Bombay High Court
Stressed Assests Stabilization Fund vs The State Of Maharashtra on 3 March, 2025
Author: B. P. Colabawalla
Bench: B. P. Colabawalla
2025:BHC-OS:3382-DB
mvxa.16.2016 & 02.2020.docx
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
MAHARASHTRA VALUE ADDED TAX APPEAL NO.16 OF 2016
IN
APPEAL NO.23 OF 2014
WITH
MAHARASHTRA VALUE ADDED TAX APPEAL NO.2 OF 2020
IN
APPEAL NO.23 OF 2014
Stressed Assets Stabilization Fund .. Appellant
Versus
The State of Maharashtra .. Respondent
UTKARSH Ms. Nikita Badheka a/w Parth Badheka, Lata Nagal
KAKASAHEB
BHALERAO Advocates for the Petitioner.
Digitally signed by
UTKARSH KAKASAHEB
BHALERAO
Date: 2025.03.03
Ms. Jyoti Chavan, Addl.G.P. a/w Atul Vanarse, AGP for
14:34:15 +0530
Respondent/State.
CORAM :B. P. COLABAWALLA &
FIRDOSH P. POONIWALLA, JJ.
RESERVED ON : FEBRUARY 4, 2025
PRONOUNCED ON: MARCH 03, 2025
JUDGMENT [ PER: B. P. COLABAWALLA, J. ]
1. Maharashtra Value Added Tax Appeal No.16 of 2016
challenges the order dated 4th June 2015 [hereinafter referred to as
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“impugned order No.1” or the “1st impugned order”] passed by
the Maharashtra Sales Tax Tribunal (for short “the MSTT”) in VAT
Appeal No.23 of 2014. By impugned order No.1, the MSTT confirmed
the Determination Order dated 28 th March 2014 (for short “the DDQ
Order”) passed by the Commissioner of Sales Tax under Section 56(1)
of the Maharashtra Value Added Tax, 2002 (for short “the MVAT
Act“) inter alia holding that the Appellant is a “deemed dealer” as per
the Explanation to Section 2(8) of the said Act. Maharashtra Value
Added Tax Appeal No.16 of 2016 was admitted vide order dated 30 th
August 2016 on the following three questions of law:-
(a) Whether on the facts, evidences, circumstances and
details available on record, the Tribunal was justified in
holding that the Appellant Trust is a deemed dealer
under section 2(8) of MVAT Act 2002 liable for
registration and payment of tax under MVAT Act.
(b) Whether on the facts, evidences, circumstances and
details available on record, the Tribunal was justified in
upholding the view of the Ld. Commissioner that “it is
not necessary for levy of Sales Tax, that the Appellant
must carry on ‘business’ in the capacity of the dealer”.
(c) Whether on the facts, evidences, circumstances and
details available on record the Tribunal was justified in
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is affected by SASF, especially when the Commissioner
had clearly observed that whether there is sale of
movable or immovable property, is to be ascertained by
the field officers at the appropriate stage.
2. Maharashtra Value Added Tax Appeal No.2 of 2020
challenges the order dated 24th February 2020 [hereinafter referred to
as “impugned order No.2” or the “2nd impugned order”] passed
the Larger Bench of the MSTT denying the Appellant the benefit of
prospective effect to the DDQ Order passed by the Commissioner of
Sales Tax. To put it simply, the Commissioner of Sales Tax, by the DDQ
Order, [under section 56(2) of the MVAT Act], denied the Appellant the
benefit of prospective effect to the said DDQ Order. This part of the
DDQ Order was confirmed by the Larger Bench of the MSTT. The
Larger Bench was constituted to decide the issue of prospective effect
because initially when the DDQ Order passed the Commissioner of
Sales Tax was challenged before the MSTT, a two member bench of the
MSTT, whilst upholding the DDQ Order in so far as it held that the
Appellant is a “deemed dealer” under the MVAT Act [impugned order
No.1], had a difference of opinion on whether the Appellant was
entitled to the benefit of prospective effect. It is in these circumstances,
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that a Larger Bench was constituted pursuant to an order passed by this
Court on 22nd November 2017 in MVAT Appeal No.46 of 2017. This
order of the Larger Bench is challenged in Maharashtra Value Added
Tax Appeal No.2 of 2020. This Appeal was admitted on 19th July 2023
on the following four questions of law:-
(a) Whether on the facts and in the circumstances of the
case and in law, the Tribunal was justified in rejecting
the plea of grant of prospective effect u/s. 56(2) of
MVAT Act to the order of the Commissioner dt.
28.03.2014?
(b) Whether on the facts and in the circumstances of the
case and in law, the Tribunal’s finding as listed below
are perverse as they are not based on any evidence on
record, contrary to evidence on record and otherwise
unreasonable. The following perverse findings has
resulted in denial of prospective effect to the Appellant
(i) There is no dispute that being instrumentality of
central Government, Appellant, was aware that
it was carrying the business of buying and
selling the goods within the meaning of the
MVAT Act and in such circumstances ought to
have collected tax and therefore there is no
case for grant of Prospective effect to the order
of the Commissioner.
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(ii) There was no disputed question and therefore
the bonafide of the Appellant are conspicuously
absent.
(c) Whether on the facts and in the circumstances of the
case and in law, the Tribunal was justified in
confirming, that the Appellant was effecting recovery
of the stressed assets by sale of movable properties,
when the Commissioner himself had kept this question
open to be decided by field officers after due
verification?
(d) Whether on the facts, evidence, circumstances and the
details available on record, the Tribunal was justified
in not appreciating that the Appellant Trust having
disbursed the amount recovered amongst other
secured creditors, it will not be able to recover any tax
from the other secured creditors and therefore a case
of grave hardship was made out especially when the
Appellant trust has no income of its own and its
administrative expenses are born by successor of IDBI
(now IDBI Bank Ltd.) as per Trust Deed?”
3. Both the above Appeals have now come up for hearing and
final disposal before us. Before we proceed to decide the questions of
law raised in both the aforesaid Appeals, it would be necessary to set
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refer to the facts as we go along.
FACTS OF THE CASE:
4. The Appellant before us, namely M/s. Stressed Assests
Stabilization Fund (SASF), is a trust set up by the Central Government
pursuant to a Trust Deed dated 24 th September 2004. The purpose of
setting up the aforesaid Trust was basically to acquire, by transfer, the
stressed assets of the Industrial Development Bank of India (IDBI) who
had accumulated non-performing assets to the tune of approximately
Rs.9,000/- Crores as on 31 st March 2004. It is to deal with this aspect
that the Central Government, through the President of India, as the
settlor, decided to set up a Special Purpose Vehicle (SPV) in the form of
a Trust for acquiring the stressed assets of IDBI with a view to recover
the loans that were to be acquired by the Appellant Trust from IDBI.
The Central Government allocated funds of Rs.9,000/- Crores in the
budget for the year 2004-05 for extending a loan to the Trust. The
Trust Deed also defined “Stressed Assets” to mean the assets financed
by IDBI in the form of loans and advances and which were not
recovered by IDBI. In other words, the Appellant – SASF was assigned
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the legal debts owed to IDBI along with the underlying securities,
which were then to be disposed of/sold for recovery of loans from the
defaulting borrowers. The main, or rather, the only object of the Trust
was realization and recovery of dues with or without the intervention of
the Courts/Tribunals.
5. Pursuant to the aforesaid Trust Deed and to take its object
forward, a Transfer Deed dated 30 th September 2004 was executed
between IDBI and the Appellant Trust (SASF) whereby the stressed
assets of IDBI were transferred to the Appellant. After the aforesaid
transfer, the Central Government also notified the Appellant
(Notification No.41 dated 9th October 2004) as a public financial
institution for the purpose of Section 2(h) of the Recovery of Debts Due
to Banks and Financial Institution Act, 1993 (for short “the RDDB
Act, 1993”). By virtue of this Notification, the Appellant (SASF) could
therefore recover the stressed assets either by resorting to the
provisions of the said RDDB Act, 1993 or the provisions of SARFAESI
Act, 2002.
6. It is the case of the Appellant that on or around 10 th
December 2013 to 16th December 2013 the Appellant was visited by the
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Investigation Branch of the Sales Tax Authorities of Maharashtra. The
Appellant produced all necessary details before the Investigating
Officers, and they did not find any discriminatory material for
suspicion. However, according to the Investigating Officers, the
Appellant was a dealer (as contemplated under the provisions of the
MVAT Act) and ought to have registered itself under the said Act and
should have paid tax on the sale of movable properties which it
undertook whilst it was seeking to recover the loans and advances of
the defaulting borrowers, and which were assigned to the Appellant.
7. According to the Appellant, it was not a dealer in terms of
the provisions of the MVAT Act as it was not carrying on any business
of buying or selling goods. According to the Appellant, it was
constituted by the Government of India, for the Government of India,
and the Government of India was the beneficiary of the Trust set up by
it. It was the further case of the Appellant that the money realized by it
had to be transferred to the Central Government under the Trust Deed
which set up/constituted the Appellant. Since the Government of India
was the beneficiary, and also the fact that if the Trust was unable to sell
the stressed assets within the period mentioned in the Trust Deed (20
years from the date of formation of the Appellant) the stressed assets
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were to vest in the Central Government. This being the case, it was also
the argument of the Appellant that as per Article 285 of the
Constitution of India, the property of the Union Government was
exempted from all taxes imposed by the State Government. It is
because of this impression of the Appellant that it filed an Application
under Section 56(1) of the MVAT Act before the Commissioner of Sales
Tax for Determination of Disputed Questions as to whether the
Appellant can be treated as a dealer under the MVAT Act.
8. In the Application filed by the Appellant [under Section
56(1)], it was argued before the Commissioner of Sales Tax, that in the
facts of the present case, it could not ever be said that the Appellant was
carrying on business of buying or selling goods. It was the contention of
the Appellant that realization of debts by the Appellant by resorting to
enforcement of securities does not amount to sale of assets by the
Appellant. It was further contended that the immovable properties
having plant, machinery and structures, were sold by the Appellant on
an “as is where is basis” and therefore, whether such immovable
properties can be subjected to tax by the State of Maharashtra was the
question posed to the Commissioner. The argument of Article 285 of
the Constitution of India was also canvassed before the Commissioner.
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Apart from this, the Appellant also requested the Commissioner to give
prospective effect to the DDQ Order he proposed to pass, if the points
canvassed by the Appellant were not accepted by the Commissioner.
9. After hearing the Appellant, by a detailed order dated 28 th
March 2014 [the DDQ Order], the learned Commissioner came to the
conclusion that the Appellant is a “deemed dealer” as per the
Explanation to Section 2(8) of the MVAT Act. The Commissioner also
held that the definition of “business” would not apply to the Appellant
and the only aspect to be considered is whether the Appellant is selling
any goods (movable property) by auction. He held that the sale of
movable property by the Appellant through the auction process
amounted to a sale of movable property and therefore exigible to Sales
Tax. As far as the request for prospective effect was concerned, the
Commissioner held that under the MVAT Act, tax is on the incidence of
sale within the State of Maharashtra. According to the Commissioner,
the Appellant was aware that it is effecting recovery of stressed assets
by sale of movable and immovable property and therefore it was not a
fit case for granting prospective effect to the DDQ Order. In other
words, the request for giving prospective effect to the DDQ Order was
turned down by the Commissioner.
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10. Being aggrieved by the DDQ Order passed by the
Commissioner, the Appellant approached the MSTT by filing an Appeal
under Section 26(1)(c) of the MVAT Act. The MSTT also, after giving a
hearing to the Appellant, by a detailed judgment and order dated 4 th
June 2015 [the 1st impugned order], confirmed the DDQ Order passed
by the Commissioner, in so far as it held that the Appellant was a
“deemed dealer”. This forms the subject matter of Maharashtra Value
Added Tax Appeal No.16 of 2016. However, the two members of the
MSTT differed on whether the benefit of prospective effect ought to be
given to the Appellant. One member was of the view that the Appellant
had made out a case for getting the benefit of prospective effect to the
DDQ Order, while the other member did not. It is because of this
difference of opinion that a Larger Bench of the MSTT was constituted
and which finally held, by its order dated 24th February 2020
[impugned order No.2], that the Appellant is not entitled to the benefit
of prospective effect to the DDQ Order passed by the Commissioner.
This order is the subject matter of Maharashtra Value Added Tax
Appeal No.2 of 2020.
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SUBMISSION OF THE APPELLANT:
11. In this factual backdrop, Ms. Badheka, the learned
advocate appearing on behalf of the Appellant, submitted that the DDQ
Order passed by the learned Commissioner and the Tribunal’s 1 st
impugned order [confirming the DDQ Order], inter alia holding the
Appellant as a “deemed dealer” is completely erroneous and contrary,
not only to the facts, but also the law. Ms. Badheka submitted that the
Appellant has only discharged its functions as per the directions of the
Central Government as stated in the Trust Deed. The Appellant,
therefore, cannot be treated as a dealer, especially in view of Article 285
of the Constitution of India. It was the submission of Ms. Badheka that
as per Article 285 of the Constitution of India, the property of the
Union Government is exempt from all taxes imposed by the State or by
any Authority within the State. This apart, she submitted that the
Appellant Trust was brought into existence by the Government of India
as a settlor of the Trust and the beneficiary is also the Government of
India. The Appellant is only a Special Purpose Vehicle set up to realize
the stressed assets of IDBI, and as such, the Appellant cannot be
termed as a dealer within the meaning of the MVAT Act. In this regard,
Ms. Badheka invited our attention to the Trust Deed dated 24 th
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September 2004 and pointed out that the objectives of the Appellant
Trust are mainly to administer and realize stressed assets of IDBI. She
submitted that Trustees are appointed by the Government of India and
the Trust Deed is also executed between the President of India and the
Trustees. She submitted that the duration of the Trust is also for a
limited period, and it is to stand terminated upon recovery in full of the
stressed assets transferred to it under the Transfer Deed, or on the
expiry period of 20 years (which has been extended). She submitted
that the Appellant Trust can also be terminated if the Union
Government is satisfied that no further amounts would be recovered
from sale of the stressed assets. Placing reliance on these provisions of
the Trust Deed, Ms. Badheka submitted that by no stretch of the
imagination can it be said that the Appellant Trust is doing a “business”
of sale and purchase of movable property. Since the Trust is formed by
the Central Government for a specific purpose, with a limited duration,
the Trust cannot be deemed to be a dealer within a meaning of the
MVAT Act. Ms. Badheka submitted that the definition of word
“business” in Section 2(4) of the MVAT Act inter alia includes any
adventure or concern in the nature of service, trade, commerce, or
manufacture. She submitted that looking at the objects of the Trust and
what it is supposed to do in terms of the Trust Deed [under which it is
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set up], the Appellant can never be said to be indulging in any activity
of carrying on “business” as contemplated in terms of Section 2(4) of
the MVAT Act. She further submitted that the definition of the word
“sale” under Section 2(24) of the MVAT Act means a sale of goods made
within the State of Maharashtra for cash or deferred payment or other
valuable consideration. She submitted that the Appellant has not sold
any goods within the State of Maharashtra but has discharged the
functions assigned to it by the Trust. According to Ms. Badheka, the
main object of the Trust, as is clear from the preamble of the Trust
Deed, is to acquire by transfer the stressed assets of IDBI, administer
and manage the said stressed assets with a view to recover the loans
due thereunder, and for this purpose, the Appellant Trust was created.
Ms. Badekha submitted that not only this, but the Trustees have to pay
the amounts realized or recovered from the stressed assets to the
Government of India. In such a situation, the activity of recovering
loans by selling securities would not fall even within the definition of
word “business” [as defined in Section 2(4)], or the word “sale” as
defined under Section 2(24) of the MVAT Act.
12. To buttress this argument, Ms. Badheka placed reliance on
the ruling of the Hon’ble Supreme Court in the case of The State of
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Tamil Nadu and Anr. V/S The Board of Trustees of the Port of
Madras [(1999) 4 SCC 630 : (1999) 144 STC 520]. She submitted
that the Hon’ble Supreme Court (in the aforesaid decision) has clearly
held that the expression “carrying on business” requires something
more than mere selling and buying. Whether a person “carries on
business” in any particular commodity must depend upon the volume,
frequency, continuity, and the regularity of the transactions of purchase
and sale in a class of goods and the transactions must ordinarily be
entered into with a profit motive, which may, however, be statutorily
excluded. She submitted that merely the act of selling or buying etc,
would not constitute a person as a dealer but the object with which the
person who carries on the activity is important. It is not as if every
activity or any repeated activity which results in sale or supply of goods
would attract sales tax. She submitted that if it was the intention of the
legislature to tax every sale or purchase, irrespective of the object of the
activities out of which the transactions arose, then it was not necessary
to state in the legislation that the person must carry on business of
selling, buying etc. She submitted that all these factors, and which are a
sine qua non before the Appellant could be termed as a dealer, are
absent in the present case. She submitted that the main activity of the
Appellant Trust is not doing any business but in fact is to recover the
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stressed assets of IDBI. Therefore, the incidental transaction of sale of
securities (movable) is required to be carried out by the Appellant Trust
and this activity carried out by the Appellant cannot be termed as
“carrying on business”. Since there is no sale or purchase of goods as
understood in the normal parlance, coupled with the fact that there is
no profit motive involved, the Appellant can never be said to be a
“dealer” as contemplated under the MVAT Act. This is more so because
the amount recovered by sale of securities by the Appellant is required
to be credited to the Central Government which again clearly goes to
establish that the Appellant is doing no business and has no profit
motive.
13. Apart from the aforesaid argument, Ms. Badheka also
submitted that the loans advanced by IDBI to its borrowers, and which
were thereafter assigned to the Appellant Trust, was on the basis of
securities and mortgage of immovable properties. She submitted that
the entire properties that were auctioned by the Trust were immovable
properties having plant and machinery embedded in the earth. Since
the sale was carried out on an “as is where is basis” there was absolutely
no sale of movable property and therefore would not be exigible to sales
tax under the provisions of the MVAT Act.
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14. The next submission made by Ms. Badheka was that the
Commissioner, whilst passing the DDQ Order, appreciated the
arguments of the Appellant and therefore observed that the bifurcation
of goods as movable and immovable needs to be properly ascertained
by the field officer and at the appropriate stage the question of levy of
tax would come up. She submitted that the Tribunal, in impugned
order No.1, in fact concluded that the property can be severed from the
earth and therefore becomes movable property which was contrary to
the Appellant’s case that in all cases where the plant and machinery
were sold the same was along with the land and on as “as is where is
basis”, and no plant and machinery was severed by the Appellant and
no delivery was given by the Appellant of any goods to the buyer.
15. Ms. Badheka then submitted that the Tribunal wrongly
interpreted the provisions of the Explanation to Section 2(8) of the
MVAT Act. She submitted that the Tribunal has wrongly categorized
the Appellant as a public financial institution as contemplated under
Clause (vii) of the Explanation to Section 2(8). She submitted that the
notification dated Notification No.41 dated 9 th October 2004 conferring
the status of a “public financial institution” on the Appellant was purely
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for the purposes of RDDB Act, 1993 and the SARFAESI Act, 2002 so
that the Appellant could recover monies from the defaulting borrowers
efficiently and quickly under these special legislations. That by itself
would not make the Appellant a public financial institution as
contemplated under Clause (vii) of the Explanation to Section 2(8) of
the MVAT Act. For all these reasons, Ms. Badheka submitted that the
order passed by the Tribunal on 4th June 2015 (impugned order No.1)
holding the Appellant as a “deemed dealer” under the provisions of the
MVAT Act requires interference and the questions of law framed in
MVXA No.16 of 2016 be answered in the negative and in favour of the
Appellant and against the Revenue.
16. As far as giving prospective effect to the DDQ Order of the
Commissioner is concerned, Ms. Badheka submitted that the same
forms the subject matter of MVXA No.2 of 2020. She submitted that
the Larger Bench of the MSTT, by its order dated 24 th February 2020
(impugned order No.2), denied the benefit of prospective effect [to the
DDQ Order] to the Appellant. In this regard, Ms. Badheka pointed out
the provisions of Section 56 of the MVAT Act. She submitted that
Section 56 as it stood [prior to its deletion with effect from 1 st May
2016], inter alia provided that if any question arises, otherwise than in
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a proceeding before the Court or a Tribunal under Section 55, or before
the Commissioner has commenced assessment of a dealer under
Section 23, whether, for the purposes of this Act, any person is a dealer,
or any particular person or dealer is required to be registered, or any
particular thing done to any goods amounts to or results in the
manufacture of goods within the meaning of that term, or any
transaction is a sale or purchase, or where it is sale or purchase, the sale
or purchase price thereof etc, the Commissioner shall, subject to rules,
make an order determining such question. She submitted that under
Section 56(2), the Commissioner has the power to rule that the
determination made by him under sub-section (1) shall not affect the
liability of the Applicant under the MVAT Act, or if the circumstances
so warrant, of any other person similarly situated, with respect to any
sale or purchase effected prior to the determination. She submitted that
Section 56(2) is not attached with any conditions, and it is left to the
discretion of the Commissioner. In the event of the refusal by the
Commissioner to exercise its discretion to grant prospective effect
under Section 56(2), such refusal can be agitated before the Tribunal as
also before this Court. Ms. Badheka was fair to point out that although
prospective effect of the order of the Commissioner can be granted by
the Tribunal, or as the case may be, the High Court, the same can be
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given only upto the date of the order of the Commissioner under
Section 56, and which in the present case is 28 th March 2014. She
submitted that in fact after the order of the Commissioner (dated 28 th
March 2014) holding the Appellant as a “deemed dealer”, the Appellant
has obtained a certificate of registration as a dealer under protest and
the said certificate is granted with effect from 10 th June 2014. In any
event, for the period after the order of the Commissioner, the Appellant
has filed returns but has not sold any movable property nor collected
any tax. Therefore, in the present case, the prospective effect argument
is restricted to only 8 transactions effected by the Appellant in the State
of Maharashtra prior to 10th June 2014. Ms. Badheka also tendered to
the Court a list of those transactions.
17. Ms. Badheka submitted that as far as the prospective effect
argument is concerned, in the 1st impugned order, there was a
difference of opinion between the members of the MSTT whether the
Appellant would be entitled to the benefit of prospective effect. She
submitted that the judicial member rightly observed that though the
Appellant is a “deemed dealer”, the Commissioner has not stated in
unequivocal terms that the Appellant Trust is carrying on business of
buying or selling goods in terms of the MVAT Act. Further, the
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Commissioner has also not decided whether the transfer of stressed
assets to the Appellant Trust under the Transfer Deed amounts to
purchase by it. She submitted that the judicial member therefore
correctly came to the conclusion that it can’t be definitively concluded
that the Appellant Trust was carrying on business of buying and selling
goods. She submitted that this apart, in view of the fact that the
Appellant Trust was formed for a limited duration for recovery of
stressed assets of IDBI, and admittedly was not carrying on any
business [as understood in the common parlance] and neither was it
making any profit, this was a fit case where the discretion ought to have
been exercised in favour of the Appellant and the benefit of prospective
effect ought to have been granted.
18. To carry this argument further, Ms. Badheka pointed out
once again, that this is a unique case where the Central Government
has set up the Appellant Trust in public interest. The object is to
manage, administer and realize huge stressed assets of the erstwhile
IDBI. Once the assets are realized and recovery was made, the same
had to be passed on to the Central Government. All this is explicitly
clear from the terms of the Trust Deed. It is in these facts and
circumstances that the Appellant was of the bonafide belief that it
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would not be liable to pay any sales tax on sale of securities (movable)
as it was not carrying on any business of buying or selling goods. In
fact, the Comptroller and Auditor General, who are the regular auditors
of the Appellant, have also not pointed out any time that the sale of
securities (movable) by the Appellant would be exigible to sales tax. It
is for this reason that the Appellant, whilst selling the securities
(movable), has not collected any sales tax from the purchaser. If
prospective effect is not given to the DDQ Order passed by the
Commissioner, grave hardship would be caused to the Appellant, as it
would now be impossible to collect the sales tax from the concerned
purchaser. This is more so when one takes into consideration that the
Appellant does not have any income of its own and if the Appellant is
asked to pay the sales tax on the sale of the securities already done in
the past, it would have to approach to the Central Government for the
said funds to pay over to the State Government. Further, considering
that the Central Government is the only beneficiary under the Trust set
up and created to recover the stressed assets of IDBI, the Appellant was
under a bonafide impression that because of the mandate of Article 285
of the Constitution of India it was not required to collect any taxes from
the purchasers for sale of stressed assets. For all these reasons, Ms.
Badheka submitted that this is a fit case where the benefit of
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prospective effect to the DDQ Order ought to be granted to the
Appellant.
FINDINGS AND DISCUSSION OF THE COURT:
19. We have heard Ms. Badheka at great length. In the present
Appeals there are 2 impugned orders. Impugned order No.1 (dated 4 th
June 2015) is the order of the MSTT that confirms the DDQ Order
passed by the Commissioner on 28th March 2014 inter alia holding that
the Appellant is a “deemed dealer” as per the Explanation to Section
2(8) of the MVAT Act. Impugned order No.2 is the order passed by the
Larger Bench of the MSTT denying the benefit of prospective effect to
the DDQ Order [under Section 56(2) of the MVAT Act], to the
Appellant. As mentioned earlier, a Larger Bench was formed because in
impugned order No.1, the two members of the MSTT had a difference
of opinion on whether the Appellant would be entitled to the benefit of
prospective effect as contemplated under Section 56(2) of the MVAT
Act. Since impugned order No.1 (holding the Appellant as a “deemed
dealer”) is the subject matter of MVXA No.16 of 2016, we will deal with
this issue first.
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WHETHER THE APPELLANT IS A “DEEMED DEALER” AS
CONTEMPLATED UNDER THE EXPLANATION TO SECTION
2(8) OF THE MVAT ACT.
20. The emphasis of the argument of the Appellant is that the
Appellant is not carrying on any business as contemplated under the
provisions of the MVAT Act and hence would not be liable to tax under
the provisions thereunder. Before we examine the provisions of the
MVAT Act, it would be necessary to examine the relevant clauses of the
Trust Deed dated 24th September 2004 and the Transfer Deed dated
30th September 2004. From the Trust Deed it is clear that for four
decades, IDBI had accumulated non-performing assets of
approximately Rs.9,000/- Crores as on 31 st March 2004. The
Government of India, therefore, as a settlor, decided to set up a Special
Purpose Vehicle in the form of a Trust for acquiring (by transfer) the
stressed assets of IDBI with a view to recover the amounts due
thereunder. It is for this purpose that the Appellant was constituted as
“the Stressed Assets Stabilization Fund”. The salient features of this
Trust Deed indicates that the Trustees of the Appellant were to realize
the stressed assets by re-structuring, arriving at settlement with
borrowers, taking legal measures, or adopting such measures as it may
deem fit, including but not limited to recovery as arrears of land
revenue. The amounts realized or recovered from the stressed assets
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were to be paid over to the Government of India. Basically, the objects
of the Trust were to manage, administer and realize the stressed assets,
and for that purpose, all that was required for realizing and recovering
dues of defaulting borrowers, with or without the intervention of the
Courts/Tribunals, was to be undertaken by the Trust, including taking
measures under the SARFAESI Act, 2002. It is in furtherance of this
object that a Transfer Deed was executed on 30 th September 2004
between IDBI and the Appellant under which the loans of the
defaulting borrowers with their underlying securities were transferred
to the Appellant so that the Appellant could thereafter undertake the
exercise of disposing of the stressed assets and pay over the sale
proceeds to the Government of India. Thus, the Appellant became the
full and absolute owner of the loans and the stressed assets [by virtue of
the Transfer Deed dated 30th September 2004] and the only person
legally entitled to recover those loans or any part thereof. To ensure
that the Appellant could in fact avail of quick remedies of recovery
under the provisions of the RDDB Act, 1993, as well as the SARFAESI
Act, 2002, the Government, in exercise of powers conferred by sub-
clause (ii) of clause (h) of Section 2 of the RDDB Act, 1993
specified/notified the Appellant to be a financial institution for the
purposes of the said clause. On perusing the clauses of the Trust Deed
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as well as the Transfer Deed, it is clear that the objects of the Appellant
Trust were for recovering debts of defaulting borrowers by disposing of
the stressed assets inter alia under the provisions of the SARFAESI
Act, 2002.
21. Having said this, what we now have to decide is whether
the Appellant can be termed as “dealer” for the purposes of the MVAT
Act. According to the Appellant it cannot be termed as a dealer as it
does no “business” of sale or purchase as contemplated under the
provisions of the MVAT Act. To understand this argument, it would be
necessary to reproduce the definition of the words “business”, “sale”
and “dealer”. The word “business” is defined in Section 2(4) and reads
thus:-
“2(4) “business” includes,-
(a) any service;
(b) any trade, commerce or manufacture;
(c) any adventure or concern in the nature of service, trade,
commerce or manufacturer;
Whether or not the engagement in such service, trade,
commerce, manufacture, adventure or concern is with a motive
to make gain or profit and whether or not any gain or profit
accrues from such service, trade, commerce, manufacture,
adventure or concern.
Explanation.- For the purpose of this clause,-
[***]
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(ii) any transaction of sale or purchase of capital assets
pertaining to such service, trade, commerce, manufacture,
adventure or concern shall be deemed to be a transaction
comprised in business;
(iii) sale or purchase of any goods, the price of which would be
credited or, as the case may be, debited to the profit and loss
account of the business under the double entry system of
accounting shall be deemed to be transactions comprised in
business;
(iv) any transaction in connection with the commencement or
closure of business shall be deemed to be a transaction
comprised in business;”
22. Similarly the definition of the word “sale” is defined in
Section 2(24) which reads as under:-
“2(24) “Sale” means a sale of goods made within the State for cash or
deferred payment or other valuable consideration but does
not include a mortgage, hypothecation, charge or pledge; and
the words “sell”, “buy” and “purchase”, with all their
grammatical variations and cognate expressions, shall be
construed accordingly;
Explanation.- For the purposes of this clause,-
(a) a sale within the State includes a sale determined to be inside the
State in accordance with the principles formulated in section 4 of the
Central Sales Tax Act, 1956 (74 of 1956);
(b) (i) the transfer of property in any goods, otherwise than in
pursuance of a contract, for cash, deferred payment or other
valuable consideration;
(ii) the transfer of property in goods (whether as goods or in some
other form) involved in the execution of a [works contract including]
an agreement for carrying out for cash, deferred payment or other
valuable consideration, the building, construction, manufacture,
processing, fabrication, erection, installation, fitting out,
improvement, modification, repair or commissioning of any
moveable or immoveable property];
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(iii) a delivery of goods on hire-purchase or any system of payment
by instalments;
(iv) the transfer of the right to use any goods for any purpose
(whether or not for a specified period) for cash, deferred payment or
other valuation consideration;
(v) the supply of goods by any association or body of persons
incorporated or not, to a member thereof for cash, deferred payment
or other valuable consideration;
[Explanation.- For the purposes of this sub-para, it is hereby
clarified that, notwithstanding anything contained in any other law
for the time being in force or any judgment, decree or order of any
Court, Tribunal or authority, any association or body of persons,
incorporated or not, and its member shall be deemed to be two
separate persons and the supply of goods inter se shall be deemed to
take place from one such person to another.]
(vi) the supply, by way of or as part of any service or in any other
manner whatsoever, [of alcoholic liquor for human consumption]
where such supply or service is made or given for cash, deferred
payment or other valuable consideration;
23. The definition of the word “dealer”, and which is important
for our purposes, is defined in Section 2(8), and reproduced
hereunder:-
“2(8) “dealer” means any person who, for the purposes of or
consequential to his engagement in or, in connection with or incidental
to or in the course of, his business buys or sells, goods in the State
whether for commission, remuneration or otherwise and includes,–
(a) a factor, broker, commission agent, del-credere agent or any
other mercantile agent, by whatever name called, who for the
purposes of or consequential to his engagement in or [in
connection with or incidental to or] in the course of the
business, buys or sells any goods on behalf of any principal
or principals whether disclosed or not;
(b) [an auctioneer who sells or auctions goods whether acting as
an agent or otherwise or, who organises the sale of goods or
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authority to sell the goods] belonging to any principal
whether disclosed or not and whether the offer of the
intending purchaser is accepted by him or by the principal or
a nominee of the principal;
(c) a non-resident dealer or, as the case may be, an agent,
residing in the State of a non-resident dealer, who buys or
sells goods in the State for the purposes of or consequential to
his [engagement in or in connection with or incidental to or
in the course of, the business];
(d) any society, club or other association of persons which buys
goods from, or sells goods to, its members;
Explanation.- For the purposes of this clause, each of the
following persons, bodies and entities who [sell any goods] whether
by auction or otherwise, directly or through an agent for cash, or
for deferred payment, or for any other valuable consideration
shall, notwithstanding anything contained in clause (4) or any
other provision of this Act, be deemed to be a dealer, namely:-
(i) Customs Department of the Government of India
administering the Customs Act, 1962 (52 of 1962);
(ii) Departments of Union Government and any
Department of any State Government;
(iii) Local authorities;
(iv) Port Trusts;
[(iv-a) Public Charitable Trust;]
(v) Railway Administration as defined under the Indian
Railways Act, 1989 (24 of 1989) and Konkan Railway
Corporation Limited;
(vi) Incorporated or unincorporated societies, clubs or
other associations of persons;
(vii) Insurance and financial Corporations, institutions
or companies and Banks included in the Second
Schedule to the Reserve Bank of India Act, 1934 (II
of 1934);
(viii) Maharashtra State Road Transport Corporation
constituted under the Road Transport Corporation
Act, 1950 (LXIV of 1950);
(ix) Shipping and construction companies, Air Transport
Companies, Airlines and Advertising Agencies;
(x) any other corporation, company, body or authority
owned or constituted by, or subject to administrative
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Government or any local authority.”
(emphasis supplied)
24. The reason why we have set out the definition of the word
“business” and “sale” is because the definition of the word “dealer”
refers to these words. The word “dealer” as has been defined to mean
any person who for the purposes of or consequential to his engagement
in or, in connection with or incidental to or in the course of, his
business buys or sells goods in the State, whether for commission,
remuneration or otherwise and includes persons mentioned in clauses
(a) to (d) of Section 2(8). What is important to note is the Explanation
appended below Section 2(8) which stipulates that for the purposes of
Section 2(8) [i.e. the definition of the word “dealer”], each of the
persons, bodies and entities mentioned therein, who sell any goods,
whether by auction or otherwise, directly or through an agent, for cash,
or for deferred payment, or for other valuable consideration, shall,
notwithstanding anything contained in Section 2(4) [i.e. the definition
of the word “business”] or any other provisions of the MVAT Act, be
deemed to be a “dealer”. As can be seen from clause (vii) of the
Explanation to Section 2(8), Insurance and Financial Corporations,
institutions or companies and banks included in the Second Schedule
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to the Reserve Bank of India Act, 1934 would be a deemed dealer under
the provisions of the MVAT Act. Similarly, under clause (x) of the
Explanation appended to Section 2(8) any other corporation, company,
body or authority owned or constituted by, or subject to administrative
control of the Central Government, any State Government or any local
authority would be a deemed dealer for the purposes of the MVAT Act.
Hence, under the provisions of the MVAT Act certain categories of
persons have been deemed to be dealers under Section 2(8) of the said
Act.
25. Before we procced further we must emphasize that a
deeming provision in a statute basically creates a legal fiction saying
that something shall be deemed to have been done which in fact and
truth has not been done. The Court of course has to examine and
ascertain to what extent and for what purpose and between which
persons such a statutory fiction is to be resorted to. Thereafter, full
effect has to be given to such a statutory fiction, and it is to be carried to
its logical conclusion. This position is now well settled by a catena of
judgments of the Hon’ble Supreme Court. If one were to refer to any
judgment on this issue, we feel that the judgment in the case of
Harish Tondon Vs. Additional District Magistrate,
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Allahabad U.P. & Ors. [(1995) 1 SCC 537] eloquently sets out the
above proposition. In fact, the celebrated passage on this point of Lord
Asquith in the case of East End Dwelling Company Ltd V/S
Finsbury Borough Council [(1952) A.C. 109; (1951) 2 ALL ER
587] was also relied upon by the Hon’ble Supreme Court in its decision
in Harish Tondon (supra). The relevant portion of this decision
reads thus:-
“13. The role of a provision in a statute creating legal fiction is
by now well settled. When a statute creates a legal fiction
saying that something shall be deemed to have been done
which in fact and truth has not been done, the court has to
examine and ascertain as to for what purpose and between
what persons such a statutory fiction is to be resorted to.
Thereafter full effect has to be given to such statutory fiction
and it has to be carried to its logical conclusion. In the well-
known case of East End Dwellings Co. Ltd. v. Finsbury
Borough Council [1952 AC 109 : (1951) 2 All ER 587]
Lord Asquith while dealing with the provisions of the
Town and County Planning Act, 1947, observed:
“If you are bidden to treat an imaginary
state of affairs as real, you must surely,
unless prohibited from doing so, also
imagine as real the consequences and
incidents which, if the putative, state of
affairs had in fact existed, must inevitably
have flowed from or accompanied it. … The
statute says that you must imagine a
certain state of affairs; it does not say that
having done so, you must cause or permit
your imagination to boggle when it comes
to the inevitable corollaries of that state of
affairs.”
That statement of law in respect of a statutory fiction is being
consistently followed by this Court. Reference in this
connection may be made to the case of State of
Bombay v. Pandurang Vinayak [(1953) 1 SCC 425 : AIR 1953
SC 244 : 1953 SCR 773] . From the facts of that case it shall
appear that Bombay Buildings (Control on Erection)
Ordinance, 1948 which was applicable to certain areas
mentioned in the schedule to it, was extended by a
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notification to all the areas in the province in respect of
buildings intended to be used for the purposes of cinemas.
The Ordinance was repealed and replaced by an Act which
again extended to areas mentioned in the schedule with
power under sub-section (3) of Section 1 to extend its
operation to other areas. This Court held that the deemed
clause in Section 15 of the Act read with Section 25 of the
Bombay General Clauses Act has to be given full effect and
the expression ‘enactment’ in the Act will cover the word
‘Ordinance’ occurring in the notification which had been
issued. In that connection it was said:
“The corollary thus of declaring the provisions of
Section 25, Bombay General Clauses Act,
applicable to the repeal of the ordinance and of
deeming that ordinance an enactment is that
wherever the word ‘ordinance’ occurs in the
notification, that word has to be read as an
enactment.””
(emphasis supplied)
26. Having said this, we will now examine the deeming
provision as set out in the Explanation to Section 2(8). To our mind,
the deemed dealer provision under the MVAT Act becomes operational
when the categories thereunder sell any goods, whether by auction or
otherwise. The Explanation which introduces the deeming provision
further stipulates that the deemed dealer provision would operate
notwithstanding anything contained in Section 2(4) [the definition of
the word “business”] or any other provisions of the MVAT Act. Once
this is the position in law, we are unable to accept the submission of
Ms. Badheka that for the Appellant to be termed as a “dealer”, the
Appellant has to carry on “business” as contemplated in Section 2(4) of
the MVAT Act. Once the Appellant falls within one of the categories as
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mentioned in the Explanation, it would be deemed to be a “dealer”
notwithstanding the fact that it may not be carrying on “business” as
contemplated under Section 2(4) of the MVAT Act. We agree with the
argument of the Revenue that the pretext of such non-business or non-
profit etc, cannot be entertained to get out of the deeming fiction
enacted by the statute. The Explanation in clear terms provides that the
enumerated entities would be deemed to be a “dealer” when they sell
any goods, by auction or otherwise. Thus, the definition itself specifies
that the sale of goods, whether by auction or otherwise would render
the person/body/entities enlisted in the clauses to the Explanation to
be a dealer.
27. Having rendered our opinion on the Explanation to
Section 2(8), we now have to examine whether the Appellant would fall
within any of the ten clauses as set out in the Explanation to Section
2(8) of the MVAT Act. The two clauses that jump out at us are clauses
(vii) and (x) of the Explanation appended to Section 2(8). Clause (vii)
talks about insurance and financial corporations, institutions or
companies and banks included in the second schedule to the Reserve
Bank of India Act, 1934. Clause (x) talks about any other corporation,
company, body or authority owned or constituted by, or subject to the
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administrative control of the Central Government, any State
Government or any local authority. The reason why we have referred to
both these clauses is because though the Commissioner in his DDQ
Order classifies the Appellant as a deemed dealer, under clause (x),
according to the Appellant, the MSTT, in impugned order No.1,
classifies it as a financial institution [i.e. under clause (vii)]. According
to Ms. Badheka when one examines clause (vii) of the Explanation to
Section 2(8), it only includes financial corporations/institutions
included in the second schedule to the Reserve Bank of India Act, 1934.
According to Ms. Badheka, the Appellant can never fall under clause
(vii) as it is not an institution or bank or company included in the
second schedule of the Reserve Bank of India Act, 1934. Even if we are
to assume, for the sake of argument, that Ms. Badheka is correct in her
submission, the same would make little difference to the outcome of the
present matter. We say this because even assuming for the sake of
argument that the Appellant would not fall within clause (vii), to our
mind, it would squarely be covered in clause (x) of the Explanation to
Section 2(8). As set out earlier, clause (x) of the Explanation clearly
stipulates that any corporation, company, body or authority owned or
constituted by or subject to the administrative control of the Central
Government, any State Government or any local authority, would be
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deemed to be a dealer for the purposes of the MVAT Act. It can hardly
be disputed that the Appellant is a body constituted by the Central
Government. This is abundantly clear from the Trust Deed which in
fact constitutes and sets up the Appellant as a Trust and the settlor of
this Trust is the Central Government. The Appellant therefore is clearly
a body constituted by the Central Government. Once this is the case, we
find that the Appellant is certainly a deemed dealer for the purposes of
the MVAT Act.
28. To get over this argument, Ms. Badheka submitted that
word “body” appearing in clause (x) should get its colour from the
adjoining word namely, “corporation”, “company”, “authority”. We find
no reason to take such a narrow interpretation. The intention of the
legislature appears to be clear that any “body” (and which would
include a Trust) constituted by the Central Government, or owned by
the Central Government, or under its administrative control, would be
a deemed dealer for the purposes of the MVAT Act, when it sells any
goods, whether by auction or otherwise. We, therefore, find that even
this argument holds no substance.
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29. As far as the argument of Ms. Badheka that the Appellant
never sold any movable property and sold the stressed assets on an “as
is where is basis” and consequently would not be liable to pay any sales
tax, is wholly without merit and contrary to the record. The record
clearly indicates that the eight cases in which the Appellant invoked the
provisions of the SARFAESI Act, 2002 and sold the stressed assets of
the borrowers, though selling it to single purchaser/entity, itself issued
separate sale certificates for movable property as well as immovable
property. Therefore, it is clear that even the Appellant was very well
aware that it was selling movable property as well as immovable
property and separate sale certificates were issued in relation thereto.
In fact, the Commissioner, in the DDQ Order, has referred to one such
sale certificate and which was for movable property of one of the
borrowers namely, Magnum Intermediates Limited. We, therefore,
find that the argument made by Ms. Badheka that there was sale of only
immovable property and there was no sale of movable goods, is wholly
without merit and contrary to the record. In fact, after going through
the record, the Commissioner, in his DDQ Order, has come to the
conclusion that the Appellant maintains a proper account of the
movable properties and the valuation reports also ensure that a proper
estimate of minimum realizable value is ascertained. Further the
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certificates of sale also reproduced the details of the movable property
sold. This argument of Ms. Badheka therefore does not hold any merit.
We find that the DDQ Order passed by the Commissioner is a well-
reasoned order and has taken all the arguments of the Appellant into
consideration and answered them with proper cogent reasons. It is only
thereafter that DDQ Order proceeds to hold that the Appellant is a
“deemed dealer” for the purposes of the MVAT Act. We fully agree with
the findings given by the Commissioner (in the DDQ Order) in so far as
he holds that the Appellant is a “deemed dealer” under the MVAT Act.
30. Before parting on this issue, it would only be fair to deal
with the decision of the Hon’ble Supreme Court relied upon by Ms.
Badheka in the case of State of Tamil Nadu and Anr (supra). We
have carefully perused this decision and find that the same is wholly
inapplicable to the facts of the present case. The Hon’ble Supreme
Court, after examining the various definitions in the Tamil Nadu
General Sales Tax Act, 1959, came to the conclusion that the Port Trust
of Madras ( for short “Port Trust”) was not involved in any activity of
“carrying on business” because unclaimed and unserviceable goods sold
in discharge of various statutory charges, items etc, could not be treated
as a “business” without any plea by the State of Tamil Nadu that the
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Port Trust had an independent intention to “carry on business” in the
sale of unserviceable/unclaimed goods. The major distinguishing factor
between the case before the Hon’ble Supreme Court, and the one before
us, is the definition of the word “dealer” as appearing in Section 2(g) of
the Tamil Nadu General Sales Tax Act, 1959 [as it stood before
amendment on 26th May 2002], and the definition of the word “dealer”
in Section 2(8) of the MVAT Act. They are materially different. Section
2(g) of the Tamil Nadu General Sales Tax Act, 1959, and which defines
the word “dealer”, had two Explanations appended to it. Explanation
(1) stipulated that a society (including a co-operative society), club or
firm or an association which, whether or not in the course of business,
bought, sold, supplied or distributed goods from or to its members for
cash, or for deferred payment, or for commission, remuneration or
other valuable consideration, was deemed to be a dealer for the
purposes of the said Act. Explanation (2) stipulated that the Central
Government or any State Government which, whether or not in the
course of business, bought, sold supplied or distributed goods, directly
or otherwise, for cash, or for deferred payment, or for commission,
remuneration or other valuable consideration was deemed to be a
dealer for the purposes of the said Act. Interestingly, the Port Trust was
not one of the entities that was deemed to be a dealer under the
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provisions of that Act [before amendment]. It is in this light that the
Hon’ble Supreme Court came to the conclusion that it is necessary for
the Port Trust to be “carrying on business” for it to be liable to pay sales
tax under that Act. As mentioned earlier, the definition of the word
“dealer” in the MVAT Act is as explicit as it can be. The Explanation to
Section 2(8) makes it clear that the entities mentioned therein would be
deemed dealers if they sell any goods, notwithstanding the fact that
they do not carry on any business. In these circumstances, we find that
the reliance placed by Ms. Badheka on the decision of the Hon’ble
Supreme Court in the case of State of Tamil Nadu and Anr
(supra) is wholly misplaced and does not carry her case any further.
31. In view of the foregoing discussion, we have no hesitation
in answering the Questions of Law raised in MVXA No.16 of 2016 in the
affirmative, i.e. against the Appellant and in favour of the Revenue.
DENYING THE BENEFIT OF PROSPECTIVE EFFECT TO THE
DDQ ORDER [UNDER SECTION 56(2) OF THE MVAT ACT]
32. This now leaves us to deal with the issue of whether the
Appellant was entitled to the benefit of prospective effect to the DDQ
Order as contemplated under Section 56(2) of the MVAT Act. As
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mentioned earlier, by impugned order No.2 [passed by the Larger
Bench of the MSTT], the Appellant was denied this benefit, and which
forms the subject matter of MVXA No.2 of 2020.
33. Though four questions have been projected in this Appeal,
the real and the only question to be decided is whether in the facts and
circumstances of the present case, the Larger Bench of the MSTT was
justified in rejecting the plea of the Appellant to grant prospective effect
to the DDQ Order under Section 56(2) of the MVAT Act.
34. Before we proceed further, it would only be appropriate to
reproduce the relevant provisions:-
“56. Determination of disputed questions
(1) If any question arises, otherwise than in a proceeding before a
Court or the Tribunal under section 55, or before the
Commissioner has commenced assessment of a dealer under
section 23, whether, for the purposes of this Act,-
(a) any person, society, club or association or any firm or any
branch or department of any firm, is a dealer, or
(b) any particular person or dealer is required to be registered,
or
(c) any particular thing done to any goods amounts to or
results in the manufacture of goods, within the meaning of
that term, or
(d) any transaction is a sale or purchase, or where it is a sale
or purchase, the sale price or the purchase price, as the
case may be, thereof, or
(e) in the case of any person or dealer liable to pay tax, any tax
is payable by such person or dealer in respect of any
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thereof, or
(f) set-off can be claimed on any particular transaction of
purchase and if it can be claimed, what are the conditions
and restrictions subject to which such set-off can be
claimed,
the Commissioner shall, subject to rules, make an order
determining such question.
Explanation. – For the purposes of this sub-section, the
Commissioner shall be deemed to have commenced
assessment of the dealer under section 23 when the dealer is
served with any notice by the Commissioner under that
section.
(2) The Commissioner may direct that the determination shall not
affect the liability under this Act of the applicant or, if the
circumstances so warrant, of any other person similarly
situated, as respects any sale or purchase effected prior to the
determination.
(3) The Commissioner, for reasons to be recorded in writing, may, on
his own motion, review an order passed by him under sub-section
(1) or (2) and pass such order thereon as he thinks just and
proper. The Commissioner may direct that the order of review
shall not affect the liability of the person in whose case the review
is made in respect of any sale or purchase effected prior to the
review and may likewise, if the circumstances so warrant, direct
accordingly in respect of any other person similarly situated:
Provided that, no order shall be passed under this sub-section
unless the dealer or the person in whose case the order is
proposed to be passed has been given a reasonable opportunity of
being heard:
Provided further that, before initiating any action under this
sub-section, the Commissioner shall obtain prior permission of
the State Government.
(4) If any such question arises from any order already passed under
this Act or any earlier law, no such question shall be entertained
for determination under this section; but such question may be
raised in appeal against such order.
(5) The Commissioner, in so far as he may, shall decide the
applications for determination in the chronological order in
which they were filed.”
(emphasis supplied)
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35. As can be seen from these provisions, under Section 56(1),
if any question arises regarding, inter alia, a person being a dealer, or
whether such person is required to be registered as a dealer, or any
particular thing done to any goods amounts to or results in the
manufacture of goods, or any transaction is a sale or purchase etc., and
such a question/s is posed to the Commissioner, the Commissioner
shall determine such question/s in terms of Section 56(1) of the MVAT
Act. Section 56(2) gives the power and discretion to the Commissioner
to direct that the determination made by him under sub-section (1)
shall not affect the liability under the MVAT Act in respect of any sale
or purchase effected prior to the determination. In other words, the
Commissioner has the power to rule that the party posing the question
would be governed by the answer only from the date of his order and
not for transactions entered into prior thereto. To put it simply, the
Commissioner has the power and discretion to put a quietus to
transactions entered into prior to his DDQ Order. It is, of course,
needless to clarify that this discretion has to be exercised on sound
judicial principles and cannot be on the ipse dixit of the Commissioner.
36. The question before us in MVXA No.2 of 2020 is whether
the Petitioner had made out a case for getting the benefit of prospective
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effect to the DDQ Order. The arguments of Ms. Badheka as to why the
Appellant is entitled to the benefit of prospective effect to the DDQ
Order has already been stated by us earlier in this judgment. Hence, we
are not repeating the same over here. However, we must note the
arguments canvassed by the learned Addl. G.P. in opposition to the
arguments canvassed by Ms. Badheka on this issue. Ms. Chavan, the
learned Addl. G.P., submitted that this certainly is not a fit case to grant
prospective effect to the DDQ Order. She submitted that in the present
case, the Appellant itself was aware that it was effecting sale of movable
and immovable property. The recovery of the stressed assets was made
by the Appellant under the provisions of the SARFAESI Act, 2002. In
fact, for the purposes of invoking the relevant provisions of the said Act,
the Appellant was also declared as a Financial Institution. This apart,
the Appellant issued a Certificate of Sale as per the provisions of the
said Act and separate Certificates of Sale were issued for immovable
and movable property. Once this the case, it should not have been
difficult for the Appellant to understand its liability to pay sales tax on
account of effecting sale of movable property. She submitted that the
essence of the MVAT Act is that it’s a tax on the incidence of sale within
the State of Maharashtra. Since the Appellant was aware that it is
effecting recovery of bad debts by adopting sale of properties
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(movable), the liability to pay sales tax under the provisions of the
MVAT Act could not have been lost sight of by the Appellant. She
submitted that ignorance of law is no excuse and there is in fact no
ambiguities in the provisions, and neither was the Appellant ever
misled by any authority to think that the sale of movable properties
under the provisions of the SARFAESI Act, 2002 would not be exigible
to sales tax. In short, it was the submission of the learned Addl. G.P.
that the facts and the law in the present case were extremely clear, and
there being no ambiguity, no case whatsoever was made out for
granting the benefit of prospective effect to the DDQ Order.
37. Ms. Chavan submitted that as far as the argument of
hardship is concerned, the same cannot be a stand-alone argument. If
any hardship is caused to the Appellant by virtue of its own
wrongdoing, the same cannot be a ground for granting prospective
effect to the DDQ Order. For all these reasons the learned Addl. G.P.
submitted that there is no ground made out for interfering, either with
the Commissioner’s DDQ Order [in so far as it denied the benefit of
prospective effect to the Appellant], or with impugned order No.2
passed by the Larger Bench of the MSTT. Consequently, she submitted
that Question (a) framed in MVXA No.2 of 2020 be answered in the
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affirmative, i.e. against the Appellant and in favour of the Revenue;
Question (b) be answered in the negative i.e. against the Appellant and
in favour of the Revenue; and Questions (c) & (d) be answered in
affirmative i.e. against the Appellant and in favour of the Revenue.
38. As far as extending the benefit of prospective effect to the
DDQ Order is concerned, we are mindful of the fact that we have
confirmed the findings of the lower authorities that under the
definition of the word “dealer”, the Appellant is deemed to be a
“dealer”, once it sells movable goods, by auction or otherwise. However,
notwithstanding this finding, we find considerable merit in the
arguments canvassed by Ms. Badheka on the issue of prospective effect.
We say this because from the Trust Deed itself it is clear that the
Appellant was not carrying on any business of selling or buying any
goods. Under the Trust Deed, the Appellant was set up only to ensure
the sale of securities for recovery of dues owed by the defaulter
borrowers (i.e. the bad debts). Further, the monies realized were to be
paid over to the Central Government. In other words, the Appellant was
not set up with any profit motive or doing any business, but purely for
the purpose of recovery of bad debts. We find force in the argument of
Ms. Badheka that by virtue of Article 285 of the Constitution of India
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the Appellant was of the bonafide opinion that it being set up and
constituted by the Central Government, and all the proceeds that it
recovers from sale of stressed assets are to go to the Central
Government, coupled with the fact that if for any reason the stressed
assets are not sold during the tenure of the Trust, the same would vest
in the Central Government, it was not liable to collect any tax on the
sale of securities of the stressed assets.
39. Another factor which we find is in favour of the Appellant
is that though the Appellant is subjected to a regular audit by the
Comptroller and Auditor General, not once was it brought to the
attention of the Appellant that it would be liable to pay sales tax on sale
of movable securities. In such circumstances, we agree with Ms.
Badheka that grave hardship would be caused to the Appellant if
prospective effect is not given to the DDQ Order because it would now
be impossible for the Appellant to recover any sales tax from the
purchasers of the movable securities. Ms. Badheka is correct in her
submission when she states that the Trust has no money of its own as
the sale proceeds of the stressed assets have to be paid over to the
Central Government, and if this liability is foisted upon the Appellant
Trust, they would have to approach the Central Government in order to
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pay the sales tax which they are now unable to recover from their
purchasers.
40. Another reason why we feel that the benefit of prospective
effect ought to be extended to the Appellant is that initially, two
members of the MSTT (in impugned order No.1) had a difference of
opinion on whether the Appellant ought to be granted the benefit of
prospective effect to the DDQ Order. In fact, the judicial member was of
the opinion that the benefit of prospective effect ought to be granted to
the Appellant. The technical member did not. This itself goes to show
that what was being canvassed by the Appellant was debatable and
hence, on this ground also the Appellant ought to have been granted
the benefit of prospective effect to the DDQ Order.
41. Another factor that ought to have been taken into
consideration is the fact that the Commissioner, in his DDQ Order,
whilst deciding the issue whether the Appellant is a deemed dealer or
otherwise, had itself opined that bifurcation of goods as movable and
immovable needs to be properly ascertained by the field officers and
only at the appropriate stage the question of levy of tax would come up.
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42. When one takes all these cumulative factors into
consideration, we are of the view that the Appellant ought to have been
extended the benefit of prospective effect to the DDQ Order. We,
accordingly, answer Question (a) in MVXA No.2 of 2020 in the
negative i.e. in favour of the Appellant and against the Revenue. Once
Question (a) is answered in favour of the Appellant and against the
Revenue we need not go into and decide any of the other questions
raised in this Appeal.
CONCLUSION:
43. In light of the aforesaid discussion, Questions (a), (b) and
(c) raised in MVXA No.16 of 2016 are answered in the affirmative i.e.
against the Appellant and in favour of the Revenue.
44. Question (a) in MVXA No.2 of 2020 is answered in the
negative i.e. in favour of the Appellant and against the Revenue. As far
as the other questions in MVXA No.2 of 2020 are concerned, the same
require no answer in light of what we have held above.
45. Both the above Appeals are disposed of in the aforesaid
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terms. However, there shall be no order as to costs.
46. This order will be digitally signed by the Private Secretary/
Personal Assistant of this Court. All concerned will act on production
by fax or email of a digitally signed copy of this order.
[FIRDOSH P. POONIWALLA, J.] [B. P. COLABAWALLA, J.]
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