Case: Periyar &amp; Pareekanni Rubbers Ltd Vs. State Of Kerala

1. Appellant is a company registered underthe Companies Act, 1956. It runs a distillery. It obtained a licence under the trade name of "Normandy Breweries and Distilleries" for manufacture of liquor under the Kerala Abkari Act (1 of 1077).2. It was registered as a dealer both under the Kerala General Sales Tax Act (the Act) as also under the Central Sales Tax Act.3. It demised the factory in favour of one "Eagle Distillery (P) Ltd." (Lessee) by a Deed of Lease dated 1st December, 1984, wherefor requisite approval was granted by the Government of Kerala on or about 27th April, 1985.4. The Sales Tax Authorities were intimated thereabout by communications dated 4th May, 1985 and 30th May, 1985.The said letters read as underMay, 1985I am writing this letter to inform you that I have leased out the Distillery unit in Cheemeni, Kasargod District to Eagle Distilleries Pvt. Ltd., having their registered office at Bangalore, Karnataka, for a period of 5 years from 1st December, 1984. The specific reason we have not renewed the registration this year, is this. We have asked Eagle Distilleries to take a new registration in their name. I am enclosing herewith a copy of the lease deed for your reference. Kindly acknowledge receipt of the same.""30th May, 1985Further to our Regd. Ack. Due letter alongwith the copy of the lease deed which you have acknowledged on 7.5.85. We wish to inform you that our Distillery unit at Cheemeni known as "Normandy Breweries & Distilleries" Cheemeni will not be in any way responsible for the tax due after the 1st December, 1984. For any tax dues after that date will have no claim over the assets and properties of Normandy Breweries & Distilleries. As these Supplies have been made by the lessees and they have collected the payments and they have only lease right on the unit subject to the lease conditions.The ‘lessee applied for registration under the said Act. The process for registration, however, got delayed. It asked the appellant to allow it to use the old registration number. By communications of diverse dates the same was allowed. It is, however, stated that permission to use the registration number of the appellant had not been renewed after 31st December, 1985.6. The ‘lessee, however, continued to file returns in its own name. It did not deposit the amount of sales tax collected by it. It furthermore appears that the requisite forms for carrying out inter trade sale and intra trade sale, namely Forms ‘C and ‘D, which at the request of the appellant had been supplied by the revenue, were continued to be used by the ‘lessee. A notice for recovery of Sales Tax for the Assessment Years 1984-85, 1986-87 and 1987-88 was served upon the appellant.7. Appellant filed a writ application questioning the legality and validity thereof. Before the High Court, however, its liability in regard to the payment of tax for the year 1984-1985 by the appellant was not pressed.8. By a judgment and order dated 12th February, 1993, a learned Single Judge of the said Court in view of the rival contentions raised therein by the appellant and the ‘lessee, as regards their respective liability, opined that the question as to who is liable for payment of tax relating to those two Assessment Years, when admittedly the business was carried out by the ‘lessee under the deed of lease, is a question which would arise for consideration before the assessing authority, when the final assessment is to be carried out. It was directedI accordingly quash Exts. P13 and P17 and the proceedings for recovery which have culminated in those proceedings. The assessing authority namely the 4th respondent is directed to complete the final assessment under the Kerala General Sales Tax Act, 1963; for the years 1986-87 and 1987-88 with notice to the first petitioner Company and to the 6thto or in furtherance of the said direction, a pre-assessment notice dated 16th November, 1993 was served both upon the appellant and the ‘lessee proposing to reject the returns and accounts as incorrect and incomplete and to finalise the assessment on the basis of the best judgment assessment as specified therein. The ‘lessee did not respond thereto. Cause was shown by the appellant. In the assessment proceeding only the appellant represented.The assessing authority passed an order of assessment holding both the appellant as also ‘the lessee jointly and severally liable for the sales tax dues both under the Act as also Central Sales Tax Act for the Assessment Years 1986-87 and 1987-88. Statutory appeals were preferred there against and by a judgment and order dated 30th January, 1995 the appellate authority allowed the said appeals in so far as the appellant was concerned and directed recovery of the dues only from ‘the lessee. The Revenue preferred second appeals before the Tribunal. The Tribunal by its order dated 20th December, 2001 allowed the appeals of the Revenue. Revision applications filed there against by the appellant before the High Court have been dismissed holdingThe question in such circumstances is as to whether the lessee can also be made liable. It is unnecessary for us to consider the same since the lessee has not questioned its liability fixed under the assessment orders dated 31.1.1984. In the above circumstances, we uphold the assessment orders as confirmed by the Appellate Tribunal for the years 1986-87 and 1987-88 both under the KGST Act and under the CST Act.28. However, since the assessments against the lessee, M/s. Eagle Distillery (P)_ Ltd. have not been questioned by it and since it has become final, considering the peculiar facts and circumstances of this case, we direct the assessing authority to proceed first against the said company for realization of the arrears of sales tax due for these two under both the enactments. After exhausting the steps against the said company, if any amounts are outstanding towards sales tax dues for the aforesaid two years, the assessing authority is entitled to proceed against the petitioner and its assets. However, petitioner is directed to furnish sufficient security for the due payment of the dues in case the said amount cannot be recovered from the lessee as directed above, to the satisfaction of the assessing authority within a period of two months from the date of receipt of a copy of this judgment."

Court's reasoning:
19. Management of business may be handed over by the owner to another but the department must be made known thereabout. A fresh registration certificate must be applied for and granted. The business by the Lessee continued under the old name. It was done at the behest of the appellant. It, therefore, cannot now turn around and contend that it was not liable to pay any tax.20. It may be true that Section 19C of the Act having come into effect from 29th August, 1989, could not be given any retrospective effect but then the legislature was not presumed to take into consideration a situation of the present nature. It is presumably for the said reason, the High Court evolved such a procedure which was acceptable to all the parties. Pursuant to or in furtherance of the direction of the High Court also, notices were issued. Appellant submitted itself to the jurisdiction of the assessing authority. Its liability was held to be joint and several with that of ‘the lessee. It preferred an appeal there against but it did not implead ‘the lessee as a party therein. In absence of ‘the lessee as a party to the said appeal, it was impermissible for the appellate authority to hold ‘the lessee alone liable for payment of tax. Even the Tribunal and the High Court could not have, in the said fact situation, issued any direction as to how the arrears of tax should be recovered.Such a procedure in this case was also followed. Such a direction has been issued, whereupon the assessment orders have been passed. We at this stage, therefore, cannot direct the authority to reopen the proceedings once again, as was urged by the learned counsel.We have noticed hereinbefore that a finding of fact has been arrived at that for all intent and purport the appellant was the agent of ‘the lessee. Furthermore, a distinction must be borne in mind between the provisions of the Income Tax Act and Sales Tax Act. Sales tax is leviable on a sale. The manufacturer of the liquor is an assessee. It is a dealer within the meaning of the said Act. For the purpose of realisation of the sales tax, one who manages the business may not come to the front. Applying the doctrine of Crown Debt the assets of the unit could be attached or sold therefor. Crown Debt, as is well known, unless there is a statutory interdict, prevails over all other debts. It is based on the principle that public interest prevail over the private individual.We have referred to the doctrine of Crown Debt not for its applicability directly but to emphasise its importance in common law. A statute, particularly a fiscal one, must be construed in such a manner so as to give effect thereto. Evasion of tax is looked down upon under our constitutional and statutory schemes.If the finding of fact arrived at by the Tribunal as affirmed by the High Court is correct, we would not take recourse to a construction which will defeat the purport and object of the Act.28. Tax liability of the business concern is not in dispute. Correctness of the orders of assessment is also not under challenge. The Tribunal or for that matter the High Court were, therefore, not concerned with the liability fastened upon the dealer. The only question was as to what extent the appellant was liable therefor. It is impossible for the legislature to envisage all situations. Recourse to statutory interpretations therefor should be done in such a manner so as to give effect to the object and purport thereof. Doctrine of purposive construction should, for the said purpose, be taken recourse to.Ordinarily, we would have accepted the contention that prior to coming into force of Section 19C of the Act, there did not exist any provision in the Act to assess two persons by fastening joint and several liability. However, the superior courts and, in particular, this Court, would not come on the way of the revenue to recover arrears of tax, if it is otherwise permissible in law.30. Apart from the finding of fact arrived at by the Tribunal, the appellant upon resumption of tenancy would become liable to pay tax, if it intends to carry on its business.31. The Act provides for the mode and manner in which the revenue may be recovered. The property of the dealer, namely, one in whose name the registration stood, can be proceeded with. Its properties may be subjected to attachment and sale.32. In that view of the matter, it is not a case where, this Court, while exercising its jurisdiction under Article 136 of the Constitution of India should interfere with the impugned judgment.33. In State of Karnataka and another vs. Shreyas Papers Pvt. Ltd. and others [(2006) 1 SCC 615] , this Court held that since there is a transfer of ownership of properties of the transferee, as noticed in terms of Section 100 of the Transfer of Property Act, the charged property may be sold.34. We may observe that in law the appellant is liable to pay the amount of sales tax assessed by the assessing authority.