1. This is a petition under Article 226 of the Constitution challenging the validity of the demand made against the petitioner for payment of Rs. 7,432-65 and giving notice that in default of such payment the amount will be recovered as arrears of land revenue.
2. The relevant facts are as follows :-
Prior to April, 1957, one Govindsharan Mawawala and one Nepalsingh Jawaharsingh carried on business in partnership with each other in the firm name and style of Messrs Govindram Ramsharan Mawawala at 532, Duncan Road, Bombay. The shop of the firm appears to have been obtained on sub-tenancy. By a notice dated 22nd April, 1957, the Collector of Bombay notified that the partnership firm had failed to discharge the liability in respect of the sum of Rs. 16,582-83 payable in respect of arrears of sales tax dues for the period upto 31st March, 1951, and 1st April, 1951 to 12th December, 1955, and penalty and income-tax dues for the years 1950 to 1954, which amount together with process fee of Rs. 48 came to Rs. 16,630-83. He gave notice under section 13 of the Bombay City Land Revenue Act that the concern known as Messrs Govindram Ramsharan Mawawala situate at 532 Duncan Road, would be sold by public auction with its goodwill and sub-tenancy rights and all movables. Under clause (8) of the conditions of sale it was mentioned that the purchaser would be put into possession of the property as soon as possible after the auction is confirmed, and that the auction sale was of right, title and interest of the partnership firm with stock-in-trade and movables including goodwill and sub-tenancy rights in realisation of government dues (sales tax and income-tax).
3. At the auction sale held on 20th May, 1957, the petitioner became purchaser. The sale was confirmed by an order dated 10th June, 1957, and a certificate of sale evidencing that the sale was in realisation of arrears of sales tax and income-tax dues and that the sale was of the goodwill and sub-tenancy rights along with movables of Govindram Ramsharan Mawawala and Nepalsingh Jawaharsingh was issued to the petitioner.
4. By a memo dated 25th October, 1958, the 1st respondent as Sales Tax Officer, Recovery I, Bombay, called upon the petitioner to show cause as to why he should not be deemed to be transferee under section 26(1) of the Bombay Sales Tax Act, 1953, and necessary action to recover the balance of outstanding dues of sales tax from the partnership firm should not be taken against the petitioner. On 1st November, 1958, the petitioner appears to have contended before respondent No. 1 that he was not liable to pay the amount of arrears of sales tax due by the prior owners of the partnership firm. By the impugned order dated 3rd November, 1958, the 1st respondent gave particulars of the arrears of dues which included arrears for the period 1st October, 1956, to 8th April, 1957. According to the 1st respondent the total liability of the partnership firm was Rs. 19,712. After giving credit for the sale proceeds and the payments made by the partnership firm according to the 1st respondent there was a balance of Rs. 7,432-65 to be recovered. The 1st respondent gave notice to the petitioner that in default of payment of the amount of Rs. 7,432-65 proceedings would be taken to recover the amount from him as arrears of land revenue. Thereafter some correspondence was addressed on behalf of the petitioner to the 1st respondent. By a notice dated 11th March, 1959, the Mamlatdar for recovery of sales tax, Bombay, on behalf of the State Government made a demand for payment of Rs. 7,577-40 in respect of unpaid sales tax and penalty for the period 1st April, 1953, to 8th April, 1957, and a further sum of Rs. 2 as fees and gave notice to the petitioner that in default of payment within 20 days he would proceed to attach and sell the petitioner's movable or immovable property under section 13 of the Bombay City Land Revenue Act.
5. The petitioner thereafter obtained a stay from the Additional Collector of Sales Tax. The stay was vacated on 28th August, 1959, and the petitioner thereafter filed this petition on 24th September, 1959.
6. The main contention of the petitioner as contained in paragraph 6 of the petition is that under section 26 of the Bombay Sales Tax Act, 1953, liability to pay arrears of sales tax dues by a transferee relates only to transfers made by a dealer himself. The contention is that the provisions in sub-section (1) of section 26 are not applicable to forced sales by the Collector or Revenue authority in favour of a purchaser. Further contentions made by the petitioner are as follows :-
(1) If a property is sold for recovery of debt charged thereon the debt cannot continue to attach to the property in the hands of the purchaser.
(2) In any event the arrears of sales tax due for the period 1st October, 1956, to 4th April, 1957, can never be payable by the petitioner as a transferee under section 26 of the Act.
(3) There was no mode of recovery prescribed under the Act, in connection with amounts payable by a transferee as provided in section 26(1).
(4) The proceedings intended to be taken against him are all invalid.
7. In connection with all these contentions the petitioner has contended that the respondents are seeking illegally to attach and sell movable and immovable properties of the petitioner and are thus infringing the fundamental rights guaranteed to the petitioner under Article 19 of the Constitution. It is therefore that the petitioner is entitled to relief by way of writ in this petition.
8. In connection with the main contention as above raised by the petitioner reference will have to be made to the provisions of section 26 of the Act. Before referring to that section, having regard to the arguments advanced before me, it is necessary to look at the scheme of the Act.
9. Under section 2(6) a dealer is defined to mean any person who carries on the business ....................
10. Under section 5 provision is made for levying sales tax against every dealer with reference to turnover of all sales and all purchases during each year expiring on 31st March. It is obvious that for assessing and ascertaining tax on turnover in a business for a particular assessment year and the liability to pay tax for that year provision is made in Chapter IV for (i) registration of and (ii) grant of licences and authorizations, to a dealer. It is not permissible for a dealer who is liable to pay tax to carry on business unless he applies for registration. Sub-section (4) of section 11 authorises the prescribed authority to amend any certificate of registration after considering information furnished under section 25 or otherwise received.
11. Sections 25 and 26 run as follows :-
'25. If any dealer to whom the provisions of this Act apply -
(a) sells or otherwise disposes of his business or any part of his business, or effects or comes to know of any other change in the ownership of the busihness, or,
(b) discontinues his business or changes his place of business or opens a new place of business, or
(d) enters into partnership in regard to his business he shall, within the prescribed time, inform the prescribed authority accordingly; and where any such dealer dies his legal representative or where any such dealer is a partnership firm and the partnership is dissolved, every person who was a partner thereof shall in like manner, inform the said authority'.
'26. (1) When the ownership of the business of a dealer liable to pay the tax is entirely transferred, the transferor and the transferee shall jointly and severally be liable to pay any tax including penalty, if any, payable in respect of such business ............. and remaining unpaid at the time of the transfer and the transferee shall also be liable to pay tax on the sales or purchases of goods effected by him with effect from the date of such transfer and shall within thirty days of the transfer apply for registration unless he already holds a certificate of registration.
(2) When a dealer liable to pay the tax transfers the ownership of a part of his business the transferor shall be liable to pay the tax in respect of the stock of goods transferred along with that part of his business, which is not so transferred, .......................
(3)(i) When a firm liable to pay the tax is dissolved, or
(ii) Where an undivided Hindu family liable to pay the tax is partitioned, such firm or family as the case may be shall be liable to pay the tax on the goods allotted to any partner or member thereof, .......................
(4) When a dealer to whom a part of the business has been transferred or who has obtained the whole or part of the stock relating to the business of a partnership which has been discontinued or dissolved or an undivided Hindu family which is partitioned obtains a certificate of registration he shall be liable to pay the tax on the turnover in respect of sales or purchases of goods made by him with effect from the date of such transfer of business, discontinuance or dissolution of the partnership, or the partition of the family, as the case may be.'
12. The petitioner in this case is sought to be held liable to pay arrears of sales tax dues of the partnership firm of Messrs Govindram Ramsharan Mawawala. He is sought to be held liable under the provisions of sub-section (1) of section 26. As I have already indicated the contention of the petitioner is that he is not a transferee within the meaning of sub-section (1). The contention of the respondents is that he is such a transferee. The rival contentions of the parties in this connection are based on contrary submissions as regards the true construction and effect of sub-section (1). It is apparent that the language in sub-section (2) of section 26 is clear and unambiguous when it provides :-
'When a dealer liable to pay the tax transfers the ownership of a part of his business.'
13. The language in sub-section (1) is in passive tense and ambiguous. There is no reference made to a dealer in that sub-section in the same manner as in sub-section (2). The respondents contend that having regard to the sale of the right, title and interest of the partnership concern and the stock-in-trade and movables including goodwill and sub-tenancy rights in favour of the petitioner he must be held to fall within the phrase 'when the ownership of the business of a dealer .................. is entirely transferred' as contained in sub-section (1). In connection with this argument, it is necessary to bear in mind that the charging provisions of the Act are contained in section 5. Admittedly therefore the tax is levied against a 'dealer'. In this case the liability to pay the tax was solely and exclusively of the partnership firm of Messrs Govindram Ramsharan Mawawala. The Legislature envisaged the possibility of transfer of business by a dealer in whole or in part and provided for payments of tax liabilities upon transfers being effected. Accordingly in section 11(4) the prescribed authority is authorised from time to time to amend a certificate of registration issued to a dealer after considering the information furnished under section 25. Under section 25 all the dealings of a dealer with reference to his business are described. Reference is made to (i) a sale or other disposal of business or any part of business by a dealer, (ii) discontinuance of business and (iii) a dealer entering into partnership, as also (iv) a partition between the members of a joint family carrying on a business. It is significant that section 25 attempts to envisage all possibilities of changes of ownership and dealings with his business by a dealer. It is therefore that reference is made in sub-section (4) of section 11 to section 25 with reference to changes to be made in the certificate of registration. It appears to me that the provisions in section 26 are intended to include and refer only to the same kinds of dealings with a business by a dealer as are mentioned in section 25. Obviously section 25 does not refer to a sale of business by Collector in recovery proceedings.
14. In connection with the arguments advanced on behalf of the respondents that sub-section (1) of section 26 refers to a forced sale by a Collector in recovery proceedings, it is necessary to notice the language of sub-section (1) where it provides that upon a transfer 'the transferor and the transferee shall jointly and severally be liable to pay any tax including penalty, if any, payable in respect of such business.' The liability for payment continues to be the obligation of the transferor in spite of transfer of business. The liability is joint as between the transferor and the transferee. In the matter of a sale by Collector having regard to this language of section 26(1) a question must arise as to who is the transferor in the matter of such sales. It is clear that Collector as transferor was not intended to be liable to pay outstanding arrears of tax. Is it correct to hold as is argued on behalf of the respondents that in the matter of a sale by Collector in recovery proceedings the Collector is the statutory agent of the dealer who fails to discharge the sales tax dues and that accordingly when the Collector issues a certificate of sale he represents the dealer and/or the original owner, and that the dealer is the transferor. It appears to me that such a construction would be very far-fetched and contrary to law. In the matter of enforced sales the original owner or the original debtor or dealer is neither a seller nor a transferor. He would continue to be liable to pay all arrears of tax as assessee under the provisions of section 5 and other provisions. However, it would be contrary to facts to hold that he is a transferor in the matter of change of ownership when property is sold by Collector in recovery proceedings.
15. The question is whether effect can be given to the provisions as to the joint and several liability of transferor and transferee as provided in sub-section (1) of section 26 in the matter of a sale by Collector in recovery proceedings. If that is not possible the further question is as to whether sales in recovery proceedings are not covered by the provisions of sub-section (1) of section 26. It is clear to me that a purchaser at an auction sale in recovery proceedings does not purchase any property from the original dealer or owner. It is true that he would purchase the property of that original owner and/or dealer. He must, if the section is applicable to him, be liable to pay the arrears of tax not only alone but jointly with the transferor. That provision for joint liability is obviously made because the transferee discharges under section 26(1) vicariously the liability of the original owner and dealer. Apparently transferee mentioned in sub-section (1) would be entitled to be completely reimbursed by the transferor in respect of payments made in discharge of tax liability of transferor. In the matter of a sale by Collector in recovery proceedings a transferee-purchaser cannot be entitled to such a right against the transferor-Collector. Having regard to this position it is clear that the transfer as mentioned in sub-section (1) does not include or refer to sales by the Collector in recovery proceedings. The transaction of charge of ownership as mentioned in sub-section (1) of section 26 must be as between a dealer and his purchaser, a dealer being referred to as transferor and the purchaser having been referred to as transferee. This construction is consistent with the scheme of the Act and particularly the scheme in section 25 as also in sub-sections (2), (3) and (4) of section 26. The construction as contended for on behalf of the respondents is entirely contrary to the scheme of the Act and the sections mentioned above.
16. In support of the above construction as also to ascertain the true intention of the Legislature in enacting section 26(1) one may refer to the provisions in the Sales Tax Act 51 of 1959 for the same matter as contained in section 26(1) of the Act of 1953. That provision is in sub-section (4) of section 19 of the Act of 1959 and runs as follows :-
'Where a dealer, liable to pay tax under this Act, transfers or otherwise disposes of his business in whole or in part, or effects any change in the ownership thereof, in consequence of which he is succeeded in the business or part thereof by any other person, the dealer and the person succeeding shall jointly and severally be liable to pay the tax (including any penalty) due from the dealer under this Act or under any earlier law, up to the time of such transfer, disposal or change, whether such tax (including any penalty) has been assessed before such transfer, disposal or change but has remained unpaid, or is assessed thereafter'.
17. I have no doubt, having regard to the provisions of sub-section (4) of section 19 of the 1959 Act, that the Legislature intended to provide by sub-section (1) of section 26 that the transfer mentioned in that sub-section must be by a dealer and in any event not by the Collector in recovery proceedings.
18. As I have come to the above conclusion, it appears to me to be unnecessary to decide further the contentions made on behalf of the parties.
19. Mr. Trivedi contended that the sale by the Collector to the petitioner was not of the entire business of the partnership firm. The sale had no reference to the outstanding recoveries and the liabilities of the business of the partnership. According to him in fact long before the sale to the petitioner the business had been entirely discontinued and attachment had been levied and there was no question of sale of entire business by the Collector to the petitioner. According to Mr. Kantawala the sale was of right, title and interest of the partnership and its whole business and therefore I must come to the conclusion that the sale was of the entire business.
20. Mr. Kantawala also urged that 'movables' included all actionable claims and therefore the petitioner must be held to be the purchaser of the outstanding recovery of the partnership business as also its liabilities.
21. Mr. Trivedi argued that the business of the partnership firm was charged with payment of the arrears of tax. That, according to him, is the true effect of the liability imposed on the transferee of the business under the provisions of section 26. According to him on sale to enforce a charge the purchaser would get the property free of the charge. As regards the contention of the petitioner that there was no machinery in the Act for recovery from a transferee of the arrears of taxes payable by him under section 26, Mr. Kantawala argued that the scheme of sub-section (6) of section 16 must be held to be applicable to such liabilities also. I deem it unnecessary to decide all these points as I am in favour of the petitioner on the main point raised by the petitioner.
22. Mr. Kantawala has admitted that the petitioner is not liable to pay any arrear of taxes for the period 1st October, 1956, to 8th April, 1957, and he is accordingly not liable to pay the sum of Rs. 596-30 from out of the amount of Rs. 7,432-65 demanded as against him.
23. Mr. Kantawala has argued that the petitioner is not entitled to any relief as the petition was filed after great delay. In that connection he pointed out that the demand was made by an order dated 3rd November, 1958, and notice for the recovery was served by the Mamlatdar on 11th March, 1959, and the petition was filed on 24th September, 1959. There is substance in this contention. It, however, appears to me that in this case the petitioner will be wrongfully and illegally without authority of law deprived of his property which may be sold in recovery proceedings unless relief is given to him. I have therefore taken the view that delay should not defeat the petitioner in this matter.
24. Mr. Kantawala has also rightly pointed out that the scheme of the Sales Tax Act provides for a complete code for disposal of all questions arising under the Sales Tax Act. The ultimate decision of all questions of law must be procured by reference to the High Court as provided under the Act. He has therefore contended that the petitioner is not entitled to proceed with this petition.
25. It appears to me that in spite of the Sales Tax Act providing for a complete code and scheme for disposal of all matters arising under the Act in accordance with the provisions of the Act where a citizen is about to be deprived of his property without any authority of law and where fundamental rights guaranteed to him under Article 19 of the Constitution are about to be defeated it is appropriate that the Court should give relief under Article 226 of the Constitution.
26. The result therefore will be that the impugned order dated 3rd November, 1958, and the notice of demand dated 11th March, 1959, are quashed and the respondents are directed not to proceed to recover any amount from the petitioner in respect of arrears of sales tax dues as mentioned in the petition.
27. The respondents will pay costs of the petition to the petitioner.
28. Petition allowed.