Transferee liability for sales tax arrears cannot arise from an ultra vires rule or a private transfer undertaking.

Rule 21-A under the Madras General Sales Tax Act could not extend the charging scheme to make a business transferee liable for the transferor's sales tax arrears, because the dealer's liability was confined to its own turnover and rule-making power could not enlarge statutory charge or recovery beyond the Act. The later amendment creating express transferee liability was inapplicable to a transfer completed earlier, so the rule was ultra vires. A private undertaking in the transfer instrument also did not create enforceable liability in favour of the State, since a contractual promise between transferor and transferee cannot bind the taxing authority without statutory authority. The transferee was therefore not liable for the arrears.

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Issues: (i) Whether rule 21-A framed under the Madras General Sales Tax Act, 1939 was within the State Government's rule-making power and could fasten liability for the transferor's sales tax arrears on the transferee of the business; (ii) Whether the transferee's alleged undertaking in the transfer instrument created liability in favour of the State for the transferor's arrears of sales tax.

Issue (i): Whether rule 21-A framed under the Madras General Sales Tax Act, 1939 was within the State Government's rule-making power and could fasten liability for the transferor's sales tax arrears on the transferee of the business.

Analysis: The charging provisions made the dealer liable on his own turnover, and the transferee's turnover could not include sales made by the transferor. The rule-making power under section 19(1) could not enlarge the scope of the charging and recovery scheme, and section 19(2)(c) authorised assessment machinery for discontinued or transferred businesses, not recovery from a person who was not the assessee. The later amendment introducing express liability for transferees had no application because the transfer predated the amendment's operation.

Conclusion: Rule 21-A was ultra vires and could not impose liability on the transferee for the transferor's arrears.

Issue (ii): Whether the transferee's alleged undertaking in the transfer instrument created liability in favour of the State for the transferor's arrears of sales tax.

Analysis: Even assuming the transferee agreed inter se with the transferor to discharge liabilities of the business, that private arrangement did not create a statutory liability in favour of the State, which was not a party to the instrument. A contractual promise between transferor and transferee could not be enforced by the taxing authority in the absence of statutory authority.

Conclusion: No enforceable liability was created in favour of the State by the transfer instrument.

Final Conclusion: The transferee was not liable for the transferor's sales tax arrears, and the challenge to the recovery action failed.

Ratio Decidendi: A rule made under a taxing statute cannot extend liability beyond the charging provisions, and a private transfer agreement cannot create tax liability in favour of the State without statutory authority.

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