Summary
Shaw Scott Distillery owed trade tax for the early 1980s. In 1985–86 it sold its plant, machinery and goods to the respondent (now Radico Khetan) for Rs. 12.12 lakh, a consideration the Revenue did not dispute. The original assessment had concluded in 1984 and was reopened only in 1988. A recovery certificate was issued against the assessee in 1990, and in 1993 the Assessing Officer, treating the sales as void under Section 34 of the U.P. Trade Tax Act, endorsed it for recovery from the purchaser. The Tribunal set the endorsement aside and the High Court dismissed the Revenue's revisions. The Supreme Court dismissed the Revenue's appeals. Section 34 applies only to transfers made while proceedings under the Act are pending and with intent to defraud, and it protects transferees in good faith for consideration. No proceedings were pending when the transfers were made.
Issues
- Whether a recovery certificate against a defaulting dealer can be enforced against a purchaser of its property under Section 34 of the U.P. Trade Tax Act, 1948 where the transfer preceded reopening of the assessment
- What conditions must be satisfied before a transfer can be treated as void under Section 34
Provisions considered
- Section 34, Uttar Pradesh Trade Tax Act, 1948A charge or transfer is void against tax dues only if made during the pendency of proceedings under the Act with intent to defraud, subject to the proviso protecting transferees in good faith and for consideration. As no proceedings were pending at the time of the transfers for value, the section did not apply and the endorsement against the purchaser fell. (¶¶ 4, 5)
Held
- Section 34 can be invoked only where property of the dealer is transferred during the pendency of proceedings under the Act and the transfer is found to be intended to defraud tax or other dues. Under the proviso, the rights of a transferee in good faith and for consideration are not impaired. (¶ 5)
- Treating the goods, plant and machinery as immovable property, they were transferred for undisputed consideration when the original assessment had concluded and before the reassessment and recovery proceedings began. Section 34 was therefore wholly inapplicable, and the Tribunal rightly set aside the endorsement of the recovery certificate against the purchaser. (¶¶ 4, 5, 6)
Result
Appeals dismissed. The orders setting aside the endorsement of the recovery certificate against the purchaser were upheld; no costs.