LexSTATE OF KARNATAKA AND ANR. versus SHREYAS PAPERS PVT. LTD. AND ORS
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') \ ST A TE OF KARNA T AKA AND ANR A y. SHREYAS PAPERS PVT. LTD. AND ORS JANUARY 5, 2006 [RUMA PAL AND B.N. SRlKRlSHNA, JJ.] B Karnataka Sales Tax Act, 1957: Section 15-Purchaser-transferee of assets of defaulting Company- transferor, if liable for sales tax arrears of defaulting Company-Held: Section C 15 (I) operates only when there is complete transfer of ownership of business- Defau/ting Company not sold as a going concern but there was transfer of individual assets of the Company, thus, section 15 not attracted and transferee not liable for transferor's sales tax liabilities-State Financial Corporation Act, 1951-Section 29. D Section 13 (2)(i)-Creation of charge over properties of defaulter- Charge, enforcement of, against purchaser-transferee of property-Held: Transferee was purchaser for value without notice of sales tax arrears of defaulting Company or consequent charge on property-Thus, transferee held property free of charge and not liable for tax arrears of defaulting Company- E Further, State Financial Corporation as transferee of assets not liable for charge created since no such issue raised or argued before High Court- Transfer of Property Act, 1882-Section JOO-State Financial Corporation Act, 1951-Section 29. Practice and Procedure: New relief-Permissibility of-Neither raised F nor argued before, or decided by High Court-Held: It cannot be claimed before this Court unless exceptional circumstances occur-Constitution of India, 1950-Article 136. Karnataka State Industrial Investment and Development Corporation-second respondent granted loan to a Company. However, the G Company defaulted in its repa-yment. Corporation then took over the assets viz., land, building, plant and machinery of the defaulting Company and advertised it for sale. First respondent purchased the assets excluding any statutory liabilities. Charge was created on the properties of the defaulting 235 H 236 SUPREME COURT REPORTS [20061 I S. C.R. A Company since they defaulted in payment of sales tax. Second appellant- recovery officer issued notice under section 15 of Karnataka Sales tax Act, 1957 to first respondent to discharge sales tax arrears of defaulting Company. First respondent filed writ petition challenging the notice. High Court held that since only land, building, plant and machinery had been B transferred, there was no transfer of the ownership of business of the defaulting Company, as such section 15 was not applicable to first respondent and he was not liable to pay sales tax arrears of the Company. Hence the present appeals. Appellant contended that the business of the defaulting Company had been transferred to the first respondent, as such the sales tax dues of C the defaulting Company could rightfully be claimed and recovered from the first respondent; that since a charge over the properties of the defaulting Company had been created under the KST Act, the first respondent as the transferee held the properties subject to the charge; and that in any event, the Corporation as the transferee of the assets, by virtue D of the provisions of Section 29 of the State Financial Corporation Act, would be liable to the extent of the charge created on the assets transferred. E Dismissing the appeals, the Court HELD: I.I. A careful reading of Section 15(1) of the Karnataka Sales Tax Act, 1957 shows that foisting of the liabilities of the defaulting transferor onto the transferee, would come into effect only if the "ownership of the business" is transferred. It cannot be said that the 'business' could not be separated from the assets of the business. Business is an activity, directed with a certain purpose, more often towards producing income or profit. Ownership of assets is merely an incident F rather than a characteristic of business. Hence, the mere transfer of one or more species of assets does not necessarily bring about the transfer of the "ownership of the business" for "ownership of a business" is much wider than mere ownership of discrete or individual assets. In fact "ownership of business" is wider than the sum of the ownership of the business" constituent assets. Above all, transfer of"ownership of business" G requires that the business be sold as a going concern. Therefore, Section 15(1) is intended to operate only when there is complete transfer of "ownership of business" so as to render the transferee as a successor-in- interest of the transfer
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