Tax deferral transfer conditions: cancellation of eligibility certificate leaves arrears recoverable from the transferor, with transferee recovery only additional.

A tax deferral scheme conditioned transfer of an industrial unit on prior permission and compliance with restrictions on changes in ownership and disposal of fixed assets. Where the eligibility certificate was cancelled and that cancellation was allowed to attain finality, the transferor could not insist on approval of the transfer along with the deferred sales tax liability. The outstanding deferred tax became recoverable as arrears from the transferor, and the demand notice was valid. Section 27 was treated as an additional recovery remedy against a transferee; it did not require the department to proceed first or only against the purchaser, nor did it extinguish the transferor's liability.

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Issues: (i) whether the petitioner was entitled to approval of transfer of the industrial unit together with the interest-free sales tax deferral liability to the purchaser; (ii) whether the demand notice requiring payment of the deferred sales tax arrears from the petitioner was liable to be set aside; and (iii) whether the department was bound to proceed against the purchaser under section 27 before recovering the arrears from the petitioner.

Issue (i): whether the petitioner was entitled to approval of transfer of the industrial unit together with the interest-free sales tax deferral liability to the purchaser.

Analysis: The eligibility certificate and the agreement executed under the deferral scheme required prior permission for any change in ownership or constitution and prohibited transfer of the fixed assets without the prescribed approval. The petitioner sought approval without first securing the required Government permission, and the subsequent departmental communications reiterated that such permission was necessary before the transfer could be recognised. The cancellation of the eligibility certificate was allowed to attain finality, and once that happened the claimed deferral arrangement no longer survived.

Conclusion: The petitioner was not entitled to the requested approval, and the claim failed.

Issue (ii): whether the demand notice requiring payment of the deferred sales tax arrears from the petitioner was liable to be set aside.

Analysis: The deferred tax facility stood cancelled by the competent authority, and no challenge was successfully pursued against that cancellation. After such cancellation, the order enabling payment by way of deferral ceased to operate, and the assessing authority was entitled to treat the outstanding amount as recoverable arrears from the petitioner, who had incurred the liability under the scheme.

Conclusion: The demand notice was held valid and was not liable to be set aside.

Issue (iii): whether the department was bound to proceed against the purchaser under section 27 before recovering the arrears from the petitioner.

Analysis: Section 27 permits recovery of unpaid tax from a transferee where business ownership is transferred, but it does not extinguish or postpone the transferor's liability. Even assuming a transfer had taken place, the statute only confers an additional mode of recovery against the transferee to the extent of the assets received. It does not bar recovery from the transferor, particularly where the arrears were incurred during the petitioner's ownership and the recovery was also supported by the charge created in favour of the department.

Conclusion: The department was not bound to proceed first or only against the purchaser, and recovery from the petitioner was upheld.

Final Conclusion: The petitions were found to have no merit, the petitioner's challenge to the transfer approval and the demand notice failed, and the arrears were held recoverable from the petitioner notwithstanding the alleged transfer.

Ratio Decidendi: A tax deferral granted subject to conditions requiring prior permission for transfer or change in constitution cannot be enforced in favour of the transferor after the eligibility certificate is cancelled and allowed to become final; section 27 of the Tamil Nadu General Sales Tax Act, 1959 creates an additional recovery remedy against a transferee but does not exclude recovery from the transferor.

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