In a recent judgment of the Gujarat High Court, it was held that the purchaser of the Assets of a Liquidating Company cannot be charged for its Sales Tax Dues prior to the purchase. The highlights of the judgment are as follows.
In 1992, the M/s. Beclawat of India Ltd. was ordered to be wound up by an order of the Gujarat High Court. The Official Liquidator thereafter had taken over the possession of the assets and properties of the company in liquidation. Later, in 2003, the Court passed an order to appoint a sale committee for the sale of the assets and properties of the company in liquidation. The committee invited offers for the purchase of land, building and other structures, plant and machinery and other movable properties of the company in liquidation. Applicant No.2 gave his offer for the purchase of assets and properties of the company in liquidation for a total price of Rs.1,35,000,00/-. The sale was confirmed by the Court through an order passed in 2004. The said order provided a condition that the purchaser shall pay all the taxes in relation to property levied/leviable by the State Government or any local authority in relation to the company in liquidation, which means, such dues shall include all the outstanding dues.
Applicant No.2 made payment of full consideration to the Official Liquidator and he executed a conveyance deed in favor of Applicant No.1 Company and the possession of the property was transferred to him. After the execution of the deed of conveyance, the applicant No.1 applied to the Mamlatdar, Anand in the year 2008 to enter the name of applicant No.1 as the owner of the said lands pursuant to the deed of conveyance. The concerned officer of the office of Mamlatdar, Anand, rejected the claim in 2008 on the ground that there is a charge noted in favor of sales tax. It was later found that the charges were against the company in liquidation. When the Applicant No.1 came to know this, he wrote a letter to the Deputy Sales Tax Commissioner, Anandto issue no objection letter for transferring the lands in the name of applicant No.1., but he didn’t get any response. Therefore, an application was given to the office of Mamlatdar for getting the said lands transferred in the name of applicant No.1 pursuant to the deed of conveyance and that too was rejected in 2011.
The main contention of the applicants is that they are not liable to pay the sales tax dues of the company in liquidation in respect of the period prior to the date of liquidation. Their argument was that the applicants are liable to pay and bear only the taxes in respect of the lands. The past sales tax dues of the company in liquidation are not taxes in respect of the land of the company in liquidation and therefore the applicants are not liable to bear and pay the sales tax dues of the company in liquidation. They further contended that the sales tax is not a charge and does not create a charge on the lands of the person who is liable to pay the sales tax. Such dues do not create any charge on the land of the company in liquidation and the same is to be dealt with s. 530 of the Companies Act, 1956.
The respondents, on the other hand, relied upon the Condition 7 of the Court order confirming the sale. They submitted that as per the said condition, the purchaser shall have to pay all the taxes in relation to the property. She, therefore, submitted that levy of tax/Government taxes and local authorities’ taxes are required to be paid by the purchaser including the outstanding dues. As per the said conditions, the applicants have not paid the sales tax dues and therefore charge on the aforesaid lands was not removed.
The main question before the Court was to decide whether the words “the taxes in relation to property” given in the Court Order includes the sales tax liability of the company in liquidation or not. The Court affirmed the contention of the applicants and held that the aforesaid words do not include sales tax liability of the company in liquidation and it only relates to the taxes with regard to the properties of the company in liquidation. i.e. the properties which the applicants have purchased in court auction. In other words, the applicants are liable to pay all the taxes relating to the property of the company in liquidation and sales tax cannot be termed as tax in relation to the property.
Read the Judgment here.
[googleapps domain=”drive” dir=”file/d/0B3j3oXdY53gVZmh4LW5FamxKWjA/preview” query=”” width=”640″ height=”480″ /]
