F.H. Nazeer Ahammed vs State of Kerala

K. Vinod Chandran, J.—The petitioner herein was a registered dealer in the rolls of the Sales Tax Officer, Vadakara and engaged in the local purchase and sale, and inter-State sale of coconut oil, copra, dry coconut, cake, etc. The petitioner''s registration was cancelled by annexure All order u/s 16(10) of the Kerala Value Added Tax Act, 2003 (hereinafter referred to as, ''The KVAT Act") for reasons, inter alia, that the dealer/assessee had filed an insolvency petition and on his own showing was disabled from carrying on the business and if permitted to conduct business under cover of registration, the same would go against the interest of revenue of the State. The petitioner having unsuccessfully resorted to appellate remedies, is before this court raising questions of law regarding the legality of cancellation of the registration on the mere filing of an insolvency petition as also against the reasoning that the revenue interest of the State would not be served by the continued registration of the petitioner. Before embarking on an examination of the legal issues purportedly arising from the order of the Tribunal, we have to first look at the conduct of the petitioner. The dealer, having committed default of the tax payable for the years 2003-04 to 2005-06, was proceeded against under the provisions of the Revenue Recovery Act. The petitioner then approached the sub-court, Vadakara with an application for adjudging him as an insolvent and the dues to the Sales Tax Department was also included in the schedule of debts. It was under such circumstance that the Sales Tax Officer, Vadakara initiated proceedings for cancellation of registration and effected cancellation by annexure All. The petitioner then approached this court with W. P. (C). No. 10438 of 2009, which was dismissed. On appeal being filed, the Division Bench concurred with the view of the learned single judge in relegating the petitioner to the statutory remedy. On the prayer of the petitioner to permit him to continue registration, the Division Bench in its judgment allowed the same, however, on strict conditions in the following words:

However, we feel the assessing officer should allow the appellant to retain registration pending disposal of appeal on the appellant remitting rupees five lakhs (Rs. 5 lakhs) towards arrears. The appellant is granted two weeks time from now to remit the amount and to file appeal against cancellation of registration. However, renewal will take effect after payment. Besides this, the assessing officer or the recovery authority can attach movables and immovables of the appellant for recovery of arrears of tax. We, therefore, dispose of the writ appeal by directing the assessing officer to permit continuation of registration both under the KVAT and CST Acts after appellant remits Rs. 5 lakhs. So far as recovery is concerned, this judgment does not stand in the way of recovery during pendency of appeal: The assessing authority will ensure that the appellant complies with all other formalities for continuation of registration, failing which renewal granted under this judgment can be withdrawn.

It is very evident that the retention of registration was allowed only on condition of the petitioner remitting rupees five lakhs and the renewal was specifically directed to take effect only after payment. This court also did not restrain the assessing officer from proceeding with the recovery against the movable and immovable assets of the petitioner. It was also specifically directed that in the event of the petitioner not complying with any formalities for continuation of registration, the renewal granted under the said judgment would be withdrawn.

Admittedly the petitioner did not make any payment as per the judgment. The petitioner contends that the assessments were considerably modified in appeal and the liability of the petitioner was also consequently reduced. The property of the petitioner was proceeded against and sold. The petitioner himself withdrew the petition for adjudging him as insolvent, filed before the sub-court, Vadakara. However, the statutory remedies against the cancellation of the registration having been unsuccessful, the petitioner is in revision before this court.

The petitioner himself had obtained an order for continuation of registration from, this court in writ appeal, but on condition of deposit of rupees five lakhs, which condition has not been complied with. Hence, when the matter came up for admission, we directed the learned Government Pleader to get instructions as to whether any arrears is subsisting. We are informed that after collection of Rs. 4,39,868 through sale of immovable properly by revenue recovery, there is subsisting an amount of Rs. 4,38,025 as arrears due to the Sales Tax Department. The conduct of the petitioner does not at all inspire this court. A concerted attempt to evade payment of tax as also to somehow continue the registration is very evident from the facts of the case. The petitioner has scant respect for rule of law or the orders of this court.

However, we are conscious of the fact that we are in revision called upon to decide a question of law raised by the petitioner. Both the appellate authorities found that the petitioner having himself approached a competent forum for being adjudged as an insolvent, the petitioner could not claim continued registration for doing business, since the revenue interest of the State, then, will be adversely affected. Both the appellate authorities have also noticed that the petitioner has not complied with the direction to remit rupees five lakhs as directed by annexure AIV judgment and has taking into consideration the totality of the facts and circumstances, rejected the appeal of the petitioner. What weighed with the authority to cancel the registration u/s 16(10) of the Act was the fact that there were huge arrears of tax due from the petitioner and that the petitioner had himself voluntarily approached the competent forum for adjudging himself as an insolvent. The petitioner has included the defaulted amount due to the State also in the schedule of debts. The properties, the petitioner is in possession of, are seen included in the schedule of assets.

The petition submitted by the petitioner herein, numbered as I. P. 1 of 2008, is produced herewith as annexure AIII. The said petition is submitted u/s 7 of the Insolvency Act, 1955. Section 7 enables a creditor or a debtor, on the commission of an act of insolvency by the debtor, to file a petition for adjudication under the Act. The Explanation to section 7 deems the presentation of a petition by a debtor to be an act of insolvency. Section 13 speaks of the necessary ingredients which should be contained in a petition of a debtor u/s 7. Sub-clause (e)(iii) of sub-section (1) of section 13 specifically requires a debtor on filing a petition u/s 7 to make a declaration of his willingness to place at the disposal of the court all such properties, except his books of accounts and those exempted under the CPC 1908 or any other enactment. Section 20 also postulates a situation when the court admitting the petition, if it thinks fit, may appoint an interim receiver of the property of the debtor or any part thereof. The provisions of the Act would show that when the petition is admitted, though the debtor remains in possession of the properties shown in the schedule of assets, any adjudication is dependent on the petitioner''s undertaking not to deal with the said property.

The fundamental principle on seeking an adjudication as to the solvency status of an individual is that the assets of the individual so seeking to be adjudged an insolvent is lesser than his debts and is not capable of satisfying such debts. There is also a presumed understanding/undertaking that the assets so possessed by the individual would be left to the disposal of the court to be set off proportionately against the debts due from the individual. In such circumstance, it cannot be gainsaid that a person seeking to be adjudged as an insolvent can also seek continued registration under a fiscal statute to enable him to carry on a business permitting collection of tax on behalf of the State; when he undertakes before the competent court that all his assets would only be applied to his debts. Section 16(10) of the KVAT Act speaks of good and sufficient reasons for passing an order cancelling a registration. The very fact that a registered dealer had himself sought to be declared as an insolvent would disable that dealer from carrying on any further business which would necessarily involve money transaction and applying liquid and other assets of the dealer to the transactions in the business. That, according to us, is good and sufficient reason for cancellation of registration. The question of law regarding whether the filing of an insolvency petition by the debtor/dealer himself would disentitle the debtor/dealer from carrying on the business and having continued registration; has to be answered against the dealer and in favour of the Revenue.

At this stage the petitioner has withdrawn the application to be adjudged as insolvent. It is for the petitioner to work out his remedies and apply for fresh registration or renewal of registration in accordance with law. The revision has to be rejected, however, leaving open such remedies, if any, available to the petitioner. In the result, the revision petition is rejected, reserving liberty to the petitioner to avail of such remedies in accordance with law if so advised.