Sales tax arrears recovery from transferee prevails over secured creditor's claim in business asset transfer

Section 15 of the Karnataka Sales Tax Act, 1957 provides for joint and several liability of transferor and transferee for unpaid tax, penalty, or other dues remaining outstanding at the time of transfer, and deems the transferee to be the dealer for recovery purposes. On the facts described, the transferee had taken the business assets on lease and remained in possession of the land, plant, and machinery, bringing it within the recovery net for arrears. The sales tax dues were also treated as having priority over the secured creditor's interest, so proceedings under the Securitisation Act did not displace recovery of public dues under the sales tax law.

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Issues: Whether arrears recoverable under the Karnataka Sales Tax Act could be recovered from the transferee or person in possession of the transferred business assets, and whether such statutory recovery had priority over the rights of the secured creditor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Analysis: The liability under the sales tax law was examined in the context of transfer of business assets and continued possession of land, plant and machinery by the petitioner. Section 15 of the Karnataka Sales Tax Act, 1957 makes the transferor and transferee jointly and severally liable for tax, penalty, or other amounts remaining unpaid at the time of transfer, and deems the transferee to be the dealer for recovery purposes. On the facts accepted by the Court, the petitioner was connected with the assessee, had taken the assets on lease, and was in possession of the business assets. The Court also treated the sales tax dues as having priority over the bank's secured interest, so that the bank's proceedings under the Securitisation Act did not defeat recovery of public dues under the sales tax law.

Conclusion: The petitioner was liable for recovery of the arrears, and the objection to recovery from the transferee failed; the recovery proceedings under the Karnataka Sales Tax Act were upheld.

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