Case: Asst. Commnr.(Assessment), Ernakulam Vs. Hindustan Urban InfrastructureLimited and others

5. To appreciate the issues involved, it would be necessary to notice the facts leading up to the present appeals. M/s. Premier Cable Company Ltd. (for short, "the Company"), was registered under the Companies Act, 1956 (for short, "the Act, 1956"), and engaged in the manufacturing of PVC power cables, Aluminium conductors, enameled wires, etc. Pursuant to a recommendation by the Board for Industrial and Financial Reconstruction, (for short, "BIFR"), the Company was ordered to be wound up by an order passed by the High Court in C.P. No.2 of 1996, dated 18.06.1998. Respondent No.2, that is, the Official Liquidator attached to the High Court was appointed to take charge of the assets and liabilities of the Company and to deal with the same in accordance with the provisions of the Act, 1956 and the Rules framed thereunder.6. Pursuant to the aforesaid order, the Official Liquidator issued a notice inviting tenders, in respect of the sale of assets of the Company in liquidation, dated 26.11.2001. The aforesaid assets included land with factory building, workshop building, canteen building, godowns, quarters and other auxiliary buildings and also plant and machinery of the company in liquidation. The Terms and Conditions of the sale of the assets of the Company expressly provided, inter alia, that such sale would be subject to confirmation by the High Court and further subject to any subsequent terms and conditions as may be imposed by the High Court.7. Respondent No.1-auction purchaser, in response to the notice inviting tenders issued by the Official Liquidator, offered to purchase Lot Nos.1-2 for a total amount of Rs.5,76,00,000/- (Rupees Five Crore Seventy Six Lakh only), by an offer letter dated 18.12.2001. It was expressly stated therein that the said amount would be inclusive of all statutory levies such as Sales Tax, Central Sales Tax, Excise Duty, etc., if any, as may be applicable. After accepting the offer so made, the Official Liquidator had placed the same before the learned Judge dealing with the company matters for its confirmation.8. Subsequent to the confirmation of the said sale, the auction purchaser, being desirous to transport the purchased assets across the border of multiple States, had requested the Official Liquidator to incorporate the relevant sales tax registration numbers in the sale invoices, vide letter dated 29.08.2002. By letter dated 03.09.2002, the Official Liquidator had declined to accede to the request so made.9. Subsequently, the Official Liquidator filed an affidavit before the learned Single Judge of the High Court, inter alia, stating that the Official Liquidator would neither be collecting nor be paying any cess or sales tax in respect of the sale effected by the respondent No.2. It was stated that, in the opinion of the Official Liquidator, the auction purchaser should be directed by the High Court to meet any expenses or liability towards payment of cess, sales tax, etc., if and when the same becomes payable.10. An application was also filed by the Official Liquidator, in the Company Petition before the learned Singe Judge, inter alia, seeking clarification on certain aspects of the matter including whether the auction purchaser would be liable to pay tax on the purchase of goods, pursuant to the auction conducted and further to direct the auction purchaser to pay any tax as may be leviable by the Sales Tax Department. The learned Single Judge after considering the prayers made in the application has passed an order, in C.A. No.293 of 2002 and C.A. No.333 of 2002 in C.P. No.2 of 1996, dated 30.10.2002, wherein it was held that the sale in question cannot be treated as a sale by the Central Government or by a registered dealer entitled to collect tax and further has observed that the auction purchaser cannot be treated as a dealer under the Act, 1963 and further that the said sale in question would not be exigible to sales tax.11. The Appellant, aggrieved by the order of the learned Single Judge, filed an appeal against the order dated 30.10.2002, inter alia, contending that the Official Liquidator would be bound to pay sales tax as and when a sale of the assets of the company in liquidation would be effected by him. The Division Bench of the High Court by an order passed in M.F.A. No.1394 of 2002, observed that the "Official Liquidator" would not fall within the definition of "dealer" under the Act, 1963, dated 11.02.2003. Accordingly the appeal was dismissed and the order of the learned Single Judge was confirmed.12. Aggrieved by the aforesaid order dated 11.02.2003, the appellant filed Review Petition No.191 of 2003 before the High Court. In the Review Petition, a new plea was advanced by the appellant claiming that even if the Official Liquidator did not fall within the definition of dealer under the Act, 1963, section 5A of the said Act would be attracted insofar as the auction purchaser is concerned.13. By the impugned judgment(s) and order(s) passed in Review Petition No.191 of 2003, dated 21.03.2003, the High Court held that the Official Liquidator cannot be treated as a dealer under the Act, 1963, and therefore it is not exigible for payment of sales tax. However, the Court was of the view that the auction purchaser is liable to pay purchase tax under section 5A of the Act, 1963.

Court's reasoning:
55. Having determined the status of an Official Liquidator under the Act, 1963, it would now be appropriate for this Court to look into the nature of liability, if any, imposed on the Official Liquidator for the purposes of taxation. For this purpose, we require to consider Rule 54 of the Rules, 1963 which imposes liability, inter alia, on a receiver or manager or other person appointed by an order of the court, in the event that a business owned by a dealer, is under the control of the said receiver or manager or person, whatever be his designation, who in fact manages the business on behalf of the dealer. The aforesaid rule expressly provides that tax shall be levied upon and recoverable from such receiver, manager, etc., in the same manner, as it would be leviable upon and recoverable from the dealer. Such tax liability may be incurred by any person managing or conducting the business on behalf of the dealer. The tax liability incurred by such person will be equivalent to the liability which would be levied upon the dealer if he were conducting such business. Further that under Rule 233 of the Rules, 1959, for the purposes of acquiring and retaining possession of the property of the company in liquidation, the Official Liquidator would be in the same position as a receiver.56. 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.57. Having glanced through the settled principles of law, we would revert back to the controversy in the present appeals. The first issue canvassed before this Court by the learned counsel for the parties to the lis, is whether the Official Liquidator herein would fall under the purview of a "dealer" as defined under the Act, 1963. And secondly, whether the Official Liquidator would be liable to pay sales tax in respect of sales effected by him pursuant to winding up proceedings.58. 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.59. From the discussion in the preceding paragraphs, we can conclude an 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, 1963.60. The observation of the Court of Appeals in the Re Mesco Properties case (supra), would appear to be squarely applicable to be present factual matrix, that is, during a winding up proceedings, if tax requires to be collected from the Company in liquidation, the liquidator would be the proper officer to pay the same.61. This Court has noticed hereinabove that the Company in liquidation is a "dealer" with regard to the sale of its assets by way of an auction under a winding up order. Further, we have noticed the settled law that an Official Liquidator steps into the shoes of the Director of the company in liquidation and performs his statutory functions in accordance with the directives of the Court. Furthermore, Rule 54 of the Rules, 1963 contemplates a situation where a business owned by a dealer, is under the control of a receiver or manager or any other person, irrespective of his designation, who manages the business on behalf of the said dealer. In the said scenario, the said person, in-charge of the business on behalf of the dealer, would be exigible to sales tax in the same manner as it would have been leviable upon and recoverable from the dealer itself. 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.62. 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, we are of the considered opinion that the Official Liquidator would be required to pay the tax payable on the sale of the assets of the company in liquidation.63. As regards the liability of the auction purchaser, this Court, in an order passed in Civil Appeal No.5048 of 2003, has observed that in view of facts and circumstances of the case, the auction purchaser would not be liable to pay sales tax. The offer of the auction purchaser, as accepted by the Official Liquidator and confirmed by the High Court, was inclusive of all taxes. It would have been the bounden duty of the Official Liquidator to have separated an amount for the payment of taxes under the Act, 1963 to avoid any liability. It would be gainsaid in repeating that the Special Government Pleader (Taxes), on behalf of the Revenue, before the learned Single Judge of the High Court had clearly stated that the liability to pay sales tax would be on the Official Liquidator.