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WHETHER OFFICIAL LIQUIDATOR IS A DEALER FOR THE PURPOSES OF SALES TAX?

Corporate Laws / Banking / SEBI / LLP - By: - Mr. M. GOVINDARAJAN - Dated:- 8-12-2015 - Official Liquidator The provisions relating to Official liquidator under the Companies Act, 2013 have not yet been notified. It is relevant to refer to the provisions of Companies Act, 1956. Section 448 of the 1956 Act 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 .....

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f the Act lists the powers of the official liquidator. The powers include to carry on business of the company for the 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 maybe necessary for winding up the affairs of the company and distribution of its assets. Issue The issue to be discussed in this article is whether the official liquidator is to be considered as a dealer for the pur .....

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would persons, if they are involved in carrying on any business or trading activity such as the sale of machinery etc., As a necessary sequitur, the company in liquidation, whose assets are sold by way of an auction would be a dealer for the purposes of sales. The Official liquidator sales the properties on behalf of the company would automatically come under the definition of dealer . Case law The case law taken for discussion in respect of this article is Assistant Commissioner V. Hindustan U .....

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the company and to deal with the same in accordance with the provisions of Companies Act, 1956 and the Rules framed there under. The Official Liquidator issued a notice inviting tenders in respect of sale of assets of the company in liquidation. 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 assets of .....

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rchaser, being desirous to transport the purchased assets across the border of multiple states, had requested to official liquidator to incorporate the relevant sales tax registration number in the sale invoice. The Official liquidator has declined to accede to the request so made. 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. Th .....

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and further has observed that the auction purchaser cannot be treated as a dealer under the Kerala General Sales Tax Act, 1956 and the rules made there under and further held that the said sale in question would not be exigible to sales tax. Aggrieved against this order the appellant filed appeal before the Division Bench and contended that the official liquidator would be bound to pay sales tax as and when a sale of assets of the company in liquidation would be effected by him. The Division Ben .....

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of the view that the auction purchaser is liable to pay purchase tax under Section 5A of the Act. Therefore he approached the Supreme Court. The Supreme Court considered the following issues to be decided: Whether the Official Liquidator is a dealer within the meaning of the Act, 1963? Whether the official liquidator would be required to pay sales tax in respect of the sales effected pursuant of a winding up proceedings? The Department submitted the following before the Supreme Court: The offici .....

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nded that he would not be liable to pay any tax under the Act, 1963 and the liability would in fact be on the auction purchaser who would be exigible to purchase tax under Section 5A of the Act. 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. Since he discharges the statutory functions of selling the assets of the company in liquidation, he cannot be perceived to be carryi .....

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of the company and not as the owner; Rule 54 of Kerala Sales Tax rules and Section 17 of Central Sales Tax Act demonstrate that the liability to pay sales tax was clearly on the official liquidator. The Supreme Court analyzed the provisions of Section 2 (vi) which defines the term business and Section 2(viii) which defines the term dealer . The SC observed that the term business has been given a broad meaning by including within its ambit both incidental and ancillary transactions. It has also .....

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uctioneer and other mercantile agents. Sub clause (f) 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. The Supreme Court held that 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. A careful reading of the definition of dealer makes i .....

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within the wide ambit of Section 2(viii)(f) of the Act, 1963. The Supreme Court further held that it is 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 directions 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 .....

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