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TMI Blog2006 (1) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 1957 (hereinafter "the KST Act"), for the arrears of sales tax of the concern whose assets have been transferred. Secondly, under what circumstances does a charge created on a property become unenforceable against a transferee of such a property. Finally, whether a completely novel relief, not argued/claimed before the High Court or decided by the impugned judgment, may be claimed before this Court. 2.. The facts in Civil Appeal No. 3170 of 2000: A company by name Mishal Paper Mills (P) Ltd. (hereinafter "the defaulting company"), was running a medium scale duplex board manufacturing unit. The second respondent, Karnataka State Industrial Investment & Development Corporation Ltd. (hereinafter "the Corporation"), had extended financial assistance to the defaulting Company. However, the defaulting company defaulted in repayment of the loans granted to it by the Corporation. Acting under the provisions of section 29(1) of the SFC Act, the Corporation took over the assets of the defaulting company. On March 17, 1992, the Corporation advertised the sale of the "assets" of the defaulting company, i.e., the land, building, plant and machinery. In response to the advertisement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the High Court of Karnataka, assailing the claim of the second appellant. The substantive reliefs claimed therein were two-fold: "(A) Declare that the provisions of section 15 of the Karnataka Sales Tax Act are void; (B) Issue a writ of mandamus or any other appropriate writ or order or direction restraining the respondents Nos. 1 and 2 not to take any action against the petitioner for the recovery of the alleged sales tax recovery as mentioned in the communication No. RRY. CR.3.92-93.1168 dated 11.8.1993......" 5.. By a common judgment See [2001] 121 STC 94. (dated September 22, 1999) rendered in four similar writ petitions, the High Court of Karnataka allowed the writ petition. The High Court held that the petitioner, being the purchaser in the auction from the Corporation, only of the land, building, plant and machinery, could not be considered as the transferee of the ownership of the business of the defaulting company. The High Court found that although land, buildings, plant and machinery of the defaulting company had been transferred to the first respondent, since the goodwill of the business had not been transferred, there was no transfer of the ownership of the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due and shall be a charge on the proper- ties of the person or persons liable to pay the tax or any other amount due under this Act." 9.. Section 15(1) of the KST Act provides: "When the ownership of the business of a dealer liable to pay the tax or penalty, or any other amount under the provisions of this Act, is transferred, the transferor and the transferee shall jointly and severally be liable to pay any tax or penalty or any other amount payable in respect of such business and remaining unpaid at the time of transfer, and for the purpose of recovery from the transferee such transferee shall be deemed to be the dealer liable to pay the tax or penalty or other amount under this Act." 10.. Section 29 of the SFC Act gives an extraordinary power to the Corporation. It provides that in the event of a borrower making a default in its obligations towards repayment or in relation to any guarantee, then the Corporation: "......shall have the right to take over the management or possession or both of the industrial concern, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation." Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01] 121 STC 520 (Kar)., the High Court held that when section 29 of the SFC Act was read with section 15 of the KST Act, the transferee would be jointly liable with the State Finance Corporation concerned. As we have already held, section 15 operates only in a situation where the ownership of the business is transferred. The learned single Judge, however, did not notice this point. Similarly, we are unable to accept the correctness of the judgment in Alpha Silicones v. Assistant Commercial Tax Officer (Recovery), Gulbarga See [1990] 77 STC 68 (Kar). as it held that even the mere transfer of assets would amount to transfer of ownership of the business. We overrule these two judgments to the extent that they conflict with the views expressed herein. 13.. In the present case, since it is not a matter of dispute that there was only the transfer of individual assets of the defaulting company, rather than the defaulting company being sold as a going concern, in the light of our expressed views, section 15 of the KST Act is not attracted. The first limb of Mr. Hegde's arguments must, therefore, fail. Enforceability of the charge: 14.. The next limb of Mr. Hegde's arguments was that si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot recoverable from him by proceeding against the property purchased in auction. In the appeal before this Court, the Municipal Corporation's main argument was that where the local law provided for the creation of a charge against a property for which municipal taxes were due, transferees of such properties were imputed with constructive knowledge of any charge created against the properties that they had purchased. This argument was, however, rejected. This Court held that while constructive notice was sufficient to satisfy the requirement of notice in the proviso to section 100 of the TP Act, whether the transferee had constructive notice of the charge had to be determined on the facts and circumstances of the case. In other words, this Court held that there could be no fixed presumption as to the transferee having constructive notice of the charge against the property. In fact, the principle laid down in Ahmedabad Municipal Corporation See AIR 1971 SC 1201. has been correctly applied in a sales tax case similar to the present case Deputy Commercial Tax Officer v. R.K. Steels [1998] 108 STC 161 (Mad.).. 18.. In the present case, firstly, no provision of law has been cited before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oration: 20.. Mr. Hegde then turned to his final argument that, in any event, the Corporation as the transferee of the assets, by virtue of the provisions of section 29 of the SFC Act, would be liable to the extent of the charge created on the assets transferred. 21.. In our view, it is not necessary for us to go into this question. As we have pointed out at the commencement, only two issues were raised in the writ petition and seem to have been argued before the High Court: First, with regard to the validity of section 15 of the KST Act, the High Court has dealt with it, and in this appeal by the State, this contention could not have been advanced. The second issue urged before us was with regard to the liability of the first respondent for the charge created on the properties of the defaulting company. The High Court, rightly in our view, held that the first respondent before us was not liable for the tax arrears of the defaulting company. No issue as to the liability of the Corporation was raised or argued before, or decided by the High Court. 22.. It is well accepted that, save for exceptional circumstances, new reliefs, not argued or claimed before the High Court, cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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