MVAT Act| Slump Sale Under A Business Transfer Agreement Does Not Amount To Sale Of Goods: Bombay HC
The Bombay High Court has observed that a slump sale under a Business Transfer Agreement would not amount to the sale of goods within the Maharashtra Value Added Tax Act.
In that context, the Bench of Justice GS Kulkarni and Justice Jitendra Jain observed that, "per se slump sale under the BTA would not amount to sale of goods within the meaning of the MVAT Act, the reviewing authority could not have dissected or attempted to reconstruction of the BTA in the manner as done in the impugned order".
The issue was whether the department could tax the sale of the petitioner's 'Base Domestic Formulation Business' as a "going concern" (slump sale) under the Maharashtra Value Added Tax Act, 2002.
In the financial year 2010-11, the petitioner/assessee entered into a Business Transfer Agreement (BTA) with Abbott Healthcare to sell its "Base Domestic Formulations Business" as a going concern for $3.72 billion. For stamp duty purposes, a bifurcation of the consideration was provided in the BTA. Later, an amendment to the BTA increased the total consideration to $3.80 billion to include additional tangible and intangible assets.
Initially, the assessee was assessed for the financial year 2010-11 under Section 23 of the MVAT Act. The assessment order concluded that the transaction was a transfer of a business "on a going concern basis" and not subject to VAT under the MVAT Act. Consequently, the consideration received was excluded from the petitioner's turnover for VAT purposes.
After two years, the petitioner received a show cause notice proposing to review the assessment, arguing that the business transfer was incorrectly classified as a slump sale. The notice claimed that the allocation of consideration for stamp duty purposes, as provided in the BTA's Schedule 3.3, should be considered as turnover and subject to tax.
The assessee argued that the itemized break-up of the total consideration was provided solely for stamp duty purposes and that VAT could not be levied on the transferred assets as part of the business transfer.
The Joint Commissioner confirmed the notice and issued a demand under Section 25 of the MVAT Act. The department contended that the order could be challenged before the Maharashtra Sales Tax Tribunal under Section 26 of the MVAT Act, which required a pre-deposit of 10% of the tax before filing an appeal. To avoid this pre-deposit, the petitioner filed a writ petition instead.
The Court observed that, "in the facts of the present case slump sale under the BTA would not amount to sale of goods within the purview of the MVAT Act, attracting any tax in the manner as held in the impugned order. We further hold that the reviewing authority acted in excess of jurisdiction in passing the impugned order. We also hold the impugned order to be vitiated and illegal even on the other issues as discussed hereinabove".
Cause Title: Piramal Enterprises Limited vs The State of Maharashtra & Anr.
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