G.P. Singh, C.J.
1. This petition under Article 226 of the Constitution is by a company, M/s. Tracways Private Ltd., which was incorporated on 31st December, 1977, under the Indian Companies Act, 1956. The petitioner made an application for registration as a dealer under Section 16 of the Madhya Pradesh General Sales Tax Act, 1958. The application was rejected by the Sales Tax Officer, Bhopal, by his order dated 10th April, 1978. In the revision filed by the petitioner, the order of the Sales Tax Officer was set aside and the application was remanded for deciding it afresh after notice to the petitioner. The application was again dismissed by the Sales Tax Officer by his order dated 1st July, 1978. The revision filed by the petitioner was dismissed by the Commissioner of Sales Tax on 4th October, 1978. The petitioner by this petition challenges these orders.
2. The application made by the petitioner for registration as a dealer was rejected by the Sales Tax Officer on two grounds. The first ground was that the petitioner-company has been formed by a partnership concern M/s. Dawar Brothers with an intention of avoiding payment of sales tax dues outstanding against the partnership and for availing of the benefit which accrues as a result of registration. The second ground was that the turnover of the petitioner-company was not likely to exceed the limit specified in Sub-section (5) of Section 4 of the Act, i.e., Rs. 50,000. The Commissioner, however, in revision has not pronounced upon the correctness of the second ground and has dismissed the revision only on the ground that the petitioner-company was formed as a device by Dawar Brothers to avoid the payment of Government dues and to dodge the Government.
3. The partnership which carried on the business in the name of M/s. Dawar Brothers consisted of three partners, namely, Suraj Kishan Dawar, Awatar Kishan Dawar and Kishan Dawar. The partnership was a registered dealer. Sales tax dues amounting to one crore rupees are yet to be recovered from this partnership. The registration of the partnership was cancelled under Section 15(10) of the Act on the ground that it is in arrears of tax. The petitioner-company consists of four shareholders, two of whom, namely, Smt. Roma Dawar and Smt. Aruna Dawar, are respectively wives of Suraj Kishan Dawar and Kishan Dawar, partners of M/s. Dawar Brothers. The facts found by the Commissioner, which were in fact not disputed before him, are contained in sub-paragraphs (1) to (5) of paragraph 8 of his order, which reads as follows :
(1) Sales tax dues of more than rupees one crore are to be recovered from Dawar Brothers. They have not paid these dues in spite of the facility of payment in instalments given to them by the Government. Not only that they are not paying the arrears, they are also not paying the current dues with the returns (No C forms are, therefore, being issued to him).
(2) The main partners in M/s. Tracways Private Limited are Smt. Roma Dawar and Smt. Aruna Dawar, wives of the two partners of Dawar Brothers, namely, Shri Suraj Kishan Dawar and Shri Kishan Dawar, respectively.
(3) M/s. Tracways Private Limited propose to deal in the same commodities in which M/s. Dawar Brothers have been dealing.
(4) The shares of this company have been purchased mainly by the wives of the two Dawar Brothers, namely, Smt. Roma Dawar and Smt. Aruna Dawar, who have purchased shares of Rs. 8,200 and Rs. 3,300 respectively. Shares of Rs. 5,000 have been purchased by another partner Shri Rakesh Kumar Dhir s/o Shri Dharmvir Dhir, while the remaining two partners (Smt. Pamela Mehra and Major Mehra) have only proposed to buy shares of Rs. 10,000 each.
(5) The business premises of the company are also the same where Dawar Brothers were earlier doing their business.
The facts stated above are not disputed by the petitioner.
4. It is specifically stated by the Commissioner that the facts extracted above from his order were not disputed before him. Although in the course of arguments before us, the learned counsel for the petitioner disputed the aforesaid facts, but in the grounds taken in the petition the correctness of the facts found by the Commissioner is not disputed. The petition proceeds mainly on two grounds : (i) that having regard to the provisions contained in Sections 15 and 16 of the Act, the application for registration could not be rejected; and (ii) that the petitioner-company being a distinct legal entity, it was not open to the Sales Tax Officer or the Commissioner to hold it to be a sham or device created for avoidance of payment of tax due from M/s. Dawar Brothers. In these circumstances, the facts found by the Commissioner cannot be challenged before us.
5. A reading of Section 15 goes to show that every dealer whose turnover exceeds the prescribed limits is bound to get himself registered. Similarly, if a dealer whose turnover is likely to exceed the prescribed limits he can apply under Section 16 for registration. If the Sales Tax Officer, on receipt of such an application for registration, is satisfied that the applicant has correctly given all requisite information, paid the prescribed fee and the application is in order, he is bound to allow the application for registration and to grant registration as is provided in Rule 8 of the Rules made under the Act.
6. The argument of the learned counsel for the petitioner is that it was not open to the Sales Tax Officer or the Commissioner to refuse registration on the ground that the application for registration has been made to circumvent the Act and to avoid payment of tax due from M/s. Dawar Brothers for the petitioner is a distinct legal entity.
7. Sections 15 and 16 of the Act and Rule 8 of the Rules no doubt do not specifically provide that an application for registration can be refused on the ground that the dealer is in arrears of sales tax. It, however, stands to reason that in a case where a dealer's registration is cancelled on the ground that he is in arrears of sales tax he cannot apply for fresh registration without clearing the arrears, for, otherwise, the provision for cancelling the registration on the ground of the dealer being in arrears of tax will have absolutely no meaning and serve ho purpose. The partnership of M/s. Dawar Brothers whose registration was cancelled for arrears of tax could not have applied for registration. The question before us is whether the law can be circumvented by the partners of M/s. Dawar Brothers or their wives or nominees forming a private limited company for carrying on the same business. A company registered under the Companies Act is no doubt a legal entity distinct from its shareholders and, speaking generally, the corporate veil cannot be lifted unless the legislature so provides: see Bharat Aluminium Co. v. Special Area Development Authority 1979 M.P.L.J. 344 at 355. It has, however, been held by the Supreme Court that in certain exceptional cases the court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade. These exceptional cases embrace those cases where the corporate entity is used for tax evasion or to circumvent tax avoidance or to perpetrate fraud : see Income-tax Commissioner, Madras v. Meenakshi Mills, Madurai  63 I.T.R. 609 at 616 (S.C.), and Juggilal v. Income-tax Commissioner, U.P.  73 I.T.R. 702 at 710 (S.C.) The view taken by the Supreme Court is in line with the modern trend. As stated by Friedmann : 'A strongly formalistic and rigid interpretation of the corporate form is increasingly giving way to a more sociological and relativist interpretation. It is particularly marked in cases where the corporate form is apt to be used as a device to frustrate the public interest in the collection of taxes or the statutory restraint of abuses ; it is, on the whole, more clearly marked in Continental and American as compared with English legal development, owing probably to the authority of the Salomon case ; but the tendency is universal.' (Friedmann, Legal Theory, 5th Edition, page 567).
8. It is obvious from the findings of fact reached by the Commissioner that the petitioner-company was formed as a device to enable the partners of M/s. Dawar Brothers to carry on the business with all the benefits of a registered dealer without paying the arrears of tax. Although in name there are five shareholders, two of them, namely, Major Mehra and Mrs. Mehra, had only offered to take shares of rupees ten thousand each. Smt. Aruna Dawar and Smt. Roma Dawar, who are the wives of the partners in M/s. Dawar Brothers, have taken shares of the value of Rs. 11,500. Shares of the value of Rs. 5,000 are held by another shareholder Rakesh Kumar. The controlling shares are thus held by the wives of the two partners of M/s. Dawar Brothers. The company, on the findings reached, is to deal in the same commodity in which the partnership of M/s. Dawar Brothers was dealing. The business is also to be carried on in the premises of the partnership. In view of these facts, the Commissioner was justified in reaching the finding that the petitioner-company was virtually owned by the family members of M/s. Dawar Brothers ; and was created to carry on the business and avail the advantage as a registered dealer in spite of the cancellation of the registration certificate for non-payment of tax. The company was clearly a device to avoid payment of tax and to circumvent the provisions of the law. In the circumstances, it is open to us to ignore the corporate entity of the company and to see through the facade and to hold that in reality the application made by the petitioner was made by the partnership of M/s. Dawar Brothers for its benefit. If registration could not have been granted to the partnership of M/s. Dawar Brothers in view of the fact that its registration was cancelled for non-payment of tax, it cannot be granted to the petitioner also until the arrears are paid by M/s. Dawar Brothers. In our opinion, the Sales Tax Officer and the Commissioner were right in refusing registration of the petitioner-company.
9. The petition fails and is dismissed with costs. Counsel's fee Rs. 100. The outstanding amount of the security deposit, if any, shall be refunded to the petitioner.