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1991 Supreme(Guj) 70
G.T. Nanavati, S.D. Shah, JJ.
MANEKCHOWK & AHMEDABAD MFG. CO. LTD.
Versus
STATE OF GUJARAT.
Sales Tax Reference No. 19 of 1980
Decided On: Decided On : 06-03-1991
K. N. Raval, for the petitioner.
K. M. Mehta, Government Pleader, for the respondent.
Sales made under a compromise scheme sanctioned by the High Court, where the seller has the liberty to find a willing purchaser, fix the price, and transfer the property, are not sales under compulsion and are liable to sales tax.
Headnote:
SALES TAX - Whether sales of machinery and stock-in-trade were liable to tax under the Gujarat Sales Tax Act, 1969 - Held yes.
Fact of the Case:
The appellant, a textile mill, incurred heavy losses and closed its manufacturing activity from 1st April 1968. Under liquidation proceedings, an official liquidator was appointed and a compromise scheme was sanctioned by the Gujarat High Court. The scheme allowed the appellant to sell plant and machinery of unit No. 2 and stock-in-trade to discharge debts. The appellant sold the assets and realized an amount of Rs. 20,05,854. The Sales Tax Officer held that the sale proceeds were liable to sales tax and imposed a penalty. The appellant challenged the order, contending that the sales were not made in the course of business and were made under compulsion due to the compromise scheme.
Finding of the Court:
The Tribunal confirmed the order of the Assistant Commissioner holding that the sales of plant and machinery of unit No. 2 and of stock-in-trade and raw materials were liable to sales tax.
Issues: 1. Whether the sales of machinery and stock-in-trade were made in the course of business. 2. Whether the sales were made under compulsion or in the absence of free will.
Ratio Decidendi: 1. The appellant was carrying on business during the relevant period and the sales were made in the course of business. 2. The compromise scheme sanctioned by the High Court did not impose any fetter on the power of the appellant-mill company in selling its property nor did they impose any restriction on the power of the willing purchaser. The stipulations in the compromise scheme cannot amount to compulsion and/or coercion in making the sales. 3. The appellant-mill company was at liberty to sell its property to anyone who may offer the highest price. There was no restriction about the sale price or the purchaser, except the condition that such transactions are subject to the consent of Union Bank of India. 4. The appellant-mill company willingly sold the machineries, plant, stock-in-trade, and raw material to the willing purchaser at the price which the willing purchaser was ready to offer. 5. The sales were the result of privity of contract between the appellant-mill company and the purchasers, and there was no element of compulsion and/or coercion in such transaction.
Final Decision: The transactions of sale of machineries and plant of unit No. 2 and stock-in-trade were liable to tax under Gujarat Sales Tax Act, 1969.
The judgment of the Court was delivered by
S. D. SHAH, J. - By this reference under section 69(1) of the Gujarat Sales Tax Act, 1969, the Tribunal has referred the following question for our opinion :
"Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the sales of machinery of plant No. 2 and stock-in-trade in dispute were liable to tax under the Gujarat Sales Tax Act, 1969 ?"
2. The facts giving rise to the present reference, shortly stated, are as under :
(1) The appellant is a textile mill engaged in the business of manufacturing and selling cloth. It incurred heavy loss and according to it the activity of manufacturing was closed from 1st April 1968. At the instance of one of the creditors, under the liquidation proceedings which were commenced in the High Court of Gujarat, official liquidator was appointed. Later, on an application being made under section 391 of the Companies Act between the appellant-company and its creditors a compromise scheme was sanctioned by the Gujarat High Court by its order, dated 8th April, 1970. Under the said scheme the plant and machinery of unit No. 2 of the appellant-company were to be sold out and also some stock-in-trade was to be sold out in order to enable the appellant to discharge its debts to the Union Bank of India and other creditors. Under the said scheme it was, inter alia, contemplated that the appellant-mill company will, with the prior consent in writing of the bank, sell the pledged stocks of 1076 bales of cloth and 75 bales of cotton and it shall also sell the remaining hypothecated and/or pledged stocks of raw materials and finished products as loose cotton, cotton yarn, etc., with the prior consent in writing of Union Bank of India. It was further stipulated that the sale proceeds will be deposited by the appellant-mill company with Union Bank of India. As regards plant and machineries of unit No. 2 of the mill company it was stipulated that the appellant mill company will with the prior consent in writing of Union Bank of India sell the plant and machineries of the unit No. 2 and shall deposit the sale proceeds thereof with the said bank. There was further provision in the said scheme that all transactions for sale of properties, whether movable or immovable, of the mill company shall be scrutinised and approved by the committee consisting of a representative of the mill company, the State Government, the bank and the Regional Provident Fund Commissioner.
(ii) Pursuant to the order passed by the Gujarat High Court on 8th April, 1970, sanctioning the scheme the appellant-mill company sold the machineries of unit No. 2 and also the stock-in-trade and realised an amount of Rs. 20,05,854 by way of sale.
(iii) While making the assessment for the period from 6th May, 1970 to 31st May, 1971, the question arose as to whether the said amount of sale proceeds realised by the appellant-mill company was liable to sales tax and the Sales Tax Officer held that this transaction was liable to sales tax and he also imposed penalty under section 45(6) of the Gujarat Sales Tax Act, 1969.
(iv) Being aggrieved by the order of the Sales Tax Officer, the appellant preferred appeal before the Assistant Commissioner of Sales Tax and mainly contended that the sales of machineries and stock-in-trade were not liable to sales tax because (a) such sales were not the sales made in the course of business; and (b) the sales were made in pursuance of the scheme sanctioned by the High Court by its order, dated 8th April, 1970 and such sales were made under compulsion and not by free will, and therefore, they were not liable to tax. The Assistant Commissioner did not agree with the said submissions and held that the sales of machinery and stock-in-trade of unit No. 2 were liable to tax.
(v) On further appeal to the Tribunal, the Tribunal confirmed the order of the Assistant Commissioner holding that the sales of plant and machinery of unit N
