Madras High Court
Vtx Industries Limited vs The Assistant Commissioner (Ct) on 27 October, 2014
Author: T.S.Sivagnanam
Bench: T.S. Sivagnanam
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 27.10.2014
CORAM:
THE HONOURABLE MR. JUSTICE T.S. SIVAGNANAM
W.P. NO. 25953 of 2014
and
M.P. Nos. 1 & 2 of 2014
VTX Industries Limited
rep. By its authorised signatory
Mr. M. Raju .. Petitioner
-vs-
The Assistant Commissioner (CT)
Fast Track Assessment Circle
Pollachi Rural Assessment Circle
Pollachi, Coimbatore. ... Respondent
Petition under Article 226 of the Constitution of India for the issuance of a Writ of Certiorari, calling for the records on the files of the respondent herein in 33122280156/2012-13 dated 27.08.2014, quash the same in so far it relates to levy of tax on a turnover of Rs.20,71,91,500/- and the corresponding penalty on the said turnover imposed under Section 27(3) of the Tamil Nadu Value Added Tax Act, 2006 and pass such further orders.
For petitioner : Mr. N.Inbarajan
For respondent : Mr. R. Jayaprathap
Govt. Advocate (Taxes)
ORDER
By consent of both parties, the writ petition is disposed of at the stage of admission itself.
2. In this Writ Petition, the petitioner seeks for issuance of a Writ of Certiorari, to quash the order of assessment dated 27.08.2014 only in respect of levy of taxes on a turnover of Rs.20,71,91,500/- and the corresponding penalty on the said turnover imposed under Section 27(3) of the Tamil Nadu Value Added Tax Act, 2006 (the TNVAT Act).
3. The petitioner is a registered dealer on the file of the respondent under the provisions of TNVAT Act. Though the impugned order of assessment deals with various issues, this Writ Petition is restricted only to the exemption claimed by the petitioner under Explanation III to sub section 41 of Section 2 of the TNVAT Act 2006, which states that, ' any amount realized by a dealer by way of sale of his business as a whole, shall not be included in the turnover.' In the impugned order, the Assessing Officer held that the condition stipulated under Section 2(41) of the Act excluding the turn over from the tax liability is that the amount should have been realized by the dealer by way of sale of his business 'as a whole' and that the petitioner/ assessee have sold only a division of their business (Windmill division) and when they have not sold their business as a whole, the receipt on account of the sale of one of the division of their business cannot be excluded from tax liability. Accordingly, the petitioner has been directed to pay tax and penalty has also been proposed to be levied.
4. An identical question came up for consideration before the Division Bench of this Court in which I was a party, in the case of Eicher Motors Limited Vs. The State of Tamil Nadu represented by the Assistant Commissioner (CT), Tax Case (Revision) No.49/13. In the said tax case, the following 3 questions of law were framed for consideration:-
" 1. Whether in the facts and circumstances of the case, the Hon'ble Sales Tax Appellate Tribunal committed an error of law in denying the claim of exemption made by the petitioners under Explanation 3 to Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959 in respect of the transfer of the Genset business, the light engineering component business and the agro engine business made by the petitioners to M/s.Greaves Limited under Business Transfer Agreement dated 15.12.1993 ?
2. Whether the Hon'ble Sales Tax Appellate Tribunal committed an error of law in applying the erroneous, legal test of requiring transfer of all businesses of an assessee as the only circumstance in which there could be exemption under Explanation 3 to Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959 ?
3. Whether the Hon'ble Sales Tax Appellate Tribunal committed an error of law in emphasizing on the retention of a small part of the assets in the course of business succession, while failing to apply the correct legal test, which was to determine whether the retention of the small part of the assets was to continue in the same line of business or was being retained so as not to burden the Transferee of the business?"
The Division Bench, while considering the said question held as follows :-
14. We agree with the above submission of learned counsel appearing for the assessee. At the outset, the view of the Sales Tax Appellate Tribunal based on the decision reported in 7 STC 740 in the case of Tools and Machineries Ltd., Vs. State of Madras, clearly shows the incorrect approach to the case on hand which is distinguishable from the reported decision. A reading of the decision reported in 7 STC 740 (cited supra) shows that what was contemplated in the decision reported in 7 STC 740 in the case of Tools and Machineries Ltd., Vs. State of Madras was sale of entire stock in trade and the assessee continued to be in business and retained certain assets of the business. In that context the decision was made holding that the sale of stock could not be taken as the sale of the entire business. On the facts, thus, projected, this Court pointed out that the sale of the entire stock-in-trade as such could not be treated as sale of business in entirety. Thus, when the assessee continued to be in business and retained business in those units, the question of exclusion of turnover relating to stock in trade does not arise.
15. In contrast to this is the decision reported in 39 STC 325 (Deputy Commissioner CT, Coimbatore Vs. K.Behanan Thomas), we find the facts therein was that the assessee sold the branch at Ooty as a whole, consequent on which the Branch itself was closed thereafterwards. Thus, on the closure of a branch by sale thereof as a running concern, this Court held that the sale proceeds in question could not be taken as a part of the turnover, consequently, the question of denying the exemption to the assessee did not arise. This Court pointed out that the sale of stock-in-trade for the purposes of closing down the business is different from the sale of the business as a whole as running concern; the sale of the business, lock, stock and barrel, was not incidental or ancillary to the carrying on of a business so as to be taxable under the Act. Thus, this Court held that the transaction in question would not fall within the scope of the Act at all, consequently, the sale proceeds would not form part of the turnover as defined under the Act. This Court further pointed out that when there was a transfer of the business as a whole or as a going concern, in both the cases, there would be transfers of certain materials. However, when it is a composite sale, the question of bifurcating certain turnover as related to the goods sold for the purposes of assessability did not arise. Pointing out to the distinction arising in the case reported in (1977) 39 S.T.C. 317 in the case of State of Tamil Nadu Vs Thermo Electrics, this Court pointed out that where the assessee retained certain assets and continued the business as a whole, the assessee could not claim the benefit of exemption under the provisions of the Act.
16. The decision reported in 39 STC 325 in the case of Deputy Commissioner (C.T.) Coimbatore Vs. K.Behanan Thomas once again came up for consideration in the decision reported in 51 STC 278 in the case of Monsanto Chemicals of India Ltd., (P) Limited Vs. The State of Tamil Nadu, wherein, this Court pointed out that where under the agreement, the assessee sold to another company certain lines of business as a whole, the question of inclusion of the consideration into turnover of the assessee as incidental or ancillary to the carrying on business did not arise. This Court pointed out that a person may carry on several lines of business and each line of business would be a unit of business by itself; if there is a sale of that unit of the business as a whole, then the assessee would not be liable to be taxed either on the general principle that there is no sale in the course of business, since closure of a line of business could not be incidental or ancillary to its carrying on or on the alternative basis of application of Rule 6(d) of Tamil Nadu General Sales Tax Rules, 1959. Thus, on facts once again, this Court held that the assessee was eligible for exemption in respect of the turnover.
17. In the decision reported in 112 STC 01 in the case of Coromandal Fertilisers Limits Vs. State of A.P., the Full Bench of the Andhra Pradesh High Court considered a similar question and once again reiterated the law laid down by this Court in the decision reported in 39 STC 325 in the case of Deputy Commissioner (C.T.) Coimbatore Vs. K.Behanan Thomas. The case dealt with by the Andhra Pradesh High Court was similar to the case on hand. The Full Bench of the Andhra Pradesh High Court pointed out that when the division of a company, which is operationally and functionally independent for all practical purposes, could not be treated as a transaction in connection with or incidental to running of another independent unit of the company, the transaction relating to the transfer of said business had to be treated as sale of the business as a whole; when there was complete cessation of the business activity in relation to one line of manufacture, then the turnover pertaining to the said line of business could not be included in the turnover of the assessee. The petitioner has raised the above contention before the Assessing Officer, while submitting his reply to the notice dated 31.12.2013 and produced the copy of the decision. However, the Assessing Officer did not consider the same. Though the Assessing Officer did not consider the case of Eicher Motors Limited, reliance was placed on the decision of this Court in the case of The Deputy Commissioner of Commercial Taxes vs. K. Behannan Thomas reported in 1977 (039) STC 325 (MADRAS). In the light of the above decision, even the transfer of one line of business of the petitioner, namely, windmill division amounts to transfer of business as a whole. The transfer of business as a whole is precisely an interpretation given by the Division Bench in the case of Eicher Motors Limited. Therefore, the observation made by the Assessing Officer to that extent, call for interference.
5. Accordingly, the Writ Petition is allowed to the extent mentioned above and the impugned order of Assessment, assessing the Wind Mill Disposal value of Rs.33,32,96,827/- at 4% alone, is set aside. In respect of other demands, it is open to the petitioner to pursue the matter before the competent authority provided under the Act. Consequently, the connected M.Ps are closed. No order as to costs.
27.10.2014 Index: Yes/No Internet : Yes/No avr T.S.SIVAGNANAM, J.
avr To The Assistant Commissioner (CT) Fast Track Assessment Circle Pollachi Rural Assessment Circle Pollachi, Coimbatore.
W.P. NO. 25953 of 2014 and M.P. Nos. 1 & 2 of 2014 27.10.2014