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CIVIL APPEAL NOS. 354-355 OF 2015 (SPECIAL LEAVE PETITION (C) NOS.7939-7940 OF 2004) |ASSITANT COMMISSIONER, ERNAKULAM | | | |… Petitioner(s) | Versus |HINDUSTAN URBAN INFRASTRUCTURE LTD. AND | | |ORS. |… Respondent(s) |

REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 354-355 OF 2015
(SPECIAL LEAVE PETITION (C) NOS.7939-7940 OF 2004)
|ASSITANT COMMISSIONER, ERNAKULAM | |
| |… Petitioner(s) |

Versus

|HINDUSTAN URBAN INFRASTRUCTURE LTD. AND | |
|ORS. |… Respondent(s) |

J U D G M E N T

H.L. Dattu, CJI.
1. Leave granted.
2. The issue that arises for our consideration and decision in the
present appeals is whether an “Official Liquidator” is a “dealer” within
the meaning of section 2 (viii) of the Kerala General Sales Tax Act, 1963
(for short, “the Act, 1963”), and therefore would be required to collect
sales tax in respect of the sales effected by him pursuant to winding up
proceedings of a company in liquidation.
3. These appeals are directed against the judgment(s) and order(s)
passed by the High Court of Kerala in M.F.A. No.1394 of 2002, dated
11.02.2003, and in Review Petition No.191 of 2003, dated 21.03.2003. The
Division Bench of the High Court in review confirmed the finding in M.F.A.
No.1394 of 2002 and concluded that the Official Liquidator is not a
“dealer” under the Act, 1963. However, by the impugned judgment, the High
Court has set aside the finding of the learned Single Judge which held that
the machinery purchased in the auction sale conducted by the Official
Liquidator is not be liable to be taxed under the Act, 1963. The impugned
judgment has further accepted a fresh plea raised by the appellant that the
auction purchaser would be liable to pay purchase tax under section 5A of
the Act, 1963.
4. It is relevant to state that respondent No.1, that is,
Hindustan Urban Infrastructure Ltd., had filed a separate appeal- Civil
Appeal No.5048 of 2003 against the specific finding of the High Court in
the impugned judgment with regard to the liability to pay purchase tax
which was imposed upon the auction purchaser thereunder. This Court has
separately dealt with the aforesaid question by its order dated 04.09.2014
in the said civil appeal.
FACTS:-
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.
ISSUES:-
14. The issues that arise for the consideration in the present
appeals are firstly, whether the Official Liquidator is a “dealer” within
the meaning of the Act, 1963, and secondly, whether the Official Liquidator
would be required to pay sales tax in respect of sales effected pursuant to
a winding up proceedings.
SUBMISSIONS:-
15. Shri V. Giri, learned counsel for the appellant, submits that
the consistent stand taken by the Revenue, is that the Official Liquidator
is liable to pay sales tax on the transaction in question. He would state
that the Official Liquidator was held to be a “dealer” under the Act, 1963
by the learned Single Judge as well as by the Division Bench of the High
Court, and that it is only in review that the said finding was reversed. To
support the decision of the learned Single Judge and the Division Bench of
the High Court, he would rely upon the definition of “dealer” as provided
under the Act, 1963 and submit that the Official Liquidator is an agent of
the Central Government and therefore would deemed to be a dealer as
provided under explanation 2 to section 2(viii)(f) of the Act, 1963. To
further substantiate his contention, he would refer to the Statement filed,
by the Special Government Pleader (Taxes), appearing for the Sales Tax
Authorities, before the learned Single Judge of the High Court, wherein it
was categorically stated that the Official Liquidator would be liable to
pay tax at the relevant rate under the Act, 1963, whether or not he had
collected the same from the auction purchaser.
16. Shri C.S. Rajan, learned counsel for the Official Liquidator-
respondent No.2, would support the findings of the High Court in the review
petition and state that the Official Liquidator would not be liable to pay
any tax under the Act, 1963. He would further state that the liability
would in fact be on the auction purchaser who would be exigible to purchase
tax under section 5A of the Act, 1963.
17. Shri Rajan would then elaborate upon the nature of the
activities carried on by the Official Liquidator and submit that since an
Official Liquidator is an officer of the Court, he merely discharges
statutory functions imposed upon him and therefore cannot be held liable to
pay tax under the Act, 1963. To support this submission, he would further
refer to various provisions of the Act, 1956 and the Companies (Court)
Rules, 1959 (for short, “the Rules, 1959”). Shri Rajan would lastly submit
that since the Official Liquidator discharges statutory functions of
selling the assets of the Company in liquidation, he cannot be perceived to
be carrying on “business” as defined under the Act, 1963 and thus cannot be
exigible to tax.
18. Shri S.K. Bagaria, learned senior counsel for the auction
purchaser would submit that the question of payment of purchase tax could
not arise because firstly, the contention was raised for the first time in
the review petition, and secondly, the said tax is a single-point levy at
the first point of sale. He would contend that the auction purchaser could
not be made liable for a tax that was not even imposed or demanded by the
competent authority. He would then contend that the Official Liquidator
makes the sale on behalf of the Company and not as the owner. Lastly, Shri
Bagaria would refer to Rule 54 of the Kerala General Sales Tax Rules, 1963
(for short, “the Rules, 1963”) and section 17 of the Central Sales Tax Act,
1956 (for short, “the CST Act”) to demonstrate that the liability to pay
sales tax was clearly on the Official Liquidator.
19. We have heard the learned counsel for the parties to the lis
and also carefully perused the orders passed by the courts and the forums
below.
20. The point for the consideration and decision of this Court is
whether the Official Liquidator is a “dealer” within the meaning of the
Act, 1963, and whether or not he would be required to pay sales tax in
respect of sales effected by him pursuant to winding up proceedings.
RELEVANT PROVISIONS:-
21. To appreciate the arguments canvassed it is relevant to notice
the relevant provisions. They are- sections 448, 456, 457 of the Act, 1956;
Rules 232, 233 of the Rules, 1959; sections 2 (vi), 2 (viii), 5, 5A, 22 of
the Act, 1963; and Rule 54 of the Rules, 1963. Since these provisions have
been amended from time to time, we have considered the provisions as they
were in statute book during the relevant period.
22. Sections 448, 456, 457 of the Act, 1956 deal with the
appointment and powers of the Official Liquidator. Section 448 of the Act,
1956 provides for the appointment of an Official Liquidator for the purpose
of winding up of a company. The Official Liquidator so appointed conducts
the proceedings in the winding up of the company and performs other duties,
as the court imposes upon him, in consonance with the provisions of the
Act, 1956. Section 456 of the Act, 1956 states that pursuant to a winding
up order, the liquidator shall take into his custody or under his control,
all the properties, effects and actionable claims to which the company is
or appears to be entitled to. By the said provision, all the properties and
effects of the company are deemed to be in the custody of the court, from
the date of the winding up order. Section 457 of the Act, 1956 lists the
powers of the Official Liquidator. The powers include, inter alia, to carry
on business of the company for its beneficial winding up, to sell the
immovable and movable property and actionable claims of the company, by
public auction or private contract, and to do all things as may be
necessary for winding up the affairs of the company and distribution of its
assets. However, the powers conferred by virtue of the section 457 of the
Act, 1956, on the liquidator, are subject to the control of the Court.
23. In exercise of the powers conferred by sub-sections (1) and (2)
of section 643 of the Act, 1956, the Rules, 1959 were enacted. The relevant
rules regarding the collection and distribution of assets in a winding-up
by court are found under Rules 232 to 234 of the Rules, 1959. Rule 232
deals with the powers of the Official Liquidator. As per the rule, the
duties imposed on the Court under section 467(1) of the Act, 1956
concerning the collection of the assets of the company and the application
of the assets in discharge of the company’s liabilities must be discharged
by the Official Liquidator as an officer of the Court. The discharge of the
aforesaid functions would be subject to the control of the Court and to the
proviso in section 643(2) of the Act, 1956. Rule 233 states that in
discharge of the duties imposed upon the Official Liquidator, pursuant to
section 467(1) of the Act, 1956, and for the purpose of acquiring and
retaining possession of the property of the company, he must be treated as
a Receiver of the property appointed by the Court.
24. Section 2 of the Act, 1963 provides for the meaning of certain
expressions in the said Act. Section 2(vi) defines “business” as follows:
“(vi) “Business” includes: –
(a) any trade, commerce or manufacture or any adventure or concern in the
nature of trade, commerce, or manufacture, whether or not such trade,
commerce, manufacture, adventure or concern is carried on with a motive to
make gain or profit and whether or not any profit accrues from such trade,
commerce, manufacture, adventure or concern; and
(b) any transaction in connection with, or incidental or ancillary to such
trade, commerce, manufacture, adventure or concern;”

25. Section 2(viii) of the Act, 1963 deals with the definition of
the term ‘dealer’ as under:
“(viii) “Dealer” means any person who carries on the business of buying,
selling, supplying or distributing goods, executing works contract,
transferring the right to use any goods or supplying by way of or as part
of any service, any goods directly or otherwise, whether for cash or for
deferred payment, or for commission, remuneration or other valuable
consideration and includes, –
(a) [Omitted]
(b) a casual trader;
(c) x x x x
(d) x x x x
(e) x x x x
(f) a person who whether in the course of business or not:
(1) transfers any goods, including controlled goods whether in pursuance of
a contract or not, for cash or deferred payment or other valuable
consideration;
(2) transfers property in goods (whether as goods or in some other form)
involved in the execution of a works contract;
(3) delivers any goods on hire-purchase or any system of payment by
installments;
(4) transfers the right to use any goods for any purpose (whether or not
for a specified period) for cash, deferred payment or other valuable
consideration;
(5) supplies, by way of or as part of any service or in any other manner
whatsoever, goods, being food or any other articles for human consumption
or any drink (whether or not intoxicating), where such supply or service is
for cash, deferred payment or other valuable consideration;

Explanation:- (1) A society including a co-operative society, club or firm
or an association or body of persons, whether incorporated or not) which
whether or not in the course of business, buys, sells, supplies or
distributes goods from or to its members for cash or for deferred payment,
or for commission, remuneration or other valuable consideration, shall be
deemed to be a dealer for the purposes of this Act;
Explanation: – (2) The Central Government or a State Government, which
whether or not in the course of business, buy, sell, supply or distribute
goods, directly or otherwise, for cash or for deferred payment, or for
commission, remuneration or other valuable consideration, shall be deemed
to be a dealer for the purposes of this Act.
(g) a bank or a financing institution, which, whether in the course of its
business or not, sells any gold or other valuable article pledged with it
to secure any loan, for the realisation of such loan amount.
Explanation I: – Bank for the purposes of this clause includes a
Nationalized Bank or a Schedule Bank or a Co-operative Bank;
Explanation II: – Financing Institution means a financing institution other
than a bank;”

26. On perusal of the aforementioned definitions, it would appear
that the term “business” has been given a broad meaning by including within
its ambit both incidental and ancillary transactions. Further, it has also
eliminated the requirement of a profit motive as being an essential
component. The definition of “dealer” has also been given a wide ambit. It
includes any person carrying on business of, inter alia, buying, selling,
supply or distribution of goods, whether directly or otherwise. All modes
of payment whether by way of cash, commission, remuneration or other
valuable consideration have been included therein. It also includes, inter
alia, a casual trader, a non-resident dealer, a commission agent, a broker,
an auctioneer and other mercantile agents. Sub-section (f) of the
definition further expands the scope of the provision by including within
its ambit, an array of transactions, which may or may not be in the course
of business. Section 2(viii)(f)(1) expressly includes, within the
definition of a “dealer”, a person who whether in the course of business or
not transfers any goods, whether in the pursuance of a contract or not, for
cash or deferred payment.
27. Section 5 of the Act, 1963 is the charging provision under the
said Act and provides for the levy of tax on the sale and purchase of
goods. It provides that every dealer, whose total turnover for that year is
not less than Rs.2,00,000/-, would be liable to pay tax as per rates and at
points as specified in the Schedules to the Act, 1963. The First Schedule
to the Act, 1963 would be relevant for the purpose of the present appeal.
Serial No.84 of the said Schedule deals with, inter alia, Machinery and it
provides that the point of levy shall be at the point of first sale in the
State by a dealer who is liable to tax under section 5 of the Act, 1963.
28. Section 5A of the Act, 1963 is the charging provision as regard
to the imposition of purchase tax. Under the said provision, the purchaser
of any goods which may be consumed, used, disposed or dispatched to any
place outside the State from a registered dealer will incur liability for
payment of purchase tax. The provision amply clarifies that purchase tax
would be applicable only in circumstances in which no tax is payable under
sub-sections (1), (3), (4) or (5) of section 5 of the Act, 1963.
29. The Rules, 1963, have been enacted in exercise of the powers
conferred by section 57 of the Act, 1963. Rule 54 of the Rules, 1963, reads
as follows:
“54. Liability of Court of Wards, Official Trustee etc.-
In the case of business, owned by a dealer whose estate or any portion of
whose estate is under the control of Court of Wards, the Administrator
General, the official trustee or any Receiver or manager (including any
person whatever be his designation, who in fact manages the business on
behalf of the dealer) appointed by, or, under any order of a Court, the tax
shall be levied upon and recoverable from such Court of Wards,
Administrator General, Official Trustee, Receiver or Manager in like manner
and on the same terms as it would be leviable upon and recoverable from the
dealer if he were conducting the business himself, and all the provisions
of the Act and Rules made there under shall apply accordingly.”

30. The aforementioned Rule contemplates a scenario wherein a
business, owned by a dealer, is under the control of, inter alia, the
official trustee or receiver or manager, including any other person who
manages the business of the said dealer, who is appointed by an order of a
Court. In such an event, tax would be recoverable from such a person who
controls the business of the dealer in the same or like manner, as would
have been recoverable from the dealer itself.
DISCUSSION:-
31. At the outset, it would be necessary to make reference to the
Statement/Affidavit filed by the Special Government Pleader (Taxes),
appearing for the Revenue, before the learned Single Judge of the High
Court. In the said Statement/Affidavit, the Revenue has stated that a sale
by the Official Liquidator, whether by auction or otherwise, is a sale by
the Central Government and therefore the Official Liquidator becomes a
dealer under the Act, 1963. It was further stated that although tax may be
collected only by a registered dealer, the Central Government is empowered
to collect tax in the manner a registered dealer is entitled to. The
Revenue, in its conclusion therein, has stated that the Official Liquidator
would be liable to pay tax at the relevant rate, whether he had collected
the same or not.
32. To appreciate the stand of the Revenue, it would be profitable
to refer to Section 2(viii) of the Act, 1963 which defines the expression
“dealer” as any person who carries on the business of buying, selling,
supplying or distributing goods, executing works contract, transferring
right to use any goods or supplying by way of or as part of any service,
any goods directly or indirectly. The aforementioned activities are carried
out for the payment of consideration, in the form of cash, deferred
payment, commission, remuneration, etc. Thus, the emphasis under this
clause of “carrying on business” is to be understood in a wide sense and
not merely restricted to the activity of buying and selling.
33. The expression “business” has been given a wide and inclusive
definition, whereby ‘any business, trade, commerce or manufacture or any
activity of the said nature, whether or not it is carried on with a motive
for profit’ has been expressly included. It further includes any
transaction in connection with such trade, commerce, etc. including within
its purview, all ancillary or incidental activities in connection with any
trade, commerce, etc.

34. Section 2(viii)(f) further expands the definition of “dealer”
enabling a far wider class of persons to fall within its ambit. It includes
any person who transfers any goods, transfers property in goods involved in
the execution of a works contract, delivers any goods on hire purchase or
any system of payment by installments, transfers the right to use any goods
for any purpose and lastly, any food or beverage supplier or service
provider, fit for human consumption. The Explanation 1 to sub-clause (f)
includes a society, club, firm or an association or body of persons,
whether incorporated or not. Explanation 2 includes the Central Government,
State Government and any of its apparatus within the scope of this section.

35. Therefore, given the exceptionally wide scope of the
definition, prima facie, it can be concluded that any person or entity that
carries on any activity of selling goods, could be categorized as a
“dealer” under the Act, 1963. To test the aforesaid conclusion in the
context of the issue at hand, we would delve into the interpretation
ascribed by this Court to the term “dealer”. A careful reading of the
definition of “dealer” under the Act, 1963, would make it evident that the
legislature intended to provide for an inclusive criterion and broaden the
ambit of the said classification. The legislature did not propose to
restrict the scope of the term as perceived in common parlance.
36. The definition of a dealer under various sales tax legislations
has been given a wide import by several decisions of this Court. In
Chowringhee Sales Bureau (P) Ltd. v. CIT, (1973) 1 SCC 46, inter alia, a
challenge was made to the explanation to the definition of “dealer” under
the Bengal Finance (Sales Tax) Act, 1941 on the ground that is sought to
levy a tax on a person who is neither a seller nor a purchaser. A three-
Judge Bench of this Court, rejecting the said challenge, held that the term
“dealer” would include an auctioneer who carries on the business of selling
and who has in the customary course of business authority to sell goods
belonging to the principal. It was further observed that the given
explanation sought to tax a transaction of sale of goods. It was held that,
a statutory provision providing for a levy of sales tax on a person such as
an auctioneer, would be permissible, if there is a close and direct
connection between the transaction of sale and the person made liable for
the payment of sales tax.
37. In State of U.P. v. Union of India, (2003) 3 SCC 239, this
Court held that the Central Government, when involved in the business of
buying and selling, could be treated as a “dealer” under the U.P. Sales Tax
Act, 1940. The Court observed as follows:
“11. …It is thus clear that in regard to a transfer of the right to use
any goods both a person and a Government will be within the ambit of the
definition of “dealer” subject to the following distinction: a person to be
a “dealer” should carry on the business of buying, selling etc., whether
regularly or otherwise, but a Government which buys, sells etc. (whether in
the course of business or otherwise) will be a “dealer” for purposes of the
U.P. Act. Inasmuch as the definition of “sale” includes any transfer of
property in the goods and a transfer of the right to use any goods for any
purpose, DoT which engages in transfer of right to use any goods will be a
“dealer” within the meaning of sub-clause (iv) of clause (c) of section 2
of the U.P. Act.”

38. In State of T.N. v. Shakti Estates, (1989) 1 SCC 636, this
Court while ascertaining whether the assessee could be treated as a dealer
gave a wide import to the term under the Tamil Nadu General Sales Tax Act,
1959. The Court observed as follows:
“10. Moreover, we have also to give full effect to the definitions in the
statute we are concerned with. The definition of a “business” also includes
“any transaction in connection with or incidental to or ancillary” to a
trade and thus, even on the assessees’ own arguments, these activities were
incidental and ancillary to the business which the assessee was carrying on
or definitely intended to carry on. It is also immaterial, on this
definition that the assessees may not have had a “motive of making a profit
or gain” on these sales though on the facts, it is clear that such motive
must have existed and, in any event, could not be ruled out. The reference
to a “casual” dealer in the second definition also renders it immaterial
that the assessees may not have intended to be regular dealers in sleepers,
timber, firewood or charcoal but that this was something casual or
incidental to the acquisition and exploitation of a forest for running a
plantation.”

39. In State of T.N. v. M.K. Kandaswami, (1975) 4 SCC 745, this
Court while determining the interpretation of the term “dealer” under the
Madras General Sales Tax Act, 1959 gave a broad interpretation to include a
person who not only carries on business of “selling, supplying or
distributing” goods but also the one who carries on the business of
“buying” only.
40. In Karya Palak Engineer, CPWD v. Rajasthan Taxation Board,
(2004) 7 SCC 195, this Court held that a contractor, despite not being the
owner but merely the custodian of the goods, as a dealer under the
Rajasthan Sales Tax Act, 1994.
41. In State of Orissa v. Titaghur Paper Mills Co. Ltd., 1985 Supp
SCC 280, while ascertaining whether the Central Government or its agents
could be treated as be “dealer”, this Court observed as follows:
“26. What is pertinent to note about the new definition of “dealer” is that
in the case of the Central Government, a State Government or any of their
employees acting in official capacity on behalf of such Government, it is
not necessary that the purchase, sale, supply or distribution of goods
should be in the course of business, while in all other cases for a person
to be a dealer he must be carrying on the business of purchasing, selling,
supplying or distributing goods.”

42. In Food Corporation of India v. State of Kerala, (1997) 3 SCC
410, this Court was ascertaining whether the procurement of food grains by
the Food Corporation of India, pursuant to levy orders could amount to
sale or purchase to incur sales/ purchase tax liability as levied by the
States. This Court held that since there was no statutory compulsion in the
matter of sale or purchase of fertilizers and parties had the discretion to
enter into consensual contractual agreements subject minimal restrictions
such as price fixation, quota requirements, etc., there is no hesitation in
holding that the activity of distribution of fertilizers, pursuant to levy
orders would amount to sale which is eligible to incur tax liability. This
Court stated that supply or distribution of goods need not be in course of
business to be considered a sale.
43. Thus, on perusal of the aforesaid decisions of this Court, we
are of the view that the definition of “dealer” under various sales tax
legislations has been given a broad and inclusive interpretation. It would
be gainsaid to state that such a broad and expansive interpretation is in
consonance with what the legislature intended with regard to imposing sales
tax liability on all transactions of sale of goods. Therefore, it can be
concluded that the definition of a “dealer” under the Act, 1963, would
include persons, if they are involved in carrying on any business or
trading activity, such as the sale of machinery as in the present case.
Therefore, as a necessary sequitur, the Company in liquidation, whose
assets are sold by way of an auction, would be a “dealer” under the Act,
1963.
44. Section 5 of the Act, 1963 is the charging provision with
regard to imposition of sales tax. It envisages levy of tax on sale or
purchase of goods by a dealer. Section 5(1) of the Act, 1963 imposes
liability on every dealer whose total turnover for one year is not less
than Two Lakh rupees. Section 5(1)(i) enumerates tax liability in case of
goods specified in the First or Second Schedule to the Act, 1963 at the
rates and only at the points specified against such goods in the said
Schedules. Serial No.84(i) of the First Schedule stipulates the rate of tax
payable on sale of, inter alia, machinery. In this regard, the point of
levy of sales tax is at the point of first sale in the State by a dealer
who is liable to tax under section 5 of the Act, 1963.
45. Thus, pursuant to section 5 of the Act, 1963, in the case of
goods specified in the First and Second Schedule, the single point tax
could be levied only at the rates and points specified against such goods
in the said Schedules. The First Schedule specifies that the point of levy
of tax for the goods in question could be only at the point of first sale
in the State by a dealer. In the instant case, the dealer under the Act,
1963 would be liable to pay sales tax for the machinery sold at the point
of first sale, as per section 5 read with the First Schedule of the Act,
1963. In light of the above, we are of the considered opinion that the
transaction in question in the present appeal would be exigible to tax
under Section 5(1) of the Act, 1963.
46. Section 5-A of the Act, 1963 stipulates certain situations
wherein purchase tax could be imposed on any dealer who purchases any
goods, either from a registered dealer or from any other person, the sale
or purchase of which is liable to tax under Act, 1963. The aforesaid
provision however will apply only in circumstances when no tax is payable
under sub-sections (1),(3),(4),(5) of section 5. However, as noticed
hereinabove, the given transaction is exigible to tax under Section 5(1) of
the Act, 1963, and therefore tax liability under Section 5A of the Act,
1963 would not apply to the said transaction.
47. Before delving into whether the Official Liquidator could also
be treated as a “dealer” under the Act, 1963, it would be apposite to take
into account the powers of the Official Liquidator, as provided under the
Act, 1956. The Official Liquidator, in generic terms, is an officer
appointed to conduct the proceedings and to assist the Court in the winding
up of a company.
48. In A. Ramaiya, Guide to the Companies Act, 16th Edition (2004),
while interpreting the powers of the Official Liquidator under section 457
of the Act, 1956 observed as follows:
“A liquidator is an agent employed for the purpose of winding up of the
company. His principal duties are to take possession of assets, to make out
the requisite lists of contributors and of creditors, to have disputed
cases adjudicated upon, to realise the assets subject to the control of the
court in certain matters and to apply the proceeds on the payments of the
company’s debts and liabilities in due course of administration, and having
done that, to divide the surplus amongst the contributories and to adjust
their rights.”

49. Section 457(3) of the Act, 1956 expressly states that the
powers of the liquidator are subject to control by the court. The powers
conferred upon the liquidator can be exercised by him alone and he cannot
authorise any other person to exercise those powers. The expression
‘control by court’ was discussed by this Court in Navlakha & Sons v.
Ramanuja Das, (1969) 3 SCC 537, wherein it was observed that when the
liquidator exercises or proposes to exercise any of the powers, a creditor
or contributory may apply to the Court with respect of such exercise. It is
the duty of the Court to safeguard the interests of the company and its
creditors and satisfy itself with the adequacy of the price fetched. It may
also be appropriate to consider Rule 232 of the Rules, 1959 which
enumerates the duty of an Official Liquidator in the collection and
application of the assets of the company, which is discharged by him as an
officer of the Court.
50. In the case of Hari Prasad Jayantilal & Co. v. V.S. Gupta,
Income Tax Officer, Ahmedabad & Anr., AIR 1966 SC 1481, this Court held
that the liquidator is merely an agent of the company to administer its
property for the purposes prescribed by the Act, 1956. The Court held that
while distributing the assets, including accumulated profits, the
liquidator acts merely as an agent or administrator for and on behalf of
the company. The Court observed as follows:
“7. …The property of the Company does not vest in the liquidator: it
continues to remain vested in the Company. On the appointment of a
liquidator, all the powers of the Board of directors and of the managing or
whole-time directors, managing agents, secretaries and treasurers cease (s.
491), and the liquidator may exercise the powers mentioned in s. 512,
including the power to did such things as may be necessary for winding up
the affairs of the Company and distributing its assets. The liquidator
appointed in a members’ winding up is merely an agent of the Company to
administer the property of the Company for purpose prescribed by the
statute. In distributing the assets including accumulated profits the
liquidator acts merely as an agent or administrator for and on behalf of
the Company.”

51. In Ajay G. Podar v. Official Liquidator of J.S. & W.M. &
Others, (2008) 14 SCC 17, this Court considered the question pertaining to
bar of limitation under the Act, 1956 for misfeasance proceedings filed by
the Official Liquidator. While discussing the powers of the Official
Liquidator under section 457(1) of the Act, 1956, the Court was of the view
that the Official Liquidator must be authorised to take steps for recovery
of assets by the Company Court under the winding up order and the said
proceedings must be initiated in the name of the company and on behalf of
the company to be wound up. This Court had further opined that the Official
Liquidator derives his authority from the provisions of the Act, 1956.
52. It would be beneficial to notice the views of Courts in England
insofar as powers of the Official Liquidator during winding up proceedings.
In Re Mesco Properties, (1980) 1 All ER 117, the Court of Appeal was
ascertaining as to whether a company could incur tax liability in
consequence of the realization of its assets after a winding up order was
passed and whether the Official Liquidator was the proper officer to incur
such liability. The Court, in the Re Mesco Properties case (supra), at p.
120, observed as follows:
“… It must, in my view, be open to a liquidator to apply to the court for
guidance upon the question whether, if he discharges a certain liability of
the company in liquidation, the payment will be a necessary disbursement
within the meaning of rule 195. That is what the liquidator is doing in
this case. The company is liable for the tax which is due. The tax ought to
be paid. The liquidator is the proper officer to pay it. When he pays it,
he will clearly make a disbursement. In my judgment it will be a necessary
disbursement within the meaning of the rule. Moreover common sense and
justice seem to me to require that it should be discharged in full in
priority to the unsecured creditors, and to any expenses which rank lower
in priority under rule 195. The tax is a consequence of the realisation of
the assets in the course of the winding up of the company. That realisation
was a necessary step in the liquidation; that is to say, in the
administration of the insolvent estate. The fact that in the event there
may be nothing available for the unsecured creditors does not, in my view,
mean that the realisation was not a step taken in the interests of all who
have claims against the company. Those claims must necessarily be met out
of the available assets in due order of priority. Superior claims may baulk
inferior ones, but the liquidator’s duty is to realise the assets for the
benefit of all in accordance with their rights. If in consequence of the
realisation, the company incurs a liability, the discharge of such
liability must, in my judgment, constitute a charge or expense incurred in
the winding up within section 267 of the Companies Act 1948 and must also,
in my view, fall within rule 195.”

53. Further, the House of Lords in Ayerst (Inspector of Taxes) v. C
& K (Construction) Ltd., (1975) 2 All ER 537, held that a company, pursuant
to a winding up order, ceases to have the custody and control of its assets
which are thereafter administered exclusively for the benefit of those
persons who are entitled to share in the proceeds of realisation of the
assets. The House of Lords elaborately discussed the role of the Official
Liquidator in this regard and observed, at p. 177, as follows:
“The functions of the liquidator are thus similar to those of a trustee
(formerly official assignee) in bankruptcy or an executor in the
administration of an estate of a deceased person. There is, however, this
difference: that whereas the legal title in the property of the bankrupt
vests in the trustee and the legal title to property of the deceased vests
in the executor, a winding-up order does not of itself divest the company
of the legal title to any of its assets. Though this is not expressly
stated in the Act it is implicit in the language used throughout Part V,
particularly in sections 243 to 246 which relate to the powers of
liquidators and refer to ‘property … to which the company is…
entitled,’ to ‘property… belonging to the company,’ to ‘assets… of the
company’ and to acts to be done by the liquidator ‘in the name and on
behalf of the company.”

54. In light of the aforesaid, we would conclude that an Official
Liquidator- (i) derives its authority from the provisions of the Act, 1956;
(ii) acts on behalf of the company in liquidation for the purposes
prescribed by the Act, 1956; (iii) is appointed by and is under the control
and supervision of the Court while discharging his duties.
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.
64. In the result, we allow these appeals and set aside the
impugned judgments and orders passed by the High Court.
Ordered accordingly.
………………CJI.
[H.L. DATTU]

………………..J.
[S.A. BOBDE]
NEW DELHI,
JANUARY 13, 2015.

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