Sreemati Vasant Tanna and Another vs The State of Bihar and Others

Sarwar Ali, J.—In this writ application the petitioners pray for quashing of annexures 1 and 2 series. Annexure 1 is the copy of an order of the Assistant Superintendent of Commercial Taxes, Jamshedpur, rejecting the application of the petitioners filed on 5th January, 1970, wherein the notices issued u/s 21 of the Bihar Sales Tax Act, 1959 (hereinafter referred to as the "Act"), were held to be legal and valid as the petitioners were transferees of the business of Indian Oil Agencies (hereinafter referred to as the "Oil Agencies"), as contemplated u/s 24 of the Act. Annexure 2 series are notices u/s 21 of the Act issued to various parties.

According to the case of the petitioners, Messrs. Bharat Gas and Oil Distributors (hereinafter referred to as the "Bharat Gas") are a partnership business carried on by petitioners Nos. 1 and 2. The partnership was entered into on 14th January, 1969. Prior to that date, the Oil Agencies were carrying on business in various commodities, including the sale of Indane gas as agents of the Indian Oil Corporation (hereinafter referred to as the "corporation"). Both these firms were registered under the Act. The Oil Agencies were assessed to sales tax for the years 1966-67, 1967-68 and 1968-69. The petitioners aver that, on 14th January, 1969, the local office of the corporation took steps for termination of the contract of the said corporation for the supply of Indane gas to the Oil Agencies and gave the agency to the firm of the petitioners, namely, Bharat Gas. Indane gas was thereafter supplied by the corporation to the firm of the petitioners from January, 1969, in place of the supply that was being made to the Oil Agencies. It has been explained in the writ petition that, since fresh appointment of agency and contract was likely to take time, indents were being made in the name of the Oil Agencies, although the actual supply was being made to Bharat Gas. The petitioners thus claim to be carrying on only a part of the business that was being carried on by the Oil Agencies.

It appears that, since considerable arrears were due to the sales tax department from the Oil Agencies, the sales tax authorities, treating the petitioners to be the transferees of the entire business of the Oil Agencies, issued notices u/s 21 of the Act to various parties. The notices, after stating that certain sum of money was payable under the Act by the Bharat Gas, stated that action was being taken u/s 21. A few lines from the notices will make it clear that the Bharat Gas were being treated, within the meaning of Section 24 of the Act, as transferees from the Oil Agencies. They are as follows :

Whereas a sum of...is payable by Bharat Gas and Oil Distributors, Bistupur (dealer) of...who has failed to make payment of such amount and on account of S. T. dues against M/s. Indian Oil Agency, Bistupur....

Copies of such notices were sent to Bharat Gas, the memo portion stating "Copy to...for information since you are treated as transferee of M/s. Indian Oil Agency, Bistupur.

The petitioners, having thus come to know of the action taken by the sales tax authorities, filed an application on 5th January, 1970, u/s 32 of the Act, for review of the order. The Assistant Superintendent of Commercial Taxes, Jamshedpur, after hearing the petitioners, passed the order contained in annexure 1, which is under challenge in this writ application. After the disposal of their application aforesaid, by order dated 13th March, 1970, the petitioners filed an application in revision, which was dismissed as time-barred. The petitioners have then moved this court on 1st July, 1970, for quashing the order and the notices (annexures 1 and 2 series) mentioned above.

Show cause has been filed on behalf of respondents Nos. 1 and 2, namely, the State of Bihar and the Assistant Superintendent of Commercial Taxes, Jamshedpur. The show cause justifies the stand taken by respondent No. 2 and, as a further support to the conclusion arrived at in that order, certain documents, which were not available at the time of passing of the order contained in annexure 1, have also been annexed. The stand of the respondents is that the order passed is legal and valid. It has also been stated that the petitioners had an alternative legal remedy which they have not availed of, and, as such, this court should not interfere with the impugned annexures.

Various contentions have been raised on behalf of the petitioners ; but I propose to notice only one of them, because, in my view, the petition is fit to be allowed on the first ground urged on behalf of the petitioners.

It has been contended that Section 24 of the Act is applicable only where the entire business of a dealer has been transferred; it is not applicable where there is a transfer of only a part of the business. It was contended that in this case there was transfer of only a part of the business, namely, the business carried on in the sale of Indane gas, and thus Section 24 of the Act was not applicable to the facts and the circumstances of the case. The sales tax authorities were, therefore, not right in treating the petitioners to be transferees u/s 24. It was contended on behalf of the contesting respondents that Section 24 is applicable even in cases where there is transfer of only a part of the business. In my view, the contention of the respondents is not correct. Section 24 may be read. It is as follows:

Liability to pay tax in case of transfer of business.-(1) When the ownership of the business of a dealer liable to pay tax under this Act is entirely transferred the transferor and the transferee shall jointly and severally be liable to pay any tax and penalty, if any, payable in respect of such business and remaining unpaid at the time of the transfer and the transferee shall also be liable to pay on sales or purchases made by the transferee on and from the date of such transfer, and shall within thirty days of the transfer apply for the grant of a registration certificate, unless such certificate is already possessed by him.

(2) Subject to the provisions of Section 4, where a dealer liable to pay tax under this Act transfers the ownership of a part of his business, the transferor shall be liable to pay tax in respect of the stock of goods transferred with that part of the business.

The expression used in Sub-section (1) is "when the ownership of the business...is entirely transferred". Giving the expression a natural meaning, I am of the view that it contemplates the transfer of the entire business, and not of a part of the business. This will be further clear if a reference is made to Sub-section (2) which has already been quoted. Sub-section (2) deals with a situation where a part of the business is transferred. It states that the transferor, in that situation, will be liable to pay tax in respect of the transfer of that part of the business. Reading the two together, it is clear that Sub-section (2) is dealing with transfer of a part of the business whereas Sub-section (I) is dealing with the transfer of the entire business.

Similar provisions are there in some other States'' Acts also. I find that in Section 33(1) of the Madhya Pradesh General Sales Tax Act the expression used is "when the ownership of the business of a dealer liable to pay tax is entirely transferred..." In the case of Bajranglal Bajaj Vs. The State of Madhya Pradesh and Others, , although there is no detailed discussion about the meaning of the expression quoted above, this case indicates that it was accepted that the section is applicable only where the ownership of the business of a dealer was entirely transferred. I also find that in Bombay, the provision in the Act of 1953 was similar to the provision in our Act. In that Act, the language used in Section 26(1) was "where the ownership of the business of a dealer liable to pay tax is entirely transferred..." I also find that the corresponding section in the Bombay Sales Tax Act, 1959, was in an amended form and the section now deals with a situation where there is transfer of the business not only in whole, but also in part. This is clear from the first two lines of Section 19(4) of the Bombay Sales Tax Act, 1959, which are "where a dealer, liable to pay tax under this Act, transfers or otherwise disposes of his business in whole or in part, or effects any change in the ownership thereof...." It would thus be clear that where the legislature wanted to bring the transfer of a part of the business also within the same kind of special liability of the transferee, suitable changes have been made. Section 26(1) of the Bombay Sales Tax Act, 1953, came up for consideration in Bherulal Maniklal Kothari Vs. The State of Bombay, . Although the question for consideration in that case was different from what is being considered just now, the following observations in the judgment would indicate that Section 26(1) of that Act was accepted as applicable to a case where there was transfer of the entire business. It is clear from the following observations :

The answer to the question referred to us, in our opinion, would turn on the determination of the question whether transfer of a good-will of a business along with the right to use certain unregistered trade marks in the business would by itself tantamount to transfer of the entire business.

(The underlining is mine.)

I would, however, like to make it clear that I am not expressing any opinion as to what constitutes transfer of the entire business-whether it is sufficient if there is substantial identity in the nature and extent of the activities which were being carried on by the transferor or the transferee, or whether it would be necessary that the business of the transferor should substantially cease to exist. In the light of this discussion it would be clear that, in order to sustain the impugned order, it is necessary that there should be a specific finding that the entire business of the Oil Agencies was transferred to the Bharat Gas. As I read the order, I do not find any specific finding on that point--may be because the correct legal position in respect of the import of Section 24 was not fully appreciated-and, as such, the consideration in this case has not been from that point of view. In the instant case, therefore, it would be necessary to quash the impugned order and to direct that the matter should be reheard in the light of the clarification and enunciation of law as noticed above.

It was contended on behalf of the contesting respondents that we should not interfere with the impugned order as the petitioners had a right of appeal as also a right of revision after going in appeal, and they have not availed of the same. It is true that, as held by this court in Sri Hurdatroy Jute Mills Private Ltd. and Others Vs. Superintendent of Commercial Taxes and Others, , even an asses-see or a person, who is said to have liability to pay tax, is entitled to move the authorities u/s 21 of the Act for amendment or revocation of the order passed under that section. The position in law was not clear till the decision aforesaid was given. That decision was given on 27th January, 1970, and has been printed in the Sales Tax Cases much later, certainly not only after the filing of the petition by the petitioners in this case before the sales tax authorities, but even after the impugned order (annexure 1). In those circumstances, when the law had not crystallised, the petitioners could not be blamed for thinking that they had no right or remedy by way of appeal. In those circumstances and in view of the discussions made above, I think that the petitioners should not be prevented from getting relief in exercise of the powers of this court under Article 226 of the Constitution.

The learned counsel for Indian Tube Company (respondent No. 14) and the learned counsel for respondent No. 9 (TISCO) contended that they have been unnecessarily made parties to the writ application and they should, in any event, be awarded costs in this case. Having appreciated the facts and the circumstances of this case, it is not possible to accede to their contention.

In the result, this writ application is allowed in part and the order contained in annexure 1 is quashed. The sales tax authorities will now proceed to treat the objection filed on 5th January, 1970, as an objection u/s 21(2) of the Act, and, after hearing the parties and permitting them to adduce such further materials as they may be advised, and, on consideration of such further materials as may be available, appropriate order should be passed u/s 21 (2) in accordance with law. Thereafter, if the petitioners are aggrieved, they may pursue the ordinary remedies provided in the Act. There will be no order as to costs.

Nagendra Prasad Singh, J.

I agree.