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Assistant Commissioner (Assessment), Ernakulam v. Hindustan Urban Infrastructure Ltd. & Ors.

Civil Appeal · Neutral citation not assigned (Civil Appeal Nos. 354-355 of 2015)Decided 13 Jan 2015
Civil Appeal Nos. 354-355 of 2015
Chief Justice H.L. Dattu · Justice S.A. Bobde

Background

A company (Premier Cable Company Ltd.) was ordered wound up, and its Official Liquidator auctioned off its assets, including land, buildings, and machinery, to the respondent-purchaser for about Rs. 5.76 crore inclusive of all taxes. A dispute arose over whether the Official Liquidator was a "dealer" under the Kerala General Sales Tax Act, 1963 and therefore liable to collect/pay sales tax on that sale; a Single Judge and a Division Bench of the Kerala High Court initially held the Liquidator was not a dealer, and on review the High Court further held that it was instead the auction purchaser who was liable to pay purchase tax under Section 5A of the Act. The tax department appealed to the Supreme Court, while the auction purchaser's own separate appeal on the purchase-tax question had already been decided in its favour by the Court in an earlier, related order.

Decision Breakdown

The Supreme Court held that an Official Liquidator, although an officer of the court, effectively steps into the shoes of the company in liquidation when selling its assets, and that such a sale amounts to a "transfer of goods" falling within the broad definition of "dealer" under Section 2(viii)(f) of the Act. Relying on English precedent (Re Mesco Properties) and Rule 54 of the Kerala Sales Tax Rules (which makes a receiver/manager handling a dealer's business liable for sales tax in the same way as the dealer), the Court concluded that the Official Liquidator, standing in for the company, which was itself a "dealer", was liable to pay the sales tax on the auction sale. Since the auction purchaser's offer was already inclusive of all taxes and the Revenue's own counsel had confirmed before the High Court that the Liquidator bore this liability, the Court allowed the appeals and set aside the High Court's judgments holding otherwise, while noting the auction purchaser itself had already been held not liable to pay sales tax in a connected order.

Lesson Learnt

When a court-appointed Official Liquidator sells a company's assets in a winding-up, the liquidator, not the buyer, is generally the one responsible for sales tax on that sale, because the liquidator legally steps into the company's shoes as the "dealer" for that transaction.

Official source (sci.gov.in)View Judgment (PDF)

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