to give effect to item 39 of Schedule 'C', has included the items (intangible assets) as contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the BTA. It is not permissible for the authorities to do so and more particularly when the parties are not only clear in regard to the terms and conditions of the BTA, as already implemented and acted upon, that what was meant to be transferred was the business as a whole in its entirety as a slump sale. 58. In our opinion, the reviewing authority was required to consider the effect of these clauses of the BTA, as persons of commerce would consider, appreciate and understand such clauses in terms of their commercial efficacy, even in applying the provisions of the MVAT Act. This more particularly when the parties in relation to a slump sale were permitted under one of the legislations namely under the Income Tax Act, to attribute values to different tangible assets and intangible assets and for such reason, Schedule 3.3 along with specific clauses in regard to intellectual property came to be incorporated under the BTA. Hence, providing of such values to the intangible assets as objected by the reviewing authority could never have changed the intention of the parties, that qua such items the parties have a different intention and/or were not intending to transfer the business in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er hand, the reviewing authority by the impugned order has regarded these items as contained in Schedule 3.3, as 'sale of goods' to be considered as turnover of sales of petitioner. Thus the opinion of the department that the petitioner had bifurcated the consideration of its assets sought to be transferred as per the value as indicated in schedule 3.3 was forsaken in passing the impugned order when the reviewing authority has observed that the intellectual property rights being not permanently transferred and being transferred for a limited period, would amount to sale of goods. This infers that although the petitioner was required to respond to a version/opinion of the reviewing authority, as put and intimated to the petitioner in the show cause notice, however, what has actually being done by the reviewing authority, is different from such version in the show cause notice. The petitioner therefore would be correct in its contentions that such approach of the reviewing authority has resulted in a defective hearing being granted to the petitioner resulting in breach of the principles of natural justice. This also for the reason that it is well settled that the principles of natura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental Authorities for all stamp duty purposes consistent with the allocation set forth on Schedule 3.3." 63. The reviewing authority thereafter has applied Section 2.5 of the BTA pertaining to intellectual property and more particularly, Section 2.5(c) to hold that the petitioner granting a fixed term of eight years to the purchaser as an irrevocable, exclusive and royalty free licence, to use the petitioner's corporate name for the purpose of, inter alia, making, using, selling, offering to sell, importing or exporting genuine pharmaceutical products in finished form in India as provided under the said clause would make the BTA liable to be taxed. In this context, it would be imperative to note the provision of Section 2.5 of the BTA to ascertain the effect of the said clause on the transfer of business as intended by the parties, in regard to the use of the intellectual property rights in favour of the purchaser for such limited period. Section 2.5 (c) reads thus: "2.5 Intellectual property: ... .... ... (c) Effective as of the Closing, Seller, on behalf of itself and its Affiliates, shall grant to Purchaser and its Affiliates for a fixed-term of eight (8) years, an irrevo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, and/or that this would in any manner amount to a sale of these intangible assets so as to be regarded and included within the ambit of sale of goods falling within the 'turnover of sales'. We are not shown any bar on itemized sale when such sale is in the context of sale of a business as a going concern. It is not in dispute that the parties had agreed for a lump sum consideration. If that be so, as to how the provisions of the MVAT Act as referred by us hereinabove would get attracted, is not understood. Thus, in our opinion, the answer would be certainly in the negative as seen from the reading of the BTA and the intention of the parties it depicts. 65. In our opinion, Section 2.5 read with Section 3.3 and Schedule 3.3 if is read in the manner as set out in the impugned order, would lead to a patent absurdity, so as to negate the intention of the parties, to have a outright sale of pharmaceutical business in its entirety. Such reading of the BTA would not only be against the intention of the parties as reflected from various clauses of the BTA as also it would amount to do a damage to what was realistically intended by the parties and acted upon. In the facts of the case, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reviewing authority to consider that the intangible assets were integral and inextricable elements in the transfer of business as contemplated by the parties under the BTA, and the same were required to be transitioned on well accepted commercial rationale and the market/commercial norms, so as to achieve a gradual and complete transfer of business as designed by the parties. Thus, the petitioner permitting Abbott Healthcare to assign "a particular period" to use the corporate name and logo as a part of the transitional arrangement certainly could not be construed to mean that the business in its entirety was not being transferred by the petitioner. Although such position was explicitly pointed out to the reviewing authority alongwith the relevant decisions in that regard, the reviewing authority has failed to consider the true nature of the transaction under the BTA and that it was a composite transaction in taking the view as reflected by the impugned order. It was not permissible for the reviewing authority to vivisect the agreement in such manner to come to a conclusion different from what was intended by the parties in agreeing for transfer of entire business under the BTA. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self to the value assigned to the intangible assets as contained in Schedule 3.3 read with Section 3.3 and Section 2.5, the same has been borrowed / copied from the service tax demand notice in ad-verbatim manner. This is clear from the comparative extracts of the service tax demand notice and the extract of the impugned order and more particularly from perusal of paragraphs 13 to 26 and 30 to 31 of the impugned order when examined against paragraph 4, 5.1 to 5.4, 6.1 and 10 of the Service Tax demand notice, where the impugned order has clearly copied and pasted the findings and reasoning as contained in the service tax demand notice issued to the petitioner in regard to BTA. In this context we may also observe that the parameters of proceedings for levy of service tax, as it then stood under the provisions of the Finance Act, 1994, could not have been borrowed to be made applicable for levy of VAT under the MVAT Act. We hence, wonder as to how the Reviewing Authority could verbatim borrow / copy the contents of the notice issued by the Service Tax Authority. 71. Even considered from the perspective of the Income Tax Act, 1961 which under Section 2 (42C) defines 'Slump sale', we m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing assigned to the individual assets and liabilities transferred. 56.3 Extensive amendments in the Income-tax Act have been carried out on the basis of the following broad principles: (a) The restructuring shall not attract additional liabilities to tax and also not result in the withdrawal of relief and concessions available to the existing unit. (b) The tax benefits and concessions available to an undertaking of a company shall continue to be available to the undertaking on transfer of the same while concessions and benefits that are available to the transferor company as an entity and not to the undertaking of the company proposed to be transferred, should remain with the transferor-company. (c) Tax benefits to such business reorganizations should be limited to the transfer of business as a going concern and not to the transfer of specific assets which would amount to sale of assets and not a business reorganization. 56.4 (vii) A new clause (42C) has been inserted in section 2 of the Income-tax Act to define the expression "slump sale". Slump sale shall mean the transfer by way of sale of one or more undertakings for a lump sum consideration without assigning values f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a whole. In a slump sale, the seller cannot withdraw any asset from the business sold and the purchaser cannot reject any asset or liability comprised in the business " 73. It is thus clearly seen that although parties have set out the value to the assets in Schedule 3.3, applying the aforesaid principles as recognized under the Income Tax Act, the transfer of business in question under the BTA cannot be regarded as any item wise sale but necessarily would be required to be treated as a sale of a business as a going concern, not attracting any VAT liability under the provisions of the MVAT Act. In any event, the slump sale and/or transfer of business as a whole cannot be read differently than what has been intended by the parties, even as applicable to the provisions of different laws namely Income Tax Act, Service Tax Law, Maharashtra Value Added Tax Act or any other law, although the effect of each of such statute on such transaction would be required to be tested considering the specific provision of each of these statute. 74. For such reason we are in agreement with the contention as urged on behalf of the petitioner that the impugned order demonstrate patent non application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of closing down the business was different from the sale of the business as a whole as a running concern. It was observed that sale of a business, lock, stock and barrel was not incidental or ancillary to the carrying on of a business so as to be taxable under the Act. The relevant observations can be found in paragraphs 12, 15 & 16 of the report which reads thus:- "12. The combined effect of the definition of these expressions will show that for a turnover to come within the scope of the Act, it must be the aggregate amount for which the goods are bought or sold, that is, bought, or sold in the course of business, the business having the meaning as defined in section 2 (d) of the Act. When a person who is carrying on business sells the entire business or a branch of the business, he sells the same as a running business or a going concern. The sale proceeds of such a transaction cannot be said to constitute turnover as defined in the Act, because the sale proceeds are not proceeds of sale of goods made in the course of business as defined in the Act. The closure of a branch by sale thereof as a running concern to another person, apart from not constituting a sale of goods, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of view, the transaction in question will not fall within the scope of the Act at all and, therefore, the sale proceeds will not constitute a turnover as defined in the Act. If so considered, the question of neither exemption nor deduction can arise. We are reaching this conclusion independently of the conclusion we have arrived at with reference to rule 6(d) of the Tamil Nadu General Sales Tax Rules. As a matter of fact, this conclusion is only alternative to the said conclusion and is really based on considerations totally different from the considerations applicable to rule 6 (d)." (emphasis supplied) 77. A Division Bench of this Court in Premier Automobiles Ltd. Vs. Income Tax Officer and Anr. (supra), was considering the assessee's appeal under Section 260A of the Income Tax Act, 1961 against the orders passed by the Tribunal holding that the transaction of sale of Kalyan business was not a slump sale. The Court in such context, considered the question inter alia whether there was a slump sale or a sale of itemized assets. The Court held that as the entire Kalyan business has been sold by the assessee to one PPL as a going concern, the intention of the parties in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il in Shaw Wallace case (supra) and reiterated by the Supreme Court in Raipur case (supra) and in Ansari's case (supra) are conspicuously lacking in the transfer of goods effected under the terms of the Business Sale Agreement. Ansari's case (supra) has firmly laid down the proposition that these tests cannot be abandoned even after the new definition of business. Here is a case in which the goods which would not have been disposed of while carrying on its normal business activity were "sold out" if that expression is appropriate, in furtherance of its scheme to close the business undertaking once and for all. Such an activity of sale marks the end point of the business of the assessee and it is not an event of frequent occurrence - not even capable of being ever repeated. We are therefore of the view that the assessee M/s. Spectra Bottling Co., effecting the sale of goods in the course of business or carrying on the business intended to be pursued or continued, does not arise. In coming to this conclusion, we are eschewing from consideration whether or not the assessee was prompted by a profit motive in undertaking the sale of business as a whole and the sale of goods in particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority control the meaning to be assigned to the concepts of 'sale' and 'business'. As Sethuraman, J., observed in DIT v. K. Behanan Thomas (supra), "If the amount in question will not fall within the scope of the Act at all, the question of either deduction or exemption will not arise". Rule 6 (h) does not therefore, render any assistance to the case of the respondents. With great respect, the learned Judges who decided Coromandal Lubricants case (supra) were not right in reinforcing their view point by reference to Rule 6 (h). 69. We therefore hold that the transfer of entire business undertaking together with the movable properties, even assuming to involve sale of goods, cannot be regarded as a sale in the course of business by the dealer." (emphasis supplied) 79. A similar view was taken by a Division Bench of the Allahabad High Court in the case of Ram Sahai Vs. Commissioner of Sales Tax (supra), in which Court has observed thus:- "15 It was contended that when a dealer sells his business there may be some stock-in-trade which is sold along with the goodwill and that there is no reason why proceeds of the sale of the stock-in-trade should not be includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the sale of the business as a whole could vary from case to case. When we bear in mind the definition of the expressions "business", "turnover", "total turnover" and "taxable turnover" contained in the Act, we could find that the taxable event is the sale or purchase of the goods by the dealer in the course of business. When a business is sold as a going concern, the buyer might in his turn, sell the goods in the course of his business, and such sale would be exigible to tax ; if at the time of the sale of the business as a whole and also at the later stage, when the buyer from the assessee sells the goods, tax is levied or collected, the effect would be that the goods are being subjected to double taxation. The Legislature presumably wanted to avoid such an anomaly and be fair and reasonable." (emphasis supplied) 81. In M/s. Paradise Food Court Vs. State of Telangana (supra), a Division Bench of the High Court of the State of Telangana and Andhra Pradesh at Hyderabad, held the writ petition under Article 226 to be maintainable by holding that it was a case where the assessing officer had lacked jurisdiction as also that the principles of natural justice had stood vitiated. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxes (supra). As noted hereinabove, no doubt incorporeal rights are considered as goods by the Supreme Court in this decision, however, the context in which this was held cannot be applied to the facts of the present case, as the question before the Court was not the question which is posed for our consideration in the present proceedings. The question was whether the transfer of an Import License namely R.E.P. Licence/Exim Scrip by the holder thereof to another person constitutes a sale of goods within the meaning of and for the purposes of the Sales Tax enactments of Tamil Nadu, Karnataka and Kerala and in such context, the Court observed that the expression "movable property" would include corporeal as well as incorporeal property and that patents, copyrights and other rights in rem would also stand included within the meaning of movable property. However, in the present case, in the context of the BTA, it was not correct for the reviewing authority to include such property as enlisted in Schedule 3.3, so as to be included in the turnover of sale of the petitioner. The amounts qua each of such intangible items as specified in Schedule 3.3 certainly could not have been regarded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as far as section 263 is concerned, what has to be seen is the satisfaction that an order passed by the authority under the Act is erroneous and prejudicial to the interest of the revenue, is the basic condition for exercise of such jurisdiction under the said provision. It was observed that once such satisfaction is reached, jurisdiction to exercise the power would be available subject to the principles of natural justice which has been observed to be implicit in the requirement casts by the Section to give the assessee an opportunity of being heard. 85. Insofar as the respondent's contention that the petition ought not to be entertained as the petitioner has an alternate remedy of assailing the order in review by taking recourse to the remedy of an appeal, in our opinion, is not tenable in the present facts. We may observe that once the impugned order is passed in excess of jurisdiction or in improper exercise of jurisdiction when it brings about severe civil consequences, it cannot be accepted as an absolute proposition, that merely as an alternate remedy is available to the petitioner, the petitioner cannot approach the High Court so as to seek a relief under the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
