2015 (1) TMI 908 - SC - VAT and Sales Tax

Official Liquidator Liable for Sales Tax in Winding-Up Process

The Court held that the Official Liquidator qualifies as a 'dealer' under the Kerala General Sales Tax Act, 1963, and is liable to pay sales tax on sales ... Definition of 'dealer' under the Kerala General Sales Tax Act, 1963 - scope of 'business' for sales tax liability - liability of persons managing a dealer's business (Rule 54 of the Kerala General Sales Tax Rules, 1963) - point of levy - first sale in the State under Section 5 and First Schedule - purchase tax under Section 5A - applicability where no tax is leviable under Section 5 - official liquidator as agent/officer stepping into shoes of the company in liquidationDefinition of 'dealer' under the Kerala General Sales Tax Act, 1963 - scope of 'business' for sales tax liability - official liquidator as agent/officer stepping into shoes of the company in liquidation - Official Liquidator falls within the ambit of 'dealer' for purposes of sales tax when transferring assets of the company in liquidation - HELD THAT: - The Court examined the wide and inclusive definitions of 'business' and 'dealer' in the Act, 1963, including sub clause (f) of section 2(viii) which covers transfers of goods whether in the course of business or not. Precedents construing 'dealer' broadly were applied. The Official Liquidator derives authority from the Companies Act, 1956 and acts as an officer of the Court who steps into the shoes of the company to realise and distribute assets. Given that the auction sale effected by the Official Liquidator involved a transfer of goods within the meaning of section 2(viii)(f), and having regard to the statutory role and the analogy to a receiver or manager under Rule 54, the Official Liquidator's sale of the company's assets brings the transaction within the definition of a dealer for sales tax purposes. [Paras 43, 55, 56, 59, 61]The Official Liquidator, in selling assets of the company in liquidation, is to be treated as within the definition of 'dealer' under the Act, 1963.Point of levy - first sale in the State under Section 5 and First Schedule - liability of persons managing a dealer's business (Rule 54 of the Kerala General Sales Tax Rules, 1963) - Liability to pay sales tax on the auctioned sale of company assets lies on the Official Liquidator (as manager/receiver), and the transaction is exigible to tax under Section 5(1) - HELD THAT: - Section 5(1) and the First Schedule provide for a single point levy at the point of first sale in the State by a dealer. The Court held that the company in liquidation is a dealer in respect of the assets sold and that Rule 54 contemplates recovery of tax from a person who, by court appointment, manages the business of a dealer. As the Official Liquidator acts in the place of the company and, for the purposes of realisation, occupies the position of a receiver/manager, the tax payable on the sale of the machinery is exigible under Section 5(1) and, by operation of Rule 54, is payable by the Official Liquidator. [Paras 44, 45, 55, 61, 62]Sales tax on the auction sale of the company's assets is exigible under Section 5(1) and the Official Liquidator is liable to pay that tax in the same manner as the dealer.Purchase tax under Section 5A - applicability where no tax is leviable under Section 5 - Purchase tax under Section 5A does not apply where the transaction is exigible to tax under Section 5(1); the auction purchaser is not to be held liable to pay purchase tax in the facts of this case - HELD THAT: - Section 5A applies only when no tax is payable under the relevant sub sections of Section 5. The Court concluded that the transaction at hand is exigible to tax under Section 5(1), making Section 5A inapplicable. Further, factual features (the accepted offer being inclusive of taxes and the Revenue's earlier position) supported the conclusion that the auction purchaser should not be saddled with purchase tax in this instance. [Paras 46, 63]Section 5A does not apply and the auction purchaser is not liable to pay purchase tax on the facts of this case.Final Conclusion: Appeals allowed; the impugned High Court orders are set aside. The Official Liquidator is to be treated as within the definition of 'dealer' for the sale of the company's assets and, by virtue of Section 5 read with the First Schedule and Rule 54, is liable to pay the sales tax exigible on the auctioned sale; purchase tax under Section 5A is inapplicable to these transactions and the auction purchaser is not liable to pay it in the circumstances of this case. Issues Involved:1. Whether the Official Liquidator is a 'dealer' within the meaning of the Kerala General Sales Tax Act, 1963.2. Whether the Official Liquidator is required to pay sales tax in respect of sales effected pursuant to winding up proceedings.Detailed Analysis:1. Definition and Status of 'Dealer':The primary issue was whether the Official Liquidator qualifies as a 'dealer' under Section 2(viii) of the Kerala General Sales Tax Act, 1963. The Act defines a 'dealer' as any person engaged in the business of buying, selling, supplying, or distributing goods, including various forms of transactions. The definition is broad and includes entities such as auctioneers and government bodies when they engage in such activities.The Court noted that the term 'business' under Section 2(vi) of the Act is also broadly defined, encompassing any trade, commerce, or manufacture, irrespective of profit motive. The inclusive nature of these definitions suggests that any entity involved in selling goods could be considered a 'dealer.'The Court examined precedents where the term 'dealer' had been interpreted broadly under various sales tax legislations. For instance, in Chowringhee Sales Bureau (P) Ltd. v. CIT, an auctioneer was deemed a dealer. Similarly, in State of U.P. v. Union of India, the Central Government was considered a dealer when involved in buying and selling.Given this broad interpretation, the Court concluded that the Company in liquidation, whose assets were sold by auction, qualifies as a 'dealer' under the Act, 1963.2. Tax Liability of the Official Liquidator:The next issue was whether the Official Liquidator is required to pay sales tax on sales conducted during the winding-up process. Section 5 of the Act, 1963 is the charging provision, which imposes tax liability on the sale or purchase of goods by a dealer. The First Schedule specifies that the point of levy for machinery is at the first sale in the State by a dealer liable to tax under Section 5.The Court observed that the Official Liquidator, who steps into the shoes of the company's directors during liquidation, acts as an agent of the company. Under Rule 54 of the Kerala General Sales Tax Rules, 1963, tax liability is imposed on any receiver, manager, or person managing the business on behalf of the dealer. Thus, the Official Liquidator, managing the business of the company in liquidation, would be liable for sales tax in the same manner as the company itself.The Court also considered Rule 233 of the Companies (Court) Rules, 1959, which equates the Official Liquidator to a receiver for the purpose of acquiring and retaining possession of the company's property. Therefore, the Official Liquidator, acting as a receiver, would bear the tax liability.3. Auction Purchaser's Liability:The Court addressed the auction purchaser's liability, referring to a separate order in Civil Appeal No.5048 of 2003, which held that the auction purchaser would not be liable for sales tax as the offer was inclusive of all taxes. The Special Government Pleader (Taxes) had also stated that the tax liability would be on the Official Liquidator.Conclusion:The Court concluded that the Official Liquidator is indeed a 'dealer' under the Act, 1963, and is required to pay sales tax on sales conducted during the winding-up process. The auction purchaser, having made an inclusive offer, was not liable for the sales tax. The appeals were allowed, and the impugned judgments and orders of the High Court were set aside.