Transferee liability and corporate veil piercing under sales tax law upheld where business transfer was used to evade recovery.

Section 32 of the Delhi Sales Tax Act, 1975 confines transferee liability to tax dues attributable to the business actually transferred, and it does not extend to the transferor's unrelated outstanding sales tax dues. The corporate veil may be lifted without an express statutory provision where the company structure is used to evade tax recovery or defeat public dues, particularly when control, management and business arrangements show a device to avoid payment. Recovery machinery may be invoked where the officer is duly empowered to act as Collector for sales tax arrears. On these principles, the recovery action was upheld.

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Issues: (i) whether section 32 of the Delhi Sales Tax Act, 1975 applied where the transferred business was not exigible to tax in the hands of the transferor and whether the transferee could be made liable for the transferor's other outstanding sales tax dues; (ii) whether the corporate veil could be lifted to treat the petitioner and the defaulting company as one entity in the absence of an express statutory provision; (iii) whether the Collector had authority to issue the impugned notice and proceed under the recovery machinery.

Issue (i): whether section 32 of the Delhi Sales Tax Act, 1975 applied where the transferred business was not exigible to tax in the hands of the transferor and whether the transferee could be made liable for the transferor's other outstanding sales tax dues.

Analysis: Section 32 fastens joint and several liability on the transferor and transferee only in respect of tax due from the dealer up to the time of transfer of the business transferred. The liability of the transferee is co-extensive with the transferor's liability in relation to that transferred business and cannot be enlarged to cover unpaid dues arising from other businesses of the transferor. The second sub-section also shows that the provision is directed to a transferred business that is exigible to tax, since amendment of registration is contemplated only in that setting.

Conclusion: The provision did not support fastening the transferor's sales tax dues on the petitioner in respect of a business not exigible to tax, and the Collector's view on this aspect was unsustainable.

Issue (ii): whether the corporate veil could be lifted to treat the petitioner and the defaulting company as one entity in the absence of an express statutory provision.

Analysis: The legal personality of a company is distinct from its members, but the veil may be lifted where the corporate form is used as a device to evade tax obligations or to perpetrate fraud. That power is not dependent upon an express statutory provision. On the facts, the companies were closely interlinked in control, management, shareholding and business arrangements, and the materials showed that the business shift was undertaken to avoid recovery of outstanding dues.

Conclusion: The corporate veil could be pierced, and the finding that the petitioner was being used to defeat recovery was upheld.

Issue (iii): whether the Collector had authority to issue the impugned notice and proceed under the recovery machinery.

Analysis: The notifications placed on record showed appointment of the concerned officer to assist in the execution of the Act and conferment of powers of Collector for recovery of sales tax dues as arrears of land revenue. In view of the conclusion that the business transfer and corporate arrangement were designed to evade recovery, the resort to the recovery provisions was justified.

Conclusion: The Collector had the requisite authority, and the challenge to the notice and recovery action failed.

Final Conclusion: The petition was rejected in full, and the impugned recovery action was sustained.

Ratio Decidendi: Section 32 of the Delhi Sales Tax Act, 1975 confines transferee liability to tax dues relatable to the business actually transferred, but the corporate veil may be lifted even without express statutory authorization where the company structure is used to evade tax recovery or defeat public dues.

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