Transferee liability for pre-transfer sales tax arrears is capped by the value of assets transferred; blanket recovery notice invalid.
Recovery of pre-transfer sales tax arrears from transferees is confined to the statutory limit of the value of assets transferred under the proviso to section 27 of the Tamil Nadu General Sales Tax Act, 1959. A notice demanding the entire arrears without specifying the assets transferred or quantifying the transferees' limited liability is arbitrary and contrary to that proviso. The consequential rejection of the revision petition, based on such an invalid notice, cannot stand. The notice and the consequential order were quashed, while leaving liberty to issue a fresh notice in accordance with law.
Issues: Whether the recovery notice fastening the entire tax arrears of the erstwhile proprietary concern on the partners who had taken over the business was valid without specifying the extent of liability limited by the value of assets transferred, and whether the rejection of the revision petition under section 33 was sustainable.
Analysis: The business of the proprietary concern was transferred to the newly constituted partnership concern, and the transferee partners became liable only to the extent contemplated by the proviso to section 27 of the Tamil Nadu General Sales Tax Act, 1959. The proviso expressly restricts recovery from the transferee for arrears due prior to the transfer to the value of the assets obtained by transfer. The impugned notice did not particularize the value of the assets transferred or quantify the extent of liability and instead demanded payment of the entire arrears. In these circumstances, the notice was held to be arbitrary and contrary to the proviso to section 27. The rejection of the revision petition, which flowed from the impugned notice, also could not stand.
Conclusion: The recovery notice and the consequential order rejecting the revision petition were quashed. The petitioners were held liable only to the extent of the assets transferred to the partnership firm.
Final Conclusion: The writ petitions were allowed, while preserving the respondents' liberty to issue a fresh notice and proceed in accordance with law to recover only the liability limited by the value of assets transferred.
Ratio Decidendi: Where business ownership is transferred, recovery of pre-transfer sales tax arrears from the transferee is permissible only within the statutory limit of the value of assets transferred, and a notice that fails to specify that extent is invalid.
TaxTMI 
AI Drafter ✕
TaxTMI 
