By TIOL News Service

NEW DELHI, JAN 16, 2015: THE issue for consideration and decision in the present appeals is whether an "Official Liquidator" is a "dealer" within the meaning of section 2 (viii) of the Kerala General Sales Tax Act, 1963, and therefore would be required to collect sales tax in respect of the sales effected by him pursuant to winding up proceedings of a company in liquidation.

Pursuant to a recommendation by the Board for Industrial and Financial Reconstruction, (" BIFR "), a Company was ordered to be wound up by an order passed by the High Court in 1998. The Official Liquidator attached to the High Court was appointed to take charge of the assets and liabilities of the Company. The Official Liquidator issued a notice inviting tenders, in respect of the sale of assets of the Company in liquidation, dated 26.11.2001. In the offer letter, it was expressly stated that the price would be inclusive of all statutory levies such as Sales Tax, Central Sales Tax, Excise Duty, etc., if any, as may be applicable.

The consistent stand taken by the Revenue is that the Official Liquidator is liable to pay sales tax on the transaction in question.

The Supreme Court considered the issues in detail.

Business is defined in the Act as:

"(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;"

Dealer is defined as:

"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, -

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The Supreme Court noted, the term "business" has been given a broad meaning by including within its ambit both incidental and ancillary transactions. Further, it has also eliminated the requirement of a profit motive as being an essential component. The definition of "dealer" has also been given a wide ambit. It includes any person carrying on business of, inter alia, buying, selling, supply or distribution of goods, whether directly or otherwise. All modes of payment whether by way of cash, commission, remuneration or other valuable consideration have been included therein. It also includes, inter alia, a casual trader, a non-resident dealer, a commission agent, a broker, an auctioneer and other mercantile agents. Sub-section (f) of the definition further expands the scope of the provision by including within its ambit, an array of transactions, which may or may not be in the course of business. Section 2(viii)(f)(1) expressly includes, within the definition of a "dealer", a person who whether in the course of business or not transfers any goods, whether in the pursuance of a contract or not, for cash or deferred payment .

Revenue has stated that a sale by the Official Liquidator, whether by auction or otherwise, is a sale by the Central Government and therefore the Official Liquidator becomes a dealer under the Act. It was further stated that although tax may be collected only by a registered dealer , the Central Government is empowered to collect tax in the manner a registered dealer is entitled to. The Revenue, in its conclusion therein, has stated that the Official Liquidator would be liable to pay tax at the relevant rate, whether he had collected the same or not.

The Supreme Court observed,

Given the exceptionally wide scope of the definition, prima facie , it can be concluded that any person or entity that carries on any activity of selling goods, could be categorized as a "dealer" under the Act, 1963. A careful reading of the definition of "dealer" under the Act, 1963, would make it evident that the legislature intended to provide for an inclusive criterion and broaden the ambit of the said classification. The legislature did not propose to restrict the scope of the term as perceived in common parlance.

The Supreme Court referred to several decisions of the Court on the definition of ‘dealer' under various Sales Tax legislations.

On a perusal of the decisions, the Supreme Court concluded that the definition of a "dealer" under the Act, 1963, would include persons, if they are involved in carrying on any business or trading activity, such as the sale of machinery as in the present case. Therefore, as a necessary sequitur, the Company in liquidation, whose assets are sold by way of an auction, would be a "dealer" under the Act, 1963 .

The Supreme Court held, “ Since the Official Liquidator is akin to an agent employed for the purpose of winding up of a company, he steps into the shoes of the Directors of the said Company for the purposes of discharging the statutory functions of an Official Liquidator. Thus, during the said proceedings, the Directors cease to exercise any functions from the date on which the Official Liquidator is appointed and all powers and functions for carrying on the business of the company thereafter vest with the official liquidator .”

Now the questions:

1. Whether the Official Liquidator herein would fall under the purview of a "dealer" as defined under the Act, 1963.

The Supreme Court observed,

In the present case, the Official Liquidator had issued a notice inviting tenders for the sale of the assets of the Company. The offer of the auction purchaser was accepted and duly confirmed by the High Court. However, the dispute herein arose in respect to determination of which party would be exigible to sales tax.

Official Liquidator is an officer of the Court and that for the purpose of discharging statutory obligations imposed under the 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 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.

2. Whether the Official Liquidator would be liable to pay sales tax in respect of sales effected by him pursuant to winding up proceedings.

Pursuant to section 5 of the Act, 1963, 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 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 Official Liquidator would be required to pay the tax payable on the sale of the assets of the company in liquidation.

Revenue Appeal Allowed.

(See 2015-TIOL-06-SC-CT)