Transfer of business for sales tax recovery prevails over partnership arrangements where the same business continues through successive ownership changes.

A change in the form of ownership that leaves the same business continuing through successive transitions can amount to a transfer of business for purposes of sales tax recovery. On that basis, pre-existing sales tax dues may be enforced against the transferee under the special recovery provision, even where the parties have arranged their inter se liabilities differently. The general rule in section 31 of the Indian Partnership Act, 1932 does not override the statutory recovery mechanism in the Gujarat Sales Tax Act, 1969. The effect is that the tax authority may proceed against the person who takes over the business for earlier dues if the substance of the transaction shows continuity of the same undertaking.

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Issues: Whether the recovery notice for pre-existing sales tax dues could be enforced against the petitioner on the footing that the business had been transferred to him within the meaning of section 26(4) of the Gujarat Sales Tax Act, 1969, and whether section 31 of the Indian Partnership Act, 1932 barred such liability.

Analysis: The business originally carried on by a partnership was continued by one partner as sole proprietor, then taken over by the petitioner as partner, and shortly thereafter continued solely by the petitioner. The partnership deed and the sequence of transactions showed that the same business was carried forward through successive changes in form. On this basis, the change was held to amount to a transfer of business in whole or in part by a manner covered by section 26(4), and the tax authority was entitled to proceed against the transferee for the earlier dues. The arrangement between the parties as to inter se liability could not override the statutory recovery mechanism under the taxing statute. The general rule in section 31 of the Indian Partnership Act, 1932, governing relations between partners, was held not to displace the special recovery provision in the sales tax law.

Conclusion: The recovery notice was valid, and the petitioner's challenge failed; the transfer of business attracted section 26(4) of the Gujarat Sales Tax Act, 1969 notwithstanding section 31 of the Indian Partnership Act, 1932.

Ratio Decidendi: Where the substance of the transaction shows continuation of the same business through successive changes in ownership or constitution, the special statutory liability created by a sales tax recovery provision prevails over private arrangements and the general law of partnership.

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