2024 (6) TMI 489 - HC - VAT and Sales Tax

Slump sale under Business Transfer Agreement not taxable under MVAT Act, authority exceeded Section 25 jurisdiction

Piramal Enterprises Limited Versus The State of Maharashtra, The Joint Commissioner of State Tax, LTU Mumbai.

Bombay HC held that slump sale under Business Transfer Agreement (BTA) does not constitute sale of goods under MVAT Act and is not taxable. The reviewing ... Slump sale - sale or not - taxability. Whether the slump sale under the BTA would amount to sale of goods within the purview of the MVAT Act so as to be taxed, as held by the impugned order? - Whether the Reviewing Authority was within its jurisdiction under Section 25 of the MVAT Act to vivisect the BTA? - Whether the impugned order would stand vitiated or rendered illegal when tested on the provisions of law and the grounds as raised by the petitioner? HELD THAT:- The jurisdictional facts for the levy of VAT were certainly not satisfied in the review authority passing the impugned order. Thus, the reviewing authority has acted in excess of jurisdiction in exercising its powers under Section 25 of the MVAT Act in vivisecting the BTA. It is also clear to us that as per se slump sale under the BTA would not amount to sale of goods within the meaning of the MVAT Act, the reviewing authority could not have dissected or attempted to reconstruction of the BTA in the manner as done in the impugned order. When the reviewing authority intended to confine itself to the value assigned to the intangible assets as contained in Schedule 3.3 read with Section 3.3 and Section 2.5, the same has been borrowed / copied from the service tax demand notice in ad-verbatim manner. This is clear from the comparative extracts of the service tax demand notice and the extract of the impugned order and more particularly from perusal of paragraphs 13 to 26 and 30 to 31 of the impugned order when examined against paragraph 4, 5.1 to 5.4, 6.1 and 10 of the Service Tax demand notice, where the impugned order has clearly copied and pasted the findings and reasoning as contained in the service tax demand notice issued to the petitioner in regard to BTA. The amounts qua each of such intangible items as specified in Schedule 3.3 certainly could not have been regarded as the itemized amounts of sale price received by the petitioner on sale of goods, as would be understood in the usual course of business, much less considering that it is the sale of business in its entirety as comprehended under the BTA. For such reason, it was completely a flawed approach on the part of the reviewing authority to tax such part of the BTA considering the same to be petitioner’s sales/turnover of sales, for the financial year 2010-11 qua the amounts of the intangible assets as set out in schedule 3.3 of the BTA. Thus, in the context of the BTA, the reviewing authority could not have regarded such intangible items to be in any manner “sale of goods”, so as to fall within the petitioner's turnover of sales. We may also observe that merely for the reason that schedule ‘C’ of the MVAT Act under item 39 provides for “goods of intangible or incorporeal nature” that would not mean that de hors the context the BTA intended to achieve, the reviewing authority could not have arbitrarily singled out and/or picked up Schedule 3.3 and tax the items in question as contained therein to be the petitioner’s turnover of sales for the said financial year. It would not be permissible for the reviewing authority to disintegrate the BTA and to attribute a different effect to the BTA which was far from realistic and in fact destructive of the BTA. Thus, in the facts of the present case slump sale under the BTA would not amount to sale of goods within the purview of the MVAT Act, attracting any tax in the manner as held in the impugned order - the impugned order is illegal and cannot be sustained, it is accordingly required to be set aside. Petition allowed. Issues Involved:1. Whether the slump sale under the Business Transfer Agreement (BTA) would amount to the sale of goods within the purview of the Maharashtra Value Added Tax Act (MVAT Act) so as to be taxed.2. Whether the Reviewing Authority was within its jurisdiction under Section 25 of the MVAT Act to vivisect the BTA.3. Whether the impugned order would stand vitiated or rendered illegal when tested on the provisions of law and the grounds raised by the petitioner.Summary:Issue 1: Slump Sale and Sale of GoodsThe primary question was whether the sale of the petitioner's 'Base Domestic Formulation Business' as a 'going concern' (slump sale) under the BTA could be taxed under the MVAT Act. The Court held that the slump sale under the BTA would not amount to the sale of goods within the purview of the MVAT Act. The BTA was a transfer of the entire business as a going concern, and the allocation of values to individual assets for stamp duty purposes did not change the nature of the transaction. The Court noted that the intention of the parties was to transfer the business as a whole, and the itemized values provided in Schedule 3.3 of the BTA were solely for stamp duty purposes.Issue 2: Jurisdiction of the Reviewing AuthorityThe Reviewing Authority acted in excess of jurisdiction by vivisecting the BTA and attributing different meanings to its clauses. The authority attempted to tax intangible assets like intellectual property rights separately, which was not permissible. The Court observed that the authority's approach was flawed and amounted to a misreading of the BTA. The reviewing authority's jurisdiction under Section 25 of the MVAT Act was limited to examining whether any turnover of sales or purchases had not been brought to tax or had been incorrectly classified, and it could not extend to reinterpreting the BTA in a manner contrary to the parties' intention.Issue 3: Legality of the Impugned OrderThe impugned order was held to be vitiated and illegal on several grounds. The Court found that the Reviewing Authority had not applied its mind and had copied verbatim from a service tax demand notice, which was not relevant to the MVAT Act. The principles of natural justice were breached as the petitioner was not given a proper opportunity to respond to the actual basis of the review. The impugned order was also passed in excess of jurisdiction, as the reviewing authority attempted to tax the transaction in a manner not supported by the BTA or the MVAT Act.Conclusion:The Court quashed the impugned order and the consequent demand notice, holding them to be illegal. The petition was allowed, and the Court issued a writ of certiorari to set aside the impugned order and notice.