Corporation Liable for Arrear Sales Tax After Business Unit Transfer

The Court held that a Corporation, after taking over and selling a business unit, was liable to pay arrear sales tax over the transferee. The Court emphasized that under the Orissa Sales Tax Act, both transferor and transferee are responsible for arrears. Additionally, the Court reaffirmed that the State's right to recover sales tax prevails over mortgagee rights, even if the mortgage existed earlier. The judgment established the Corporation's obligation to settle sales tax dues first, clarifying liability in business ownership transfers and prioritizing sales tax obligations over mortgagee rights.

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Issues:
1. Liability for arrear sales tax on transfer of ownership of business.
2. Priority of sales tax liability over mortgagee's rights.

Issue 1: Liability for arrear sales tax on transfer of ownership of business
The petitioner-Corporation advanced a loan to opposite party no.4 for establishing a rice mill. Due to non-repayment of the loan, the Corporation took over the industrial unit and sold it in a public auction. Subsequently, the Sales Tax Officer issued a notice directing the Corporation to pay the arrear sales tax liability of opposite party no.4. The petitioner contended that the liability should be on the transferee, opposite party no.5, who purchased the unit. However, the Sales Tax Department argued that based on a previous court order, the Corporation was liable to pay the arrear tax as per the Orissa Sales Tax Act. The Court analyzed the provisions under Section 19 of the Act, which state that both the transferor and transferee are liable for arrear sales tax. Referring to a previous judgment, the Court held that the Corporation, having converted the unit into money, was liable to satisfy the sales tax dues first. Therefore, the contention that the liability should be on opposite party no.4 was rejected.

Issue 2: Priority of sales tax liability over mortgagee's rights
The Court referred to a previous case where the Corporation had taken over a unit and subsequently sold it, leading to a sales tax liability. The Sales Tax Officer directed the Corporation to pay the arrear sales tax, which was challenged in court. Citing judgments from other cases, the Court upheld the principle that the State's right to recover sales tax dues has precedence over the rights of a mortgagee, even if the mortgage was earlier in time. The Court refused to interfere with the Sales Tax Officer's decision to demand payment from the Corporation. Drawing parallels with this case, where a similar situation arose due to non-repayment of a loan by opposite party no.4, the Court concluded that the Corporation was liable to pay the arrear sales tax as directed by the Sales Tax authorities. Based on the previous judgment and the actions taken by the Sales Tax Department, the Court dismissed the writ application, stating that the Corporation must satisfy the sales tax dues first, as per the law.

This judgment clarifies the liability for arrear sales tax on the transfer of business ownership and establishes the precedence of sales tax liability over mortgagee's rights in cases where a unit is taken over and sold by a corporation.

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