The transferee becomes liable to pay the tax and penalty remaining unpaid at the time of transfer under section 15 of the KST Act, and the statutory liability is imposed on the transferee to enforce such liability even against the transferee in cases where the dealer transfers the business to any person with the object of avoiding payment of the tax payable by him in respect of the said business.

S. R. RAJASEKHARA MURTHY, J. - Brindavan Industries, Raichur, was a dealer registered under the Karnataka Sales Tax Act, 1957 ("the KST Act") For the assessment years, 1977 to 1979, it fell into arrears of tax payable under the Act in a sum of Rs. 47,847 and thus became a defaulter under the Act,

2. The defaulter had obtained a loan on the security of the building and machinery, etc., from the Karnataka State Financial Corporation ("KSFC" for short). For default in repaying the loan, the assets of Brindavan Industries, both movables and immovables, were brought to sale by the KSFC and in the auction-sale held on 17th February, 1984, the assets of the defaulter were sold in public auction and the petitioner in this writ petition was the highest bidder. Thus, both the movable and immovable assets of the defaulter were handed over by the KSFC to the petitioner.

3. After the assets were thus transferred in favour of the petitioner, the recovery officer attached to the commercial tax department, Gulbarga, issued a notice to the petitioner on 20th August, 1985, as per annexure-B, calling upon the petitioner to pay the arrears of tax and penalty in a sum of Rs. 47,847 due from Srinivasa Shetty, proprietor of Sri Brindavan Industries, Raichur. This demand was made by the first respondent under section 15 of the Act.

4. The petitioners replied to the said notice on 13th January, 1986, as per annexure-C, and disputed their liability to pay the arrears of tax due from Brindavan Industries. This was followed by another notice issued by the first respondent, as per annexure-D, reiterating the demand from the petitioner in his capacity as transferee of the business. It was also brought to the notice of the petitioner that he would be liable to pay the tax of the defaulter under the Act by virtue of the provisions of section 15(1) of the Act. This notice is challenged by the petitioners in this writ petition.

5. The contention of the petitioners is that there was no transfer of ownership of the business of the defaulter by the defaulter directly and as such they are not liable to pay any tax or penalty payable in respect of the said business.

6. Their further contention is that there was no privity of contract between the petitioner and the defaulter and the assets of the defaulter were sold by the KSFC., and that, therefor, the petitioner-firm cannot be treated as a transferee under section 15 of the Act. It is, therefore, argued by Sri R. Gururajan, learned counsel for the assessee, that the assets of the defaulter were taken over by the KSFC and for realisation of the loan sold the assets in a public auction under section 31 of the State Financial Corporations Act, 1951 ("the SFC Act" for short). Thus, by the transfer of property made by the KSFC in exercise of its powers under section 29(1) of the SFC Act, all rights in or to the property transferred vested in the transferee (petitioner), and for all purposes, the Financial Corporation is deemed to be the owner of the assets of the debtor.

7. It is argued for the respondents by Sri Dattu, the learned High Court Government Pleader, that the dealer Sri Srinivasa Shetty was an assessee in default under the KST Act at the time of transfer and the petitioner who is a transferee of the business of the dealer which included its assets, both movable and immovable, becomes liable to pay the tax and the penalty that remained outstanding by the dealer. Under the said provision the transferee shall be deemed to be the dealer liable to pay the tax and that, therefore, all the provisions of the Act including recovery, become applicable to the transferee also. He also relied upon a decision of this Court in Sarvotham Shenoy v. State of Mysore (S.T.R.P. Nos. 5 and 6 of 1977, disposed of on 15th September, 1978), in which a Full Bench of this Court held that a transferee referred in section 15 of the KST Act is liable to pay the tax or penalty that remained unpaid by the dealer on the date of tr