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TMI Blog2017 (9) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ading to the present Special Civil Application in nutshell are as under : 2.1 It is the case of the petitioner-Transferee Company and so pleaded in the petition that the Passive Infrastructure Assets of Bharti Infratel Limited were transferred to Bharti Infratel Ventures Limited by virtue to Scheme of Arrangement, as approved by the High Court of Delhi vide its Order dated 29th March 2011. That, the demerger scheme was made effective from 1st January 2009. That, the Passive Infrastructure Assets of Vodafone Essar Gujarat Limited [now known as Vodafone West Limited] were transferred to Vodafone Essar Infrastructure Limited [now known as Vodafone Infrastructure Limited] by virtue of Scheme of Arrangement, as approved by the High Court of Gujarat vide Order passed in the month of August 2012. That, the demerger scheme was effective from 1st April 2009. That, the Passive Infrastructure Assets of Idea Cellular Limited were transferred to Idea Cellular Tower Infrastructure Limited, by virtue of Scheme of Arrangement as approved by the High Court of Delhi vide Order dated 3rd August 2009 and demerger scheme was effective from 1st January 2009. 2.2 It is the case of the petitioner-Transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "C 2.4 From the impugned show cause notices, the respondent no. 2 has sought to levy Value Added Tax under the VAT Act on the consideration received by the Merging Entities/Transferor Companies with respect to the transactions undertaken under the Indefeasible Right to Use Agreements ["IRU Agreement" for short] with the Transferee Company. It appears that the Emerging Entities/Transferor Company had, by way of an indefeasible right to use agreement provided to the petitioner-transferee company, an indefeasible right to use the Passive Infrastructure in lieu of consideration. The said transaction had taken place by virtue of Scheme of Arrangement sanctioned by the respective High Court, but after 1st April 2009. 2.5 It is the case on behalf of the petitioners that having received the aforesaid show causes notices, the petitioner-Transferee Company filed a letter before the respondent no. 2 duly informing that the Merging Entities/Transferor Companies to whom the said show cause notices have been issued have ceased to exist from 1st April 2009 by virtue of High Court orders. It was further informed that in light of the aforesaid facts, the said show cause notices are invalid in nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate legislation, nullifies the effect of the Union Legislation ie., the Companies Act and therefore, the same is ultra vires Article 246 of the Constitution of India. 5.1 It is submitted that the Union Legislation shall prevail over the State Legislation on a law which is enacted under List-I of Schedule VII of the Constitution of India. It is submitted that the Union Government is empowered to legislate and enact the laws on incorporation, regulation and winding up of the Companies under List-I, Entry 43, Schedule VII of the Constitution. It is submitted that the Companies Act enacted by the Union Government is the sole legislation to enforce a merger, amalgamation or any other restructuring of the Companies, as enshrined under various provisions of the Companies Act. That, by virtue of merger/ amalgamation, a Company cease to exist in the eyes of law, for all operations. That, under the process of merger/ amalgamation, a High Court exercises its statutory power and subsequently, the Company gets dissolved under a Central Legislation viz., the Companies Act. It is submitted that on the other hand, the powers to legislate on Sales and Purchase within the State is vested with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nything in Clauses [2] & [3], the Parliament has exclusive power to make laws in respect of any of the matters enumerated in List I in the Seventh Schedule. It is submitted that as per subclause [2] of Article 246 of the Constitution, notwithstanding anything contained in Clause [3], the Parliament and subject to Clause [1], the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List-III in the Seventh Schedule. 5.7 It is further submitted that while interpreting Article 246 of the Constitution, regard must be given to the Constitutional scheme which visualizes a federal structure, giving full autonomy to the Union Parliament as well as to the State Legislatures in their respective/demarcated fields of legislation. It is submitted that two legislations may very well be within the respective domains of the concerned legislatures, and yet, there may be intrusion into areas that fall beyond the assigned fields of legislation. It is therefore submitted that in such a situation, it will be on the discretion of the High Court to see if the conflict can be resolved by acknowledging mutual existence of the two legislations. And if that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted that therefore, the deeming fiction created by Section 52 of the VAT Act cannot be stretched to such an extent where it can transgress to the field of Entry in List-I. It is submitted that, thus, Section 52 of the VAT Act cannot be given effect beyond the competence of State as it stands in that case, it would be beyond the powers conferred under Entry 54 of List II of the Constitution of India. It is submitted that therefore, the impugned show causes notices are liable to be quashed and set-aside. 6. It is further submitted by Shri N Venkatraman, learned counsel for the petitioner that an order of the High Court sanctioning the Scheme binds all creditors; including the Government creditors and the liquidators and the contributories and the dissenting creditors or the members. It is submitted that exercise of power of the High Court under Sections 391/394 of the Companies Act, 1956 is a statutory power, and therefore, once the scheme has been approved by the High Court, it becomes an order of the Court. 6.1 In support of his above submissions, Shri Venkatraman, learned counsel for the petitioner has heavily relied upon the following decisions : [a] Duncan Agro Indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 280 ELT 43. 6.6 Making above submissions and relying upon the above decisions, it is submitted that the issuance of impugned show cause notices to the merged entities/transferor companies which are not in existence is illegal, bad in law and liable to be quashed and set-aside. 7. Shri N. Venkatraman, learned counsel for the petitioners has submitted that even otherwise, inter- branch transfer cannot be taxed under Section 52 of the VAT Act. It is submitted that since the merging entities/transferor companies ceased to exist for all purposes, after their amalgamation with Indus Towers Limited with effect from 1st April 2009 by virtue of High Court Order dated 18th April 2013, the inter se transactions ceased to qualify as "Sale" for the purpose of Gujarat Value Added Tax Act, 2003. It is submitted that the impugned show cause notices seek to recover tax for F.Y 2012-2013 to 2013-2014; 2009-2010 to 18th April 2013 and 2009-2010 to 18th April 2013 respectively. 7.1 It is submitted that the impugned Notices fail to mention the relevant provisions under the VAT Act whereunder demand is sought to be recovered from the merging entities/transferor companies for transactions undertake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction not exigible to value added tax under the Gujarat Value Added Tax Act, 2003. 8. It is further submitted by Shri N Venkatraman, learned counsel for the petitioners that even otherwise, the impugned show cause notices to the Merged Entities/Transferor Companies are without jurisdiction, as they are contrary to the provisions of Section 59 [3] of the Gujarat Value Added Tax Act, 2003. 8.1 Making the above submissions and relying upon the provisions, it is requested to allow the present writ petition and to declare Section 52 of the Gujarat Value Added Tax Act, 2003 ultra vires the Constitution of India, and also to quash and set-aside the impugned show causes notices dated 4th February 2016 [Annexure "A", "B" and "C"]. 9. Present writ petition is vehemently opposed by Shri Kamal B Trivedi, learned Advocate General appearing on behalf of the respondent-State of Gujarat. It is submitted by Shri Trivedi, learned Advocate General that as such during the course of hearing, the petitioners have candidly admitted that, but for the amalgamation of the Merging Entities/Transferor Companies with the Transferee Company, the Operating Companies/Transferor companies were liable to pay tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract, of property in any goods for cash, deferred payment or other valuable consideration and includes tax on the transfer of property in goods involved in the execution of a works contract. 9.2 It is submitted by Shri Kamal Trivedi, learned Advocate General that though the subject matter of Entries of List-I fall within the exclusive domain of the Parliament, on "incidental encroachment " by a State Legislation into any such matter falling within the exclusive domain of the Parliament in respect of which the Parliament alone has the power to enact law is permissible. It is submitted that therefore, by invoking the doctrine of pith and substance with reference to the State Legislation, one is to ascertain the true nature and character thereof by examining its object, scope and effect of its provisions and the legislation, as a whole. It is submitted that if on doing so, it appears that the State Legislation substantially falls within Entry 54 under List II of the Seventh Schedule to the Constitution of India, then in that case, such a State legislation cannot be invalidated merely because it has incidentally dealt with some aspect which is covered by a Central legislation, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e General that power to legislate includes "incidental power to legislate for stopping evasion of tax, pilferage of tax, etc." It is submitted that the Constitutional Entries are required to be interpreted in the widest possible fashion and therefore, if Entry 54 of List II is so interpreted, it can cover not only the charging provisions and machinery provisions, but also the provisions with reference to evasion tax, pilferage of tax etc., since the power to legislate includes incidental power to legislate for stopping pilferage of tax, or evasion of tax. 10.2 In support of his above submissions, Shri Trivedi, learned AG has relied upon a decision of Apex Court in case of State of West Bengal v. EITA Limited, reported in [2003] 5 SCC 239, and in the case of Commercial Tax Officer vs. Swastik Roadways & Anr., reported in [2004] 3 SCC 640. 11. It is further submitted by Shri Kamal Trivedi, learned Advocate General that the deeming effect flowing from sub-sections [1] & [2] of Section 52 of the GVAT Act is only for the purpose of the GVAT Act and not for the purpose of any other legislation, much less for the Companies Act, 1956, and therefore, on amalgamation, the transferor compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present case prior to passing of the sanction order dated 18th April 2013 of amalgamation, and therefore, subsequent adjudication of taxability having already been incurred on the transaction in question, the said taxable events would not change or alter the character of such transaction. 13. It is further submitted by learned Advocate General that even otherwise, a mere perusal of various clauses of Amalgamation Scheme makes it clear that all the liabilities; including the liability to pay duties/taxes, have been transferred to the petitioners-Transferee Company. It is submitted that therefore, there is nothing wrong on the part of the respondentsauthorities in calling upon the petitioner-Transferee Company, being a successor company, to show cause. In support of his above submissions, Shri Kamal Trivedi, learned Advocate General has relied upon decision of Apex Court in the case of Marshall Sons & Company [India] Limited v. ITO, reported in [1997] 2 SCC 302, wherein in para-15, the Apex Court has dealt with tax provision minus provisions like Section 52 of the GVAT Act. 14. Shri Kamal Trivedi, learned AG appearing on behalf of the respondent-State has submitted that the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kshshila Realities Private Limited; [f] Indus Towers Limited v. Deputy Commissioner of Income Tax, [Decided on 11.11.2014 : Delhi High Court]; and [g] Jindal Stainless Steel [Jindal Strips Limited] vs. CTO & Ors., [2007] 10 EST 777 [AP], shall not be applicable to the facts of the case on hand. It is submitted that in the aforesaid cases, there was no provision like Section 52 of the GVAT Act, and that therefore, in absence of any such provision like Section 52 of the GVAT Act, it was held in the said decisions that the Transferor Companies no longer exist when they are amalgamated into the Transferee Company, and that therefore, what was sale during the interregnum period would be Branch Transfer to the Transferee Company itself, which is not liable to tax. It is submitted that so is not the position in the present case, more particularly in view of Section 52 of the GVAT Act. 15.1 It is further submitted that similarly other decisions relied upon by the learned advocate appearing on behalf of the petitioners viz., [a] Great West Faddlery Co. Limited v. The King, AIR 1921 PC 148; [b] Gujarat University & Anr. vs. Shri Krishna Rangnath Mudholkar & Ors., AIR 1963 SC 703; [c] State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner-Company with effect from 1st April 2009 [ie., Appointed Date] vide amalgamation order sanctioned by the High Court on 18th April 2013. It is the case on behalf of the petitioners that by enacting Section 52 of the GVAT Act, it has encroached upon the Central Legislation; more particularly with respect to the Companies Act, 1956 by which the Parliament alone would have exclusive authority under Entry 4 of List I of the Seventh Schedule. 18.1 On the other hand, it is the case on behalf of the State that both Section 52 of GVAT Act and Sections 391 & 392 of the Companies Act would operate in different field, and the object and purpose of the same would be different. It is the case on behalf of the State that while considering legality and constitutional validity of Section 52 of the GVAT Act, the pith and substance of Section 52 of the GVAT Act and the purpose and object for which it is enacted is required to be considered. 18.2 While considering the constitutional validity of Section 52 of the GVAT Act, Section 52 of the GVAT Act, Entry 54 of List II of Seventh Schedule to the Constitution as well as Entry 43 of List I of Seventh Schedule are required to be referred to, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Schedule of the Constitution. However, while considering powers of the State to enact the law which falls within List II of the Seventh Schedule, the pith and substance of the law enacted by the State and/or the incidental encroachment by State Legislation into any such matter falling within exclusive domain of the Parliament in respect of which Parliament alone has power to enact the law and/or purpose and object for which the State has enacted the law are required to be considered. 18.5 In the case of State of West Bengal v. Kesoram Industries Limited [Supra], the Apex Court has observed and held that, "..while reading the three lists, List-I has priority over Lists III & II and List III has priority over List II. However, still the predominance of the Union List would not prevent the State Legislature from dealing with any matter within List II though it may incidentally affect any item in List I." 18.6 In the present case, the pith and substance of enactment of Section 52 of the GVAT Act is to bring within the net of tax in case sale has taken place within definition of Section 2 [23](d) of the GVAT Act. While considering the doctrine of pith and substance with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding up of companies falling within entry 43. The question is, what is the true character of the Act What is intended by the Act. For determination of the true character and the nature of the legislation, one should look to the whole of the Act including its preamble and as well as its objects and reasons. A perusal of the objects and reasons and the preamble would show that the Act has been enacted with a view to provide relief to certain undertakings, which are on the verge of collapse which may result into unemployment and which may also result into non-production of the commodities for the manufacture, of which they came into existence. In case, the companies or the undertakings are allowed to be wound up then in that situation there would be unemployment and the products which may be essential for the society, the society would be deprived of those products. The State Government has come forward to provide relief to such undertakings. It may advance loan or provide other financial assistance or give any guarantees and thereby save those undertakings, for the time being and this can be done by issuance of the notification u/s. 3 and the aggregate period under Sub- S.(2) of S.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bout levy of tax on sale and purchase of goods referable to Entry 54 of List II, and whereas, the Companies Act deals with incorporation, regulation and winding up of the Companies, referable to Entry 43 of List I. Under the circumstances, no question of repugnancy arises between the two. 18.9 While considering the constitutional validity of a particular statute, the true nature and character of the Statute enacted by the State shall have to be considered and borne in mind, more particularly, when it is alleged that the State Act is encroaching upon field/authority of the Parliament to enact the law, as per List I to Seventh Schedule tot he Constitution of India. 18.10 As observed hereinabove, the pith and substance is also required to be considered and borne in mind. In a given case, without encroaching upon the authority of either Parliament or the State, it is found on considering the true nature and character of the State Act, and the pith and substance of the Act and the object and purpose of the State Act, that in such a case, both the Acts can operate simultaneously as they do not occupy the same field. 18.11 While upholding the constitutional validity of the State legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a tax on the amalgamation of companies and has therefore encroached on the field of Parliament under Entry 43 List I of the Constitution. We do not find any substance in this submission as well. Stamp duty is levied on the instrument and the measure is the valuation of the property transferred. There is no question of encroachment on the field of Parliament under Entry 43 List I of the Constitution which empowers the Union to make laws re:Incorporation, regulation and winding up of trading corporations including Banks, insurance, finance corporations but not including cooperative societies. The follow up legislation under Entry 43 List I is totally different from the levy of stamp duty and of prescribing rate of stamp duty on such documents. The Bombay Stamp Act does not provide for any legislation with regard to incorporation, regulation and winding up of corporations. It only levies the stamp duty and prescribes the rate of stamp duty in respect of documents by compromise or arrangement." 18.13 While considering the pith and substance and the true nature and character of Section 52 of the GVAT Act, and the object and purpose of enacting the said Section 52, it appears that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d tax liability. 18.15 Considering the aforesaid facts and circumstances of the case, the submissions made on behalf of the petitioners that for sustaining the aforesaid deeming effect, there is no need for any amendment in the Constitution by the Parliament for certain non sales transactions as "sale" by amending Article 366 [29A] cannot be accepted more particularly when, as observed hereinabove, the State legislation/Act is not repugnant to the Central legislation and both operate in different fields. Article 366 [29A] of the Constitution is with respect to extending definition of "Sale" and is with respect to "deemed sale". In the present case, Section 52 of the GVAT Act cannot be said to be with respect to "deemed sale". It can be said to be with respect to recovery of the tax on the eventuality of sale, as contained in Section 2 [29] of the GVAT Act for which the tax eventuality had already occurred and/or taken place. At this stage, decision of the Hon'ble Supreme Court in the case of State of West Bengal v. E.I.T.A India Limited [Supra] is required to be referred to, which reads thus - "The Explanation to sub-section (1) says that where a transporter or an owner or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -A of Article 366 of the Constitution. Indeed there can be no analogy between the definition of deemed sale incorporated in clause 29-A of Article 366 of the Constitution and the statutory presumption incorporated in Explanation to sub-section (1) of Section 11. For these reasons, we cannot sustain the finding of the Tribunal. We hold that the said Explanation is valid in law and the challenge to its invalidity is misconceived and unsound." 18.16 Now so far as reliance placed on the decision of Marshall Sons & Company Limited v. ITO [1997] 2 SCC 302; in the case of State of West Bengal & Ors. vs. Committee for Protection of Democratic Rights, West Bengal & Ors., [2010] 3 SCC 571; and the decision in the case of UCO Bank & Ors. v. Dipak Debbarma & Ors. [Civil Appeal No. 11247 of 2016] relied upon by the learned counsel for the petitioners is concerned, the same shall not be applicable to the facts of the case on hand and/or the same shall be of no assistance to the petitioners. 19. Section 52 of the GVAT Act therefore cannot be said to be ultra vires Articles 246 & 252 of the Constitution of India; as alleged and/or sought to be contended on behalf of the petitioners. 19.1 As ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned counsel for the petitioners shall not be of any assistance to the petitioners. As observed hereinabove, both the Acts operate in different fields and with respect to different eventualities. Therefore, considering the pith and substance of Section 52 of the GVAT Act, it cannot be said to be in conflict with the Union legislation. 22. Now so far as submissions on behalf of the petitioners, relying upon decision of the Delhi High Court in the case of Duncan Agro Industries Limited v. Union of India [Supra] and the Bombay High Court in the case of Re : Europlast India Limited [Supra] and the decision of Calcutta High Court in the case of Mahigunj Loan Office Limited v. Behari Lal Chaki [Supra] that an order of High Court sanctioning the Scheme of Amalgamation binds all the creditors; including the Government creditors and the Liquidators so also the contributories and dissenting creditors and members, and the scheme approved by the High Court becomes an order of the Court is concerned, there cannot be any dispute with respect to the same, but what is required to be considered is whether the State legislature has any competence to enact the provisions or statute like Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering sub-section [2] of Section 52 of the GVAT Act, the decision of Apex Court in the case of Saraswati Industrial Syndicate Limited v. CIT [Supra] shall not be of any assistance to the petitioners herein. In the case before the Hon'ble Supreme Court, there was no such provision like sub-section [2] of Section 52 of the GVAT Act. In the matter before the Apex Court, the Hon'ble Court was considering Section 51 [1] of the Income-tax Act, 1960. 24. Now so far as submissions on behalf of the petitioners that after order passed by the High Court sanctioning the scheme of amalgamation of the Merging Entities/Companies with Indus Towers Limited [the petitioners] w.e.f 1st April 2009, with the Merging Entities having merged into the petitioner-Company, and therefore, inter se transaction between the Merging entities and petitioners after 1st April 2009 shall cease to qualify "sale" for the purpose of GVAT Act, as the same can be said to be inter-branch transfer, and therefore, cannot be taxed under Section 52 of the GVAT Act is concerned, the aforesaid submission seems to be attractive but has not substance, in view of subsection [2] of Section 52 of the GVAT Act. 25. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the transferor companies would not cease. At this stage, it is required to be noted that the incidence of payment of rent by the Transferee company to the Transferor companies during the period from 1st April 2009 to 18th April 2013 was nothing, but a "taxable event" within the meaning of Section 7 of the GVAT Act, read with Section 30 of the said Act, followed by the requirement of filing the monthly return, as per Section 29 of the GVAT Act read with Rule 19 of the GVAT Rules, 2006, which event had already occurred and completed prior to passing of the sanction order dated 18th April 2013 of amalgamation. Therefore, it can be said that subsequent adjudication of taxability on already incurred liability on the transaction in question on the said taxable events, it would not change or alter the character of such transaction. 27. Now so far as submission made on behalf of the petitioners that no notice could have been issued, or even served upon the petitioners/Transferee Company is concerned, it is required to be noted and as observed hereinabove that the taxing event/taxing liability had already accrued in favour of the Transferor companies during the period from 2009 to 2013. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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