Transferee liability and entire business transfer: unpaid pre-transfer tax passes, but later tax and penalty do not.

Under sales tax transfer provisions, transferee liability extends only to unpaid tax that had accrued before the business transfer; later-period tax and a penalty imposed after the transfer do not pass to the transferee. The court also noted that suppression of the transfer from tax authorities meant absence of prior notice to the transferee did not invalidate the assessments, because natural justice cannot be relied on by a party whose conduct prevented notice. The assignment was held to be an entire transfer of the business as a going concern, since stock-in-trade, fixtures, goodwill, trade name rights and tenancy rights were transferred, and retention of recovery rights over outstanding dues did not negate the transfer.

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Issues: (i) Whether the transferee was liable for the transferor's assessed tax dues and penalty, including whether prior notice to the transferee was required before assessment; (ii) Whether the deed of assignment effected an entire transfer of the business within the meaning of the applicable sales tax provisions.

Issue (i): Whether the transferee was liable for the transferor's assessed tax dues and penalty, including whether prior notice to the transferee was required before assessment.

Analysis: Liability under the transfer provisions extended only to tax that had become payable and remained unpaid at the time of transfer. Where the transfer of business was suppressed from the tax authorities by the parties, the absence of prior notice to the transferee did not vitiate the assessments, because principles of natural justice cannot be invoked to advantage a party whose own conduct prevented notice from being issued. Penalty, however, stood on a different footing, as it arose only when imposed and in this case was levied long after the transfer.

Conclusion: The transferee was liable only for the unpaid tax that had accrued up to the date of transfer, but not for tax relating to later periods or for the penalty.

Issue (ii): Whether the deed of assignment effected an entire transfer of the business within the meaning of the applicable sales tax provisions.

Analysis: The assignment transferred the business as a going concern together with stock-in-trade, fixtures, goodwill, the right to use the business name, and tenancy rights. The fact that the assignor retained the right to collect outstanding dues and remained liable for antecedent debts and taxes did not amount to retention of an essential part of the running business. The transfer therefore satisfied the statutory requirement of an entire transfer of ownership of the business.

Conclusion: The deed effected an entire transfer of the business.

Final Conclusion: The reference was answered by holding that the transferee could be proceeded against only to the extent of unpaid pre-transfer tax, not later tax or penalty, and that the assignment constituted an entire transfer of the business.

Ratio Decidendi: Under the sales tax transfer provisions, transferee liability attaches only to unpaid tax existing at the date of an entire transfer of business, while penalty imposed after the transfer does not pass to the transferee; retention of recovery rights over outstanding dues does not by itself negate an entire transfer of the business as a running concern.

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