CA Ela Gupta
Query – Transfer of goods on sale of the business as a whole by a proprietor to a company in which he is a promoter, as his contribution for capital, is a ‘sale’ under Uttar Pradesh Value Added Tax Act, 2008
Analysis
Relevant Extracts of the State Act
Section 2(ac) of the State Act defines sale as follows:
“sale” with its grammatical variations and cognate expressions, means any transfer of property in goods (otherwise than by way of a mortgage, hypothecation, charge or pledge) by one person to another, for cash or for deferred payment or for any other valuable consideration….
Section 2(aq) of the State Act defines turnover of sale as:
“turnover of sale” means the aggregate of amount of sale prices of goods, sold or supplied or distributed by way of sale by a dealer, either directly or through another, whether on his own account or on account of others;
Section 2 (h) of the State Act defines dealer as:
“dealer” means any person who carries on in Uttar Pradesh (whether regularly or otherwise) the business of buying, selling, supplying or distributing goods directly or indirectly, for cash or deferred payment or for commission, remuneration or other valuable consideration….
Extract of Rule 8 of Uttar Pradesh VAT Rules, 2008 determining taxable turnover is as follows:
“For the purposes of determining taxable turnover of sale, amounts specified below shall be deducted from the turnover of sale, determined in accordance with rule 7, if included in such turnover of sale
(iii) all amounts realized from the sale by the dealer of his business as a
whole;…”
It clear from the aforesaid provisions as well as from the scheme of the State Act that, what constitutes a “turnover” is only the aggregate amount for which goods are either bought or sold, and that the purchase or sale must be in respect of a “sale” as defined in the Act. In other words, only sales which take place in the course of trade or business are taken into account in determining the turnover under the State Act. The definition of the word “dealer” shows that every person, who buys or sells goods, is not a dealer, but only a person, who carries on the business of buying, selling, supplying or distributing goods. And the transaction must be in the course of his trade or business. Applying the above principles, it will be wrong to say that the transfer of a person’s business or stock in trade into a firm or a company, as contribution of his capital therein amounts to a sale of goods in the course of trade or business as a dealer; and such a transaction involve any sale of goods. The transferor does not part with property in the goods. He only shares his rights therein with the other members under the contract of becoming a shareholder of the Company.
Even assuming there is a sale, it is not a sale in the course of trade or business, nor is it a transaction by a “dealer” as defined in the State Act.
Conclusion
The above conclusion taken and approved by various authorities and tax experts seems logical and correct. Thus, final conclusion is as follows:
“Although, the transfer of property in goods may be considered as sale but as such the transfer is not made by a dealer in his normal proceedings of his business or trade, and thus shall not be included in the taxable turnover of the assessee. And, the sale proceeds of the stock-in-trade of business as a whole, are not, therefore, chargeable to sales tax.
By: CA Ela Gupta
Email id: [email protected]
