A division bench of the Supreme Court comprising of Justice M.R. Shah and Justice Krishna Murari dismissed two appeals because the assessment proceedings were concluded in the year 1984 and same was reopened in the year 1988 but the recovery certificate was issued against the original assessee on 15.04.1990. Thus, at the time of transfer of immovable property of the assessee which was for value/consideration, no proceedings under the Act were pending. Thus, it was held that Section 34 of the U.P. Trade Tax Act shall not be applicable.
Facts:
Recovery proceedings were initiated against the original assessee – M/s. Shaw Scott Distillery (P) Ltd., Rampur who was in arrears of Rs. 11,28,877/¬ and Rs. 53,89,035/¬ of trade tax for the year 1980-81 and 1981¬ 82, respectively. After issuance of the recovery certificate, the plant, machinery and the goods belonging to the original assessee came to be purchased by the respondent (“purchaser”) for a total consideration of Rs. 12,12,000/-. The Assessing Officer (AO) found that the transfer of aforesaid property was affected by the original assessee at the time when the assessment proceedings were pending and the Assessing Officer found that the said transactions in favor of the purchaser were for the purpose to defraud the Revenue. Therefore, in the exercise of powers under Section 34 of the U.P. Trade Tax Act (“the Act”), the recovery certificate issued in the name of the original assessee was endorsed by the Assessing Officer treating the aforesaid transfers void to be recovered the amount from the purchaser in the same way as it had to be recovered from the original assessee. The purchaser/respondent, M/s. Rampur Distillery & Chemicals Ltd. (subsequently renamed as M/s. Radico Khaitan Ltd.), challenged the endorsement of the recovery certificate against it before the First Appellate Authority. The First Appellate Authority dismissed the appeals preferred by the purchaser. Aggrieved with the order, the purchaser challenged the same before the Trade Tax Tribunal, where the said appeals and it was held that the endorsement of recovery certificate against the purchaser is bad in law by observing that:
- no assessment proceedings/proceedings under the Act were pending when the purchaser purchased the goods, plant and machinery from the original assessee,
- the transactions of sale of goods, plant and machinery between the original assessee and the purchaser cannot be said to be with the intention of defrauding tax or any other dues, and
- the purchaser was the bona fide purchaser. Feeling aggrieved with the common judgment and order passed by the Trade Tax Tribunal, the Revenue preferred the revision applications before the High Court.
By the impugned judgments and orders, the High Court had dismissed the said revision applications.
Observations of the Court:
The endorsement to recover the amount due and payable by the original assessee against the purchaser is sought to be made in the exercise of powers under Section 34 of the Act. Section 34 of the Act shall be applicable only in a case where there is a transfer of immovable property belonging to the original assessee, during the pendency of any proceedings under the Act with the intention of defrauding any such tax or other dues. As per proviso to Section 34, nothing in Section 34 shall impair the rights of a transferee in good faith and for consideration. In the present case, the transfer of goods, plant, and machinery (which may be treated as immovable property) had taken place on 12.12.1985 and 01.01.1986 for a sale consideration of Rs. 12,12,000/. On that day, no assessment proceedings and/or any proceedings under the Act and/or recovery proceedings were pending. As observed hereinabove, the assessment proceedings were concluded in the year 1984 and the same was reopened in the year 1988. The recovery certificate was issued against the original assessee on 15.04.1990. Thus, at the time of transfer of immovable property of the assessee which was for value/consideration, no proceedings under the Act were pending, Section 34 of the Act shall not be applicable.
Under the circumstances, the endorsement against the purchaser dated 26.03.1993, which was in the exercise of powers under Section 34 of the Act has rightly been set aside by the Tribunal. At the cost of repetition, it is observed that in the facts and circumstances of the case narrated hereinabove, Section 34 of the Act shall not be applicable at all.
Decision:
Both appeals were dismissed.
Case: The Commissioner, Trade Tax, U.P. vs M/s Radico Khetan Ltd.
Citation: Civil Appeal Nos. 6396-6397 of 2009
Coram: Justice M.R. Shah and Justice Krishna Murari
Decided on: September 19th, 2022
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