Sales tax arrears and business transfer: auction purchaser of selected assets was not liable as transferee of the dealer's business.

Liability for sales tax arrears under section 15 of the Karnataka Sales Tax Act, 1957 arises only on a true transfer of the dealer's business, meaning transfer of the entire undertaking, including assets, liabilities and goodwill. A sale of selected assets such as land, plant and machinery by the State Financial Corporation in exercise of its independent statutory power under section 29 of the State Financial Corporations Act, 1951 does not by itself make the auction purchaser a transferee of the business. Section 15 was upheld as a valid ancillary recovery provision, but it could not fasten liability on the purchaser because no transfer of the whole business was shown. The charge under section 13(2)(i) also could not be enforced against the purchaser in these circumstances.

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Issues: Whether an auction purchaser of land, plant and machinery sold by the State Financial Corporation could be treated as a transferee of the dealer's business and made liable for arrears of sales tax under section 15 of the Karnataka Sales Tax Act, 1957, and whether that provision was ultra vires.

Analysis: Liability under section 15 arises only when the ownership of the business is transferred. A transfer of business means transfer of the entire business, including its assets, liabilities and goodwill, and not merely sale of selected assets such as land, building, plant and machinery. The sale by the State Financial Corporation under section 29 of the State Financial Corporations Act, 1951 was in exercise of its independent statutory power and not as agent of the defaulting dealer, so the purchaser acquired absolute rights in the transferred property. Section 15 was held to be a valid ancillary and incidental measure for recovery of tax dues, but its application depends on a true transfer of business ownership. Since no transfer of the entire business or goodwill was shown, the auction purchaser could not be treated as a transferee for section 15 purposes. The charge under section 13(2)(i) could not fasten liability on the purchaser in the absence of such transfer.

Conclusion: The validity of section 15 of the Karnataka Sales Tax Act, 1957 was upheld, but the auction purchaser was not liable as a transferee of the business for the dealer's sales tax arrears.

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