R.K Rengaraj, Advocate,
Introduction: Yes official liquidator is a dealer. In the case of Assistant Commissioner Vs Hindustan Urban Infrastructure Ltd (Dated: January 13, 2015) 2015-TIOL-06-SC-CT in the Supreme Court it has been held that the official liquidator is an officer of the Court and that for the purpose of discharging statutory obligations imposed under the Companies Act, 1956, the Official Liquidator merely steps into the shoes of the company in liquidation. By virtue of the notice issued by the Official Liquidator for inviting tenders, dated 26.11.2001, it is amply evident that the liquidator 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 Kerala General Sales Tax Act, 1963. Therefore, it can be concluded that the liability to pay sales tax, in the present case, would be on the Official Liquidator in the same manner as the dealer, that is, the Company in liquidation.
Relevant legal provisions:
Section 2 of the Kerala General Sales Tax Act, 1963 provides for the meaning of certain expressions in the said Act. Section 2(vi) defines “business” as follows:
“(vi) “Business” includes: –
(a) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce, or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and
(b) any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adventure or concern;”
Section 2(viii) of the Act, 1963 deals with the definition of the term ‘dealer’ as under:
“(viii) “Dealer” means any person who carries on the business of buying, selling, supplying or distributing goods, executing works contract, transferring the right to use any goods or supplying by way of or as part of any service, any goods directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration and includes, –
(b) a casual trader;
(c) x x x x
(d) x x x x
(e) x x x x
(f) a person who whether in the course of business or not:
(1) transfers any goods, including controlled goods whether in pursuance of a contract or not, for cash or deferred payment or other valuable consideration;
(2) transfers property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(3) delivers any goods on hire-purchase or any system of payment by installments;
(4) transfers the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(5) supplies, by way of or as part of any service or in any other manner whatsoever, goods, being food or any other articles for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration;
Explanation:- (1) A society including a cooperative society, club or firm or an association or body of persons, whether incorporated or not) which whether or not in the course of business, buys, sells, supplies or distributes goods from or to its members for cash or for deferred payment, or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act;
Explanation: – (2) The Central Government or a State Government, which whether or not in the course of business, buy, sell, supply or distribute goods, directly or otherwise, for cash or for deferred payment, or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act.
(g) a bank or a financing institution, which, whether in the course of its business or not, sells any gold or other valuable article pledged with it to secure any loan, for the realisation of such loan amount.
Explanation I: – Bank for the purposes of this clause includes a Nationalized Bank or a Schedule Bank or a Co-operative Bank;
Explanation II: – Financing Institution means a financing institution other than a bank;”
The issues that arise for the consideration in the present appeals are firstly, whether the Official Liquidator is a “dealer” within the meaning of the Kerala General Sales Tax Act, 1963, and secondly, whether the Official Liquidator would be required to pay sales tax in respect of sales effected pursuant to a winding up proceedings.
M/s. Premier Cable Company Ltd. (for short, “the Company”), was registered under the Companies Act, 1956 (for short, “the Act, 1956”), and engaged in the manufacturing of PVC power cables, Aluminium conductors, enameled wires, etc. Pursuant to a recommendation by the Board for Industrial and Financial Reconstruction, (for short, “BIFR”), the Company was ordered to be wound up by an order passed by the High Court in C.P. No.2 of 1996, dated 18.06.1998. The Notice inviting tenders issued by the Official Liquidator, offered to purchase Lot Nos.1-2 for a total amount of Rs.5,76,00,000/. For the sales through Tender and for the movement through various states, the official liquidator refused to take any sales tax Registration Certificate and thus the issue was before the Hon’ble Supreme Court finally.
When the question raised for consideration is whether the Bank is covered by definition of “dealer” under Section 2(12) of the Orissa Value Added Tax Act, 2004 (OVAT Act) and liable to value added tax on sale of pledged assets effected by it for recovery of loan. W.P.(C) No. 313 of 2014 HIGH COURT OF ORISSA : CUTTACK State Bank of India, Stressed Assets Management Vs State of Odisha represented Through Principal Secretary, it was held that Bank covered by definition of “dealer’ under Orissa VAT Act.
In view of judgment in the case of M/s. Indusind Bank Ltd., learned Commissioner of Sales Tax rightly held the transaction of auction sale effected by the bank to be taxable for levy of Value Added Tax. Judgment in Port Trust case is distinguishable.
In said decision, Reliance has been placed on the following decisions.
(i) 107 STC 204(SC) State of Orissa vs. Orissa Road Transport Co. Ltd.
(ii) (2007)4 SCC 188 (Federal Bank Ltd. & ors. vs.State of Kerala & ors.
(iii) W.P.T.T. No. 6 of 2011 (Tata Motors Finance Ltd. vs. Asst. Commissioner of Sales Tax, Central Section, Investigation Wing, Kolkata) decided on 8.10.2013 (Cal. H.C.)
Extending the loan facility for financing the purchase of vehicles, plant and machines and recovering outstanding loan dues is part of business of the bank and, thus, auction sale conducted was also part of the said business. The bank thus covered by definition of ‘dealer’ under Section 2(12) of the OVAT Act, which also covered ‘casual dealer’ as defined under Section 2(9). The expression ‘business’ under Section 2(7) included the transactions incidental to the trade, commerce or manufacture irrespective of the profit motive. Under Section 9, tax is leviable on the sale or purchase of goods by a dealer liable to pay tax. Under Section 11(1), levy of tax is on a dealer who sells the goods, on his taxable turnover of sale.
Unless the sale is in the course of business of a person, the seller is not covered by the definition of ‘dealer’. In support of this submission, reliance has been placed on the judgment of Hon’ble the Supreme Court in State of Tamil Nadu & Anr. Vs. Board of Trustees of the Port of Madras, (1999) 4 SCC 630, wherein, definition of ‘dealer’ under Section 2(g) of the Tamil Nadu General Sales Tax Act, 1959 was interpreted in the context of sale of unclaimed and unserviceable goods by the Madras Port Trust constituted under the Major Port Trust Act, 1905. Referring to the scheme of Port Trust Act, the Hon’ble Supreme Court observed that Port Trust was not constituted to carry on business of sale of goods. The sale of goods was incidental to the ‘non business’ activity of the Port Trust. Since the main activity of the Port Trust was not business, its incidental activity also did not amount to business, unless the Revenue could establish an independent intention by showing the volume of such business to be large enough in comparison to the main activity. Learned counsel submits that situation of sale transaction by the Bank was at pat with the Port Trust and in respect of such sale, the Bank was not a dealer. The view was taken by this court in Indus Bank was contrary to above decision of Hon’ble Supreme Court and required reconsideration.
In Federal Bank, the question considered by the Court was whether the bank was a ‘dealer’ in relation to auction sales as per Section 2(viii) of the Kerala General Sales Tax Act, 1963. While considering the said issue, the nature of activity of the bank was considered with reference to the provisions of the Banking Regulation Act, 1949 and it was observed as follows:
“ ….The first question which, therefore, arises is: whether sale of pledged ornaments for consideration falls in the course of trade or business of the bank. It is no doubt true that banks have to act on instructions of the borrower. In the present case, we are not concerned with the provisions of Section 176 of the Contract Act, 1872. We are concerned with the definition of the word “sale” under the 1963 Act. When a bank sells the pledged ornaments it is not acting as an agent of the borrower even under the 1949 Act. When the bank borrower even under the 1949 Act. When the bank sells the goods pledged with them they do not act as the agents of the borrower. As pledges, the banks, acting under Section 176 of the Contract Act, 1872 have a right to sell the goods. That sale is not as agents but that sale is in exercise of the statutory power under the 1949 Act. No doubt the sale is on behalf of the pledgor, however, the sale is in exercise of the statutory power (see: Dy. CCT v. A.R.S. Thirumeninatha Nadar Firm, (1968)21 STC 184 (Mad). To the same effect is the judgment of the Punjab and Haryana High Court in High Channel Video v. Enclave Electronics, (1999)116 STC 131 (P&H). Further, on reading the provisions of the 1949 Act, one finds that every bank is required to maintain its balance sheet in Form ‘A’ of the Third Schedule, quoted above. The prescribed form indicates that non-banking assets acquired by the banks even in satisfaction of claims are required to declare their holdings. The prescribed form of balance sheet indicates that banks are required to show on the asset side non-banking assets acquired by them in satisfaction of claims. Similarly, in Form ‘B’ of the Third Schedule under profit and loss account, banks are required to show income from non-banking assets and profit from sale of such assets. In our view, therefore, sale of pledged assets takes place in the course of banking business. Therefore, as stated above, the banks, in selling the goods pledged to them, did not act as agents of the borrowers/pledgors and that their sale was in exercise of statutory power under the 1949 Act.”
In view of the various decisions as “dealer” in the respective state sales tax act or VAT Act, the Apex Court has held that
“The functions of the liquidator are thus similar to those of a trustee (formerly official assignee) in bankruptcy or an executor in the administration of an estate of a deceased person. There is, however, this difference: that whereas the legal title in the property of the bankrupt vests in the trustee and the legal title to property of the deceased vests in the executor, a winding-up order does not of itself divest the company of the legal title to any of its assets. Though this is not expressly stated in the Act it is implicit in the language used throughout Part V, particularly in sections 243 to 246 which relate to the powers of liquidators and refer to ‘property … to which the company is… entitled,’ to ‘property… belonging to the company,’ to ‘assets… of the company’ and to acts to be done by the liquidator ‘in the name and on behalf of the company.”
By virtue of the notice issued by the Official Liquidator for inviting tenders, dated 26.11.2001, it is amply evident that the liquidator 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 Kerala General Sales Tax Act, 1963.
In light of the aforesaid, it is concluded that an Official Liquidator- (i) derives its authority from the provisions of the Act, 1956; (ii) acts on behalf of the company in liquidation for the purposes prescribed by the Act, 1956; (iii) is appointed by and is under the control and supervision of the Court while discharging his duties.
The Official Liquidator therefore would be required to pay the tax payable on the sale of the assets of the company in liquidation.
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