Official Liquidator is a dealer, liable to pay Sales tax: Supreme Court

 Dear Professional Colleague,

“Official Liquidator is a dealer, liable to pay Sales tax: Supreme Court”

We are sharing with you an important judgment of Hon’ble Supreme Court, in the case of Assistant Commissioner, Ernakulum Vs. Hindustan Urban Infrastructure Ltd And Ors [2015-TIOL-06-SC-CT] on the following issue:

Issue:

Whether Official liquidator is liable to pay Sales tax?

Facts & background:

Premier Cable Company Ltd. ("the Company") registered under the Companies Act, 1956 ("the Companies Act") was wound up by an order passed by the Hon’ble High Court and an Official Liquidator (“the OL”) attached to the High Court was appointed to take charge of the assets and liabilities of the Company and to deal with the same in terms of the Companies Act and the Rules framed thereunder.  Thus, the OL issued a notice inviting tenders, in respect of the sale of assets of the Company in liquidation with the conditions that the sale would be subject to confirmation by the Hon’ble High Court and the sale price would be inclusive of all statutory levies such as Sales tax etc., as may be applicable.

The offer of the Hindustan Urban Infrastructure Ltd. (“HUIL” or “the auction purchaser”) was accepted and duly confirmed by the High Court. Thereafter, HUIL being desirous to transport the purchased assets across the border of multiple States, requested the OL to incorporate the relevant Sales tax registration numbers in the sale invoices, to which the OL declined to accede.

Subsequently, the OL filed an affidavit before the Ld. Single Judge of the Hon’ble High Court, inter alia, stating that the OL would neither be collecting nor be paying any Cess or Sales tax in respect of the sales so affected. Further, the OL, inter alia, also seek clarification on whether the auction purchaser would be liable to pay tax on the purchase of goods, pursuant to the auction conducted and further to direct the auction purchaser to pay any tax as may be leviable by the Sales Tax Department.

The Ld. Single Judge of the Hon’ble High Court held that the sale in question cannot be treated as a sale and would not be exigible to Sales tax. Being aggrieved, the Department preferred an appeal before Ld. Division Bench of the Hon’ble High Court wherein also the Order of the Ld. Single Judge was upheld after observing that the OL would not fall within the definition of ‘dealer’ under Section 2(viii) of the Kerala General Sales Tax Act, 1963 (“the Sales Tax Act”).

Thereafter, the Department filed a Review Petition before the Hon’ble High Court wherein it was held that the OL cannot be treated as a ‘dealer’ under the Sales Tax Act and therefore not liable to pay Sales tax. It was further held that the auction purchaser is liable to pay Purchase tax under Section 5A of the Sales Tax Act.

Held:

Being aggrieved, the Department preferred an appeal before the Hon’ble Supreme Court for determining as to whether the OL would be liable to pay Sales tax in the aforesaid sale transaction. The Hon’ble Supreme Court after detailed analyses and review of various judgments held as under:

- The OL is an officer of the Court and that for the purpose of discharging statutory obligations imposed under the Companies Act, the OL merely steps into the shoes of the Company in liquidation;

- By virtue of the notice issued by the OL for inviting tenders, it is amply evident that the OL intended to conduct a transfer of the said goods in liquidation. Since the conduct of an auctioned sale involved transfer of goods, it falls within the wide ambit of Section 2(viii)(f) of the Sales Tax Act. Therefore, it can be concluded that the liability to pay Sales tax, in the present case, would be on the OL in the same manner as the dealer, that is, the Company in liquidation;

- Pursuant to Section 5 of the Sales tax Act, the Company in liquidation, as a dealer, will incur liability to pay Sales tax at the point of first sale as incurred by any other dealer under the said Act. By placing reliance upon Rule 54 of the Kerala General Sales Tax Rules, 1963, the liability to pay Sales tax is borne by the Official Liquidator as a manager or receiver of the property of the Company in liquidation. Therefore, the OL would be required to pay the tax payable on the sale of the assets of the company in liquidation.

Therefore, the Hon’ble Supreme Court allowed the appeal in favour of the Department and held that the OL is a dealer liable to pay Sales tax.

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

Thanks & Best Regards,

Bimal Jain                   

FCA, FCS, LLB, B.Com (Hons)

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