TMI Blog2017 (5) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... er could not regard the transfer of business as a sale, but split such transfer as involving the sale of individual items. The Assessing officer was completely wrong in thinking that the sale of a business as a whole is taxable simply because such a sale also involves a sale of several items used in the course of business. Another important feature is that the petitioner which is a partnership firm, sought to transfer the entire business as a going concern under a business transfer agreement to a private limited company of which the partners of the petitioner were the shareholders. In consideration of the transfer of the business as a whole, the partners of the petitioner were allotted equity shares and preferential shares in the company. Therefore, to treat the same as a sale of goods merely on the ground that all the assets of business are individually mentioned in the Schedule together with their value, is completely contrary to the Statutory prescription. Therefore, the impugned order has been passed on an assumed jurisdiction, where none exists. The impugned order was without jurisdiction - petition allowed - decided in favor of petitioner. - Writ Petition No.2167 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years 2013-14 and 2014-15. 8. Thereafter, the 3rd respondent issued a show cause notice dated 07.11.2016 proposing to levy VAT and calling upon the petitioner to file their objections within seven days. 9. The petitioner filed their objections on 11.11.2016. Thereafter, the petitioner was granted a personal hearing on 14.12.2016. The representative of the petitioner participated and opposed the demand. 10. However, the 3rd respondent passed an order dated 29.12.2016. By the said order, the 3rd respondent withdrew the levy of VAT on service tax collections. However, the 3rd respondent confirmed the levy of tax (1) on other income; (2) on sale of fixed assets; and (3) on sale of goodwill. The 3rd respondent did this, on the ground that there is no provision in the Telangana VAT Act, 2005 which exempts sale of goods, when a business is sold as an ongoing concern. The 3rd respondent came to the conclusion that the position of law remained the same from 01.04.2000, when the word closure was included in the definition of business. 11. Incidentally, the writ petitioner/dealer claimed exemption invoking Rule 36 of the Telangana VAT Rules. But the assessing officer came to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ression business is not included in the definition of the expression goods under Section 2(16). (ii) The second important aspect to be noted is that to be a sale within the meaning of section 2(28), a transfer of property in the goods or the transfer of the right to use, should take place in the course of trade or business. 17. Therefore, it should be understood at the outset that when a business in transferred in entirety as a going concern, with all the rights and liabilities, (i) there is no sale of any taxable goods and (ii) that even if there is a deemed sale of goods, as understood in common parlance, it does not take place in the course of trade or business, to come within the definition under section 2(28). No business can be transferred in the course of trade or business, unless a person is in the very business of buying and selling business houses. Therefore, unless a sale takes place in the course of trade or business, it is not covered by the Act. 18. Interestingly, the word trade is not defined in the Act, though the word business is defined. The word business is defined in Section 2(6) of the Act as follows: Business includes: (a) any trade, commerce or ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any of the provisions of the VAT Act, 2005. It is only the sale of goods either per se or as part of works contract and not the sale of business, which is made chargeable to tax under the Act. 21. One more aspect to be taken note of is that section 4(1) which deals with sale of goods, does not use the expression in the course of business. But section 4(4) which deals with purchase of goods uses 2 expressions namely (i) in the course of business and (ii) taxable goods. Therefore, the words in the course of business used in specific places in the statute, including in the definition of the word sale assumes significance. 22. As we have stated earlier, the Act seeks to define the word business under Section 2(6), for the simple reason that in a few specific places, such as Section 2(28), section 4(4) and Section 13(1), the Act uses the expression in the course of business and for use in the business. Therefore, it must be made clear at the outset that what is sought to be charged under the Act is only the sale of the goods or transfer of right to use the goods in the course of business and not the sale of business itself as a whole. 23. In Coromandal Fertilisers Limited v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such trade, commerce, manufacture, adventure or concern is carried on or undertaken with a motive to make gain or profit and whether or not any gain or profit accrues therefrom; and Business includes, - (i) 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 or undertaken with a motive to make gain or profit and whether or not any gain or profit accrues therefrom; and (ii) any transaction in connection with or incidental or ancillary to such trade, commerce, manufacture, adventure or concern; (ii) any transaction in connection with or incidental or ancillary to such trade, commerce, manufacture, adventure or concern; (iii) any transaction in connection with or incidental or ancillary to the commencement or closure of such trade, commerce, manufacture, adventure or concern; 27. Therefore, the contention of Mr.M.Govind Reddy, learned Special Standing counsel for the department is that the declaration of law by the Full Bench in Coromandel Fertilisers cannot be pressed into service anymore in view of the amendment to the defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion business has not altered the scenario. 31. Reliance is placed by Mr. M.Govind Reddy, learned Special Standing Counsel, upon the decision of the Orissa High Court in State of Orissa v. Raja Stores 65 STC 82 , to drive home as to what would constitute a transfer of business as a whole. But we do not know why this decision is relied upon. In the case before the Orissa High Court, Section 19 of the Orissa Sales Tax Act, 1947, which made a transferee of a business undertaking liable to pay the dues of the transferor fell for consideration. Therefore, the said case has no application to the case on hand. If the charging section makes even the transfer of business as a whole chargeable to tax or if the definition of the word sale does not use the expression in the course of trade or business, we would have had no difficulty in upholding the levy. But it is not so. 32. Therefore, we are of the considered view that the Assessing officer was completely wrong in thinking that the sale of a business as a whole is taxable simply because such a sale also involves a sale of several items used in the course of business. 33. That takes us to the next contention revolving around Rule 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denial of the benefit of the exemption under Rule 36, is unfair. 38. As we have indicated earlier, the transfer of business as a whole is not per se included in the charging provision. It is only by virtue of a logic that every transfer of business would also include a sale of goods of the business that the charging provision is sought to be invoked. When the transfer of business by itself is not made chargeable to tax and when the definition of the word sale would apply only when there is a sale in the course of business or trade, the very nomenclature given in Rule 36 as though the transfer of business is exempt from VAT, is redundant. 39. Rule 36 of the Telangana VAT Rules, 2005, reads as follows: 36. Conditions for Transfer of a Business:-- The transfer of a business from one VAT dealer to another VAT dealer is exempt from VAT subject to the following conditions, namely:- (a) the business must be transferred as an ongoing concern and continue trading under the new ownership; (b) the VAT dealer transferring the business shall notify the authority prescribed of the transfer of the business within ten days of the date of the transfer; (c) the VAT dealer transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and purview of the rule making power of the authority. 43. Similarly, in UCO Bank v. Commissioner of Income Tax (1999) 4 SCC 599, it was pointed out that a Circular cannot alter the provisions of the Act. Likewise, it was held by the Constitution Bench of the Supreme Court in Commissioner of Central Excise v. Ratan Melting Wire Industries (2008) 13 SCC 1 that when the Supreme Court or the High Court declare the law on the question arising for consideration, it would not be appropriate for the Court to direct that the Circular should be given effect to. 44. But we do not know of what purport the above decisions are. Rule 36 on the face of it, does not appear to be contrary to law. This Rule has been enacted in exercise of the power conferred by Section 78. The intention behind this Rule is to indicate what cases are covered by Section 13(5)(b) and to ensure that under Section 13(5)(b), no Input Tax Credit is allowed on the transfer of a business as a whole. As we have repeatedly pointed out, the transfer of business as a whole is not charged to tax per se. Therefore, to think that Rule 36 travels beyond the Act is quite obnoxious. 45. In the case on hand, another import ..... X X X X Extracts X X X X X X X X Extracts X X X X
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