9911796707
TMI Blog2025 (3) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... loans or any part thereof. To ensure that the Appellant could in fact avail of quick remedies of recovery under the provisions of the RDDB Act, 1993, as well as the SARFAESI Act, 2002, the Government, in exercise of powers conferred by sub-clause (ii) of clause (h) of Section 2 of the RDDB Act, 1993 specified/notified the Appellant to be a financial institution for the purposes of the said clause. On perusing the clauses of the Trust Deed as well as the Transfer Deed, it is clear that the objects of the Appellant Trust were for recovering debts of defaulting borrowers by disposing of the stressed assets inter alia under the provisions of the SARFAESI Act, 2002. The deemed dealer provision under the MVAT Act becomes operational when the categories thereunder sell any goods, whether by auction or otherwise. The Explanation which introduces the deeming provision further stipulates that the deemed dealer provision would operate notwithstanding anything contained in Section 2 (4) [the definition of the word "business"] or any other provisions of the MVAT Act - The Explanation in clear terms provides that the enumerated entities would be deemed to be a "dealer" when they sell any goods, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution of India the Appellant was of the bona fide opinion that it being set up and constituted by the Central Government, and all the proceeds that it recovers from sale of stressed assets are to go to the Central Government, coupled with the fact that if for any reason the stressed assets are not sold during the tenure of the Trust, the same would vest in the Central Government, it was not liable to collect any tax on the sale of securities of the stressed assets - the Appellant ought to have been extended the benefit of prospective effect to the DDQ Order.
Conclusion - The Appellant is a deemed dealer under the MVAT Act and liable for sales tax on the sale of movable properties. However, the Appellant is granted prospective effect to the DDQ Order, exempting it from liability for past transactions.
Appeal disposed off. X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the DDQ Order in so far as it held that the Appellant is a "deemed dealer" under the MVAT Act [impugned order No. 1], had a difference of opinion on whether the Appellant was entitled to the benefit of prospective effect. It is in these circumstances, that a Larger Bench was constituted pursuant to an order passed by this Court on 22nd November 2017 in MVAT Appeal No.46 of 2017. This order of the Larger Bench is challenged in Maharashtra Value Added Tax Appeal No. 2 of 2020. This Appeal was admitted on 19th July 2023 on the following four questions of law:- (a) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in rejecting the plea of grant of prospective effect u/s. 56 (2) of MVAT Act to the order of the Commissioner dt. 28.03.2014? (b) Whether on the facts and in the circumstances of the case and in law, the Tribunal's finding as listed below are perverse as they are not based on any evidence on record, contrary to evidence on record and otherwise unreasonable. The following perverse findings has resulted in denial of prospective effect to the Appellant (i) There is no dispute that being instrumentality of central Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udget for the year 2004-05 for extending a loan to the Trust. The Trust Deed also defined "Stressed Assets" to mean the assets financed by IDBI in the form of loans and advances and which were not recovered by IDBI. In other words, the Appellant - SASF was assigned the legal debts owed to IDBI along with the underlying securities, which were then to be disposed of/sold for recovery of loans from the defaulting borrowers. The main, or rather, the only object of the Trust was realization and recovery of dues with or without the intervention of the Courts/Tribunals. 5. Pursuant to the aforesaid Trust Deed and to take its object forward, a Transfer Deed dated 30th September 2004 was executed between IDBI and the Appellant Trust (SASF) whereby the stressed assets of IDBI were transferred to the Appellant. After the aforesaid transfer, the Central Government also notified the Appellant (Notification No.41 dated 9th October 2004) as a public financial institution for the purpose of Section 2(h) of the Recovery of Debts Due to Banks and Financial Institution Act, 1993 (for short "the RDDB Act, 1993"). By virtue of this Notification, the Appellant (SASF) could therefore recover the stresse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the contention of the Appellant that realization of debts by the Appellant by resorting to enforcement of securities does not amount to sale of assets by the Appellant. It was further contended that the immovable properties having plant, machinery and structures, were sold by the Appellant on an "as is where is basis" and therefore, whether such immovable properties can be subjected to tax by the State of Maharashtra was the question posed to the Commissioner. The argument of Article 285 of the Constitution of India was also canvassed before the Commissioner. Apart from this, the Appellant also requested the Commissioner to give prospective effect to the DDQ Order he proposed to pass, if the points canvassed by the Appellant were not accepted by the Commissioner. 9. After hearing the Appellant, by a detailed order dated 28th March 2014 [the DDQ Order], the learned Commissioner came to the conclusion that the Appellant is a "deemed dealer" as per the Explanation to Section 2 (8) of the MVAT Act. The Commissioner also held that the definition of "business" would not apply to the Appellant and the only aspect to be considered is whether the Appellant is selling any goods (movable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trust Deed. The Appellant, therefore, cannot be treated as a dealer, especially in view of Article 285 of the Constitution of India. It was the submission of Ms. Badheka that as per Article 285 of the Constitution of India, the property of the Union Government is exempt from all taxes imposed by the State or by any Authority within the State. This apart, she submitted that the Appellant Trust was brought into existence by the Government of India as a settlor of the Trust and the beneficiary is also the Government of India. The Appellant is only a Special Purpose Vehicle set up to realize the stressed assets of IDBI, and as such, the Appellant cannot be termed as a dealer within the meaning of the MVAT Act. In this regard, Ms. Badheka invited our attention to the Trust Deed dated 24th September 2004 and pointed out that the objectives of the Appellant Trust are mainly to administer and realize stressed assets of IDBI. She submitted that Trustees are appointed by the Government of India and the Trust Deed is also executed between the President of India and the Trustees. She submitted that the duration of the Trust is also for a limited period, and it is to stand terminated upon reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of Tamil Nadu and Anr. V/S The Board of Trustees of the Port of Madras [(1999) 4 SCC 630 : (1999) 144 STC 520]. She submitted that the Hon'ble Supreme Court (in the aforesaid decision) has clearly held that the expression "carrying on business" requires something more than mere selling and buying. Whether a person "carries on business" in any particular commodity must depend upon the volume, frequency, continuity, and the regularity of the transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive, which may, however, be statutorily excluded. She submitted that merely the act of selling or buying etc, would not constitute a person as a dealer but the object with which the person who carries on the activity is important. It is not as if every activity or any repeated activity which results in sale or supply of goods would attract sales tax. She submitted that if it was the intention of the legislature to tax every sale or purchase, irrespective of the object of the activities out of which the transactions arose, then it was not necessary to state in the legislation that the person must carry on business of sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dheka then submitted that the Tribunal wrongly interpreted the provisions of the Explanation to Section 2 (8) of the MVAT Act. She submitted that the Tribunal has wrongly categorized the Appellant as a public financial institution as contemplated under Clause (vii) of the Explanation to Section 2 (8). She submitted that the notification dated Notification No.41 dated 9th October 2004 conferring the status of a "public financial institution" on the Appellant was purely for the purposes of RDDB Act, 1993 and the SARFAESI Act, 2002 so that the Appellant could recover monies from the defaulting borrowers efficiently and quickly under these special legislations. That by itself would not make the Appellant a public financial institution as contemplated under Clause (vii) of the Explanation to Section 2 (8) of the MVAT Act. For all these reasons, Ms. Badheka submitted that the order passed by the Tribunal on 4th June 2015 (impugned order No. 1) holding the Appellant as a "deemed dealer" under the provisions of the MVAT Act requires interference and the questions of law framed in MVXA No. 16 of 2016 be answered in the negative and in favour of the Appellant and against the Revenue. 16. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er protest and the said certificate is granted with effect from 10th June 2014. In any event, for the period after the order of the Commissioner, the Appellant has filed returns but has not sold any movable property nor collected any tax. Therefore, in the present case, the prospective effect argument is restricted to only 8 transactions effected by the Appellant in the State of Maharashtra prior to 10th June 2014. Ms. Badheka also tendered to the Court a list of those transactions. 17. Ms. Badheka submitted that as far as the prospective effect argument is concerned, in the 1st impugned order, there was a difference of opinion between the members of the MSTT whether the Appellant would be entitled to the benefit of prospective effect. She submitted that the judicial member rightly observed that though the Appellant is a "deemed dealer", the Commissioner has not stated in unequivocal terms that the Appellant Trust is carrying on business of buying or selling goods in terms of the MVAT Act. Further, the Commissioner has also not decided whether the transfer of stressed assets to the Appellant Trust under the Transfer Deed amounts to purchase by it. She submitted that the judicial m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 285 of the Constitution of India it was not required to collect any taxes from the purchasers for sale of stressed assets. For all these reasons, Ms. Badheka submitted that this is a fit case where the benefit of prospective effect to the DDQ Order ought to be granted to the Appellant. FINDINGS AND DISCUSSION OF THE COURT: 19. We have heard Ms. Badheka at great length. In the present Appeals there are 2 impugned orders. Impugned order No. 1 (dated 4th June 2015) is the order of the MSTT that confirms the DDQ Order passed by the Commissioner on 28th March 2014 inter alia holding that the Appellant is a "deemed dealer" as per the Explanation to Section 2 (8) of the MVAT Act. Impugned order No. 2 is the order passed by the Larger Bench of the MSTT denying the benefit of prospective effect to the DDQ Order [under Section 56 (2) of the MVAT Act], to the Appellant. As mentioned earlier, a Larger Bench was formed because in impugned order No. 1, the two members of the MSTT had a difference of opinion on whether the Appellant would be entitled to the benefit of prospective effect as contemplated under Section 56 (2) of the MVAT Act. Since impugned order No. 1 (holding the Appellant as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Transfer Deed dated 30th September 2004] and the only person legally entitled to recover those loans or any part thereof. To ensure that the Appellant could in fact avail of quick remedies of recovery under the provisions of the RDDB Act, 1993, as well as the SARFAESI Act, 2002, the Government, in exercise of powers conferred by sub-clause (ii) of clause (h) of Section 2 of the RDDB Act, 1993 specified/notified the Appellant to be a financial institution for the purposes of the said clause. On perusing the clauses of the Trust Deed as well as the Transfer Deed, it is clear that the objects of the Appellant Trust were for recovering debts of defaulting borrowers by disposing of the stressed assets inter alia under the provisions of the SARFAESI Act, 2002. 21. Having said this, what we now have to decide is whether the Appellant can be termed as "dealer" for the purposes of the MVAT Act. According to the Appellant it cannot be termed as a dealer as it does no "business" of sale or purchase as contemplated under the provisions of the MVAT Act. To understand this argument, it would be necessary to reproduce the definition of the words "business", "sale" and "dealer". The word "bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elivery of goods on hire-purchase or any system of payment by instalments; (iv) the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuation consideration; (v) the supply of goods by any association or body of persons incorporated or not, to a member thereof for cash, deferred payment or other valuable consideration; [Explanation.- For the purposes of this sub-para, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, Tribunal or authority, any association or body of persons, incorporated or not, and its member shall be deemed to be two separate persons and the supply of goods inter se shall be deemed to take place from one such person to another.] (vi) the supply, by way of or as part of any service or in any other manner whatsoever, [of alcoholic liquor for human consumption] where such supply or service is made or given for cash, deferred payment or other valuable consideration; 23. The definition of the word "dealer", and which is important for our purposes, is defined in Section 2 (8) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dule to the Reserve Bank of India Act, 1934 (II of 1934); (viii) Maharashtra State Road Transport Corporation constituted under the Road Transport Corporation Act, 1950 (LXIV of 1950); (ix) Shipping and construction companies, Air Transport Companies, Airlines and Advertising Agencies; (x) any other corporation, company, body or authority owned or constituted by, or subject to administrative control, of the Central Government, any State Government or any local authority." (emphasis supplied) 24. The reason why we have set out the definition of the word "business" and "sale" is because the definition of the word "dealer" refers to these words. The word "dealer" as has been defined to mean 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 persons mentioned in clauses (a) to (d) of Section 2 (8). What is important to note is the Explanation appended below Section 2 (8) which stipulates that for the purposes of Section 2 (8) [i.e. the definition of the word "dealer"], each of the person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emed to have been done which in fact and truth has not been done, the court has to examine and ascertain as to for what purpose and between what persons such a statutory fiction is to be resorted to. Thereafter full effect has to be given to such statutory fiction and it has to be carried to its logical conclusion. In the well-known case of East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952 AC 109 : (1951) 2 All ER 587] Lord Asquith while dealing with the provisions of the Town and County Planning Act, 1947, observed: "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative, state of affairs had in fact existed, must inevitably have flowed from or accompanied it. ... The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." That statement of law in respect of a statutory fiction is being consistently followed by this Court. Reference in this connection may be made to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Explanation in clear terms provides that the enumerated entities would be deemed to be a "dealer" when they sell any goods, by auction or otherwise. Thus, the definition itself specifies that the sale of goods, whether by auction or otherwise would render the person/body/entities enlisted in the clauses to the Explanation to be a dealer. 27. Having rendered our opinion on the Explanation to Section 2 (8), we now have to examine whether the Appellant would fall within any of the ten clauses as set out in the Explanation to Section 2 (8) of the MVAT Act. The two clauses that jump out at us are clauses (vii) and (x) of the Explanation appended to Section 2 (8). Clause (vii) talks about insurance and financial corporations, institutions or companies and banks included in the second schedule to the Reserve Bank of India Act, 1934. Clause (x) talks about any other corporation, company, body or authority owned or constituted by, or subject to the administrative control of the Central Government, any State Government or any local authority. The reason why we have referred to both these clauses is because though the Commissioner in his DDQ Order classifies the Appellant as a deemed deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a that the Appellant never sold any movable property and sold the stressed assets on an "as is where is basis" and consequently would not be liable to pay any sales tax, is wholly without merit and contrary to the record. The record clearly indicates that the eight cases in which the Appellant invoked the provisions of the SARFAESI Act, 2002 and sold the stressed assets of the borrowers, though selling it to single purchaser/entity, itself issued separate sale certificates for movable property as well as immovable property. Therefore, it is clear that even the Appellant was very well aware that it was selling movable property as well as immovable property and separate sale certificates were issued in relation thereto. In fact, the Commissioner, in the DDQ Order, has referred to one such sale certificate and which was for movable property of one of the borrowers namely, Magnum Intermediates Limited. We, therefore, find that the argument made by Ms. Badheka that there was sale of only immovable property and there was no sale of movable goods, is wholly without merit and contrary to the record. In fact, after going through the record, the Commissioner, in his DDQ Order, has come to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from or to its members for cash, or for deferred payment, or for commission, remuneration or other valuable consideration, was deemed to be a dealer for the purposes of the said Act. Explanation (2) stipulated that the Central Government or any State Government which, whether or not in the course of business, bought, sold supplied or distributed goods, directly or otherwise, for cash, or for deferred payment, or for commission, remuneration or other valuable consideration was deemed to be a dealer for the purposes of the said Act. Interestingly, the Port Trust was not one of the entities that was deemed to be a dealer under the provisions of that Act [before amendment]. It is in this light that the Hon'ble Supreme Court came to the conclusion that it is necessary for the Port Trust to be "carrying on business" for it to be liable to pay sales tax under that Act. As mentioned earlier, the definition of the word "dealer" in the MVAT Act is as explicit as it can be. The Explanation to Section 2 (8) makes it clear that the entities mentioned therein would be deemed dealers if they sell any goods, notwithstanding the fact that they do not carry on any business. In these circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to which such set-off can be claimed, the Commissioner shall, subject to rules, make an order determining such question. Explanation. - For the purposes of this sub-section, the Commissioner shall be deemed to have commenced assessment of the dealer under section 23 when the dealer is served with any notice by the Commissioner under that section. (2) The Commissioner may direct that the determination shall not affect the liability under this Act of the applicant or, if the circumstances so warrant, of any other person similarly situated, as respects any sale or purchase effected prior to the determination. (3) The Commissioner, for reasons to be recorded in writing, may, on his own motion, review an order passed by him under sub-section (1) or (2) and pass such order thereon as he thinks just and proper. The Commissioner may direct that the order of review shall not affect the liability of the person in whose case the review is made in respect of any sale or purchase effected prior to the review and may likewise, if the circumstances so warrant, direct accordingly in respect of any other person similarly situated: Provided that, no order shall be passed under this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .P. in opposition to the arguments canvassed by Ms. Badheka on this issue. Ms. Chavan, the learned Addl. G.P., submitted that this certainly is not a fit case to grant prospective effect to the DDQ Order. She submitted that in the present case, the Appellant itself was aware that it was effecting sale of movable and immovable property. The recovery of the stressed assets was made by the Appellant under the provisions of the SARFAESI Act, 2002. In fact, for the purposes of invoking the relevant provisions of the said Act, the Appellant was also declared as a Financial Institution. This apart, the Appellant issued a Certificate of Sale as per the provisions of the said Act and separate Certificates of Sale were issued for immovable and movable property. Once this the case, it should not have been difficult for the Appellant to understand its liability to pay sales tax on account of effecting sale of movable property. She submitted that the essence of the MVAT Act is that it's a tax on the incidence of sale within the State of Maharashtra. Since the Appellant was aware that it is effecting recovery of bad debts by adopting sale of properties (movable), the liability to pay sales tax u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral Government. In other words, the Appellant was not set up with any profit motive or doing any business, but purely for the purpose of recovery of bad debts. We find force in the argument of Ms. Badheka that by virtue of Article 285 of the Constitution of India the Appellant was of the bona fide opinion that it being set up and constituted by the Central Government, and all the proceeds that it recovers from sale of stressed assets are to go to the Central Government, coupled with the fact that if for any reason the stressed assets are not sold during the tenure of the Trust, the same would vest in the Central Government, it was not liable to collect any tax on the sale of securities of the stressed assets. 39. Another factor which we find is in favour of the Appellant is that though the Appellant is subjected to a regular audit by the Comptroller and Auditor General, not once was it brought to the attention of the Appellant that it would be liable to pay sales tax on sale of movable securities. In such circumstances, we agree with Ms. Badheka that grave hardship would be caused to the Appellant if prospective effect is not given to the DDQ Order because it would now be imposs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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