STATE OF KARNATAKA Vs. SHREYAS PAPERS PVT LTD

JUDGEMENT

(1.) There are three questions of law to be decided in these appeals :"firstly, whether the purchaser of assets of a concern sold by a State Financial corporation, in exercise of its powers under Section 29 of the State Financial Corporations act, 1951 (hereinafter "the SFC Act") , would be liable under the Karnataka sales Tax Act, 1957 (hereinafter "the KST Act") , for the arrears of sales tax of the concern whose assets have been transferred secondly, under what circumstances does a charge created on a property become unenforceable against a transferee of such a property finally, whether a completely novel relief, not argued/claimed before the High court or decided by the impugned judgment, may be claimed before this Court -the Facts in Civil Appeal 3170/2000

(2.) A company by name Mishal Paper Mills (P) Ltd. (hereinafter "the Defaulting company") , was running a medium-scale duplex board manufacturing unit. The second Respondent, Karnataka State Industrial Investment and Development Corporation ltd. (hereinafter "the Corporation") , had extended financial assistance to the defaulting Company. However, the Defaulting Company defaulted in repayment of the loans granted to it by the Corporation. Acting under the provisions of Section 29 (1) of the SFC Act, the Corporation took over the assets of the Defaulting Company. On 17-3-1992, the Corporation advertised the sale of the "assets" of the Defaulting company i. e. the land, building, plant and machinery. In response to the advertisement, and after several rounds of negotiations, Shreyas Papers (P) Ltd. (hereinafter "the First Respondent") entered into an agreement with the Corporation for purchase of the land, building, plant and machinery of the Defaulting Company, which was put up for sale. In Clause (2) of the offer to purchase (dated 5-6-1992) , the First respondent specifically stated:"we shall be taking over the unit with 'zero' liabilities and shall not be held responsible for any existing statutory liabilities of the abovesaid unit like Sales Tax, excise Duty, Municipal taxes, E. S. I, and P. F. development loan, Central and State subsidy and rank liabilities etc. except as agreed in the meeting for KEB and labour dues. "this offer was accepted by the Corporation and the sale took place consequent thereto.

(3.) On 8-1-1993, the Commercial Tax Officer (Recovery) , Dharwad (hereinafter "the Second Appellant") addressed a letter to the Secretary, Mandal Panchayat, Aloor, haliyal Taluk, Karnataka, requesting him to enter encumbrance into the Record-of- rights of the properties specified therein, on the ground that those properties were the properties of a defaulter of sales tax - the Defaulting Company - to the extent of Rs. 21,79,715/ -. The First Respondent wrote a letter (dated 31-5-1993) to the corporation thereby requesting that a letter be addressed to the Second Appellant to withdraw his letter dated 8-1-1993, as the Corporation was the first charge holder and the assets had been sold to it by the Corporation free of all charges. A letter was addressed, as requested, on 5-7-1993 by the Corporation to the Second Appellant. On 11-8-1993, the Second Appellant issued a notice under Section 15 of the KST act informing the First Respondent that a charge had been created on the properties of the Defaulting Company on 17-2-1992 as the latter had defaulted in payment of sales tax. It also noted that the assets of the Defaulting Company had been transferred from the Corporation to the First Respondent on 12-8-1992. It was further stated that the First Respondent being the transferee of the business, was jointly liable to discharge the arrears of sales tax of the Defaulting Company by virtue of section 15 (1) of the KST Act.