Anish P. Mathew vs State of Kerala

K. Vinod Chandran, J.—The petitioner herein is aggrieved with Ext.P8 order by which the application for registration made by him, on a transfer of a business from a registered dealer, was refused. The brief facts are that, the 4th respondent herein was carrying on business in the name and style of "M/s Preena Rock Products" in Door No.IV/292A, in the premises which was also owned by him. Allegedly, there are huge tax arrears with respect to the said business. The 4th respondent entered into an agreement with the petitioner to sell the property as also the business to the petitioner herein. The 4th respondent also undertook the earlier liability of sales tax which, in any event, would be a charge on the property which is sought to be transferred; under Section 37 of the Kerala Value Added Tax Act, 2003 (for short ''KVAT Act'').

Petitioner purchased the property by Ext.P1 sale deed and thereafter, by Ext.P2, transferred the Unit, registered with the Local Self Government Institution, to the petitioner''s name. A licence was also obtained in the name of the petitioner as is evidenced by Ext.P3. Exts.P4 to P6 necessary sanctions were obtained from the competent authorities and thereafter, Ext.P7(a) application under the KVAT and CST Acts were made which were declined by Ext.P8, which is assailed herein.

The petitioner contends that in fact, the 4th respondent had filed an application before the Registering Authority as is indicated in Ext.P9 informing stoppage of business as also producing title deeds of documents which could be proceeded against, in the event of any arrears being determined with respect to sales tax for the period prior to the transfer effected as per Ext.P1. It is the submission of the learned counsel for the petitioner as also the counsel appearing for the 4th respondent that Ext.P9 was refused to be accepted by the Registering Authority and the same was returned to the 4th respondent.

It is to be noticed that the business which was run by the 4th respondent obviously could not be continued by the 4th respondent himself and hence, the sale as per Ext.P1. Though sales tax arrears are stated to have been determined against the 4th respondent for the earlier years, they are under challenge, according to the 4th respondent. In any event, the charge created under Section 37 of the KVAT Act cannot be effaced insofar as the recovery proceedings initiated or intended by the State. Any recovery for a period prior to the transfer also could be taken against the assets of the Firm, which stands transferred to the petitioner herein. The transfer to that extent would be void as per the specific words employed in Section 37 of the KVAT Act. However, that need not detain the Registering Authority in granting fresh registration as sought for by the petitioner. Any transfer of business would entail a fresh registration, since such transfer is deemed for the purposes of the Act and Rules to be a fresh registration under Rule 17(24) of the Kerala Value Added Tax Rules.

In the above circumstances, Ext.P8 is set aside. Petitioner is directed to appear before the Registering Authority along with the 4th respondent. The 4th respondent would have to execute an indemnity bond along with furnishing the title deeds of the properties, which the 4th respondent intends to encumber, towards any sales tax dues determined for the period prior to Ext.P1. The Registering Authority then would have to consider the application afresh, in accordance with law; however not declining the same only on the ground of arrears of the 4th respondent. As has been noticed above, the 4th respondent himself has come forward affording security for any tax determined prior to Ext.P1. This Court has also categorically found that a fresh registration granted or the transfer effected, would not shackle the hands of the Department insofar as proceeding with recovery for the prior tax dues; as against the assets transferred by the 4th respondent to the petitioner. In such circumstances, on the petitioner and the 4th respondent complying with the above directions within a period of one month from today, the matter shall be considered and decided within a further period of two weeks from that date, in accordance with law and in compliance with the directions herein above.

Writ petition allowed, leaving the respective parties to bear the costs.