Corporate veil may be lifted where a new company is formed to evade tax liabilities and preserve dealer registration benefits.

Registration under the Madhya Pradesh General Sales Tax Act can be refused where a newly formed company is found to be a device to continue an earlier partnership business while avoiding outstanding sales tax dues. The statutory provisions governing dealer registration were not applied to defeat the effect of cancellation of the earlier registration for arrears. On the facts, the company had the same family control, the same business and premises, and was created to secure the benefits of registration without clearing tax liabilities. In these exceptional circumstances, the corporate veil could be lifted because a corporate form used to evade tax or circumvent statutory obligations does not prevent examination of the real transaction.

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Issues: Whether registration as a dealer under the Madhya Pradesh General Sales Tax Act, 1958 could be refused where a private company was found to have been formed as a device to enable the old partnership business to continue with the benefit of registration while avoiding payment of arrears of sales tax, notwithstanding its separate legal personality.

Analysis: The statutory scheme under sections 15 and 16 of the Madhya Pradesh General Sales Tax Act, 1958 and rule 8 of the Rules contemplated registration of a dealer who satisfied the prescribed requirements, but the Court held that those provisions could not be used to defeat the effect of cancellation of an earlier registration for arrears of tax. On the facts found, the company had been formed by the family members of the erstwhile partnership, had substantially the same controlling interests, proposed to carry on the same business in the same premises, and was created to secure the advantages of a registered dealer without clearing outstanding tax dues. In such exceptional circumstances, the corporate veil could be lifted, because a corporate form used to evade tax or circumvent statutory obligations does not prevent the Court from looking at the real transaction.

Conclusion: Registration was rightly refused, and the challenge to the refusal failed.

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