Complete transfer of business triggers transferee tax liability, excludes penalty, and requires first recovery from firm assets.

A complete transfer of a dealer's business to a new partnership, including goodwill, assets and continued use of the same business name, was treated as a transfer of the business itself under the Bombay Sales Tax Act. The transferee firm became liable for unpaid tax relating to the transferred business as if it were the dealer, but not for penalty in the absence of express statutory coverage. Recovery for tax arrears had first to be pursued against the firm's assets, and direct proceedings against the partners were premature until those assets were exhausted.

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Issues: (i) whether the business of the dealer was entirely transferred to a new partnership so as to attract liability under section 26(1) of the Bombay Sales Tax Act, 1953; (ii) whether the transferee firm became liable for the tax remaining unpaid at the time of transfer, but not for penalty; and (iii) whether recovery proceedings could be taken directly against the partners before first proceeding against the assets of the firm.

Issue (i): whether the business of the dealer was entirely transferred to a new partnership so as to attract liability under section 26(1) of the Bombay Sales Tax Act, 1953.

Analysis: The transfer deed showed that the goodwill, office, goods, furniture and all things pertaining to the business were handed over to the new partnership, which was to carry on the business in the same name. No material stock or asset was retained by the transferor. The reservation excluding responsibility for prior debts did not prevent the transaction from amounting to a transfer of the business itself. A prior intimation under section 25 was only procedural and did not affect the legal consequence of the transfer.

Conclusion: The business was entirely transferred, and section 26(1) applied.

Issue (ii): whether the transferee firm became liable for the tax remaining unpaid at the time of transfer, but not for penalty.

Analysis: Section 26(1) fastens liability on the transferee for unpaid tax relating to the transferred business as if the transferee were the dealer. The provision, however, was not treated as extending to penalty. The Court accepted the concession that there was no liability under this section for penalty.

Conclusion: The transferee firm was liable for unpaid tax, but not for penalty.

Issue (iii): whether recovery proceedings could be taken directly against the partners before first proceeding against the assets of the firm.

Analysis: The arrears of tax were first recoverable from the assets of the firm. Direct proceedings against the partners personally were held to be premature so long as the firm's assets had not first been exhausted. At the same time, the partners were not treated as immune from ultimate liability if a balance remained unpaid after recovery from the firm's assets.

Conclusion: Recovery against the partners was premature at the initial stage, and the department had first to recover tax from the firm's assets.

Final Conclusion: The transfer attracted liability for unpaid tax under the sales tax law, but not for penalty, and the recovery process was restricted to first proceeding against the firm's assets before any balance could be realised from the partners; the application succeeded only to that limited extent.

Ratio Decidendi: Where a business is wholly transferred, the transferee becomes liable for unpaid tax under the relevant sales tax provision, but recovery against partners cannot be initiated before first exhausting the assets of the firm, and liability for penalty does not arise unless the statute expressly so provides.

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