The querists have their office at Gandhidham in the State of Gujarat. The querists have purchased certain properties situated at Plot Nos. 153A, 153B, 153C & 153D in Pithampur Industrial Area, Pithampur, Dist. Dhar, near Indore (M.P.). Such properties as annexed with the Invitation to Tender by Industrial Development Bank of India (IDBI), Mumbai, for its behalf or as agent for various other banks in whose favour the properties were secured from a Company registered under the Companies Act 1956, having its Registered office at Mumbai, for the advances taken from the secured lenders. In exercise of powers conferred under the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 under sub-section (12) of section 13 read with Rule 6 of the Security Interest (Enforcement) Rule, 2002, the Industrial Development Bank of India, for itself and on behalf of all other secured creditors, invited tenders for sale of the properties and assets belonging to the said company, more specifically described and mentioned in the Schedule appended to the terms and conditions of sale.

 Referring to the terms and conditions of sale as published by IDBI, the property described therein was to be sold on ‘as is where is’ and ‘whatever there is’ basis. The bidders were to submit the tenders in sealed covers to the designated officer of IDBI in Mumbai, before which the bidders were free to take inspection of the properties at Pithampur Industrial Area. The querists accordingly took inspection of the property and submitted its tender which ultimately came to be accepted by the designated officer. Accordingly, the querists made the payment of the tendered consideration of Rs. 2,010 Lakhs; i.e., (Rupees Twenty crores Ten lakhs only). After receipt of the said amount, the authorised officer of IDBI issued separate certificates of sale of the property so covered by the tender, separately for movable and immovable properties as prescribed under Rules 6, 7 & 9 of the Security Interest (Enforcement) Rules, 2002 in favour of the querists. The dues which were outstanding to be recovered from the said company are as under :

After receipt of the consideration offered by the querists, the authorised officer gave the possession of the properties to the querists, as specified in the Schedule appended to the Invitation for Tender. Two certificates issued by the designated authorised officer also acknowledged receipt of the sale price in full, making it clear that the sale of the scheduled assets and properties were on ‘as is where is’ and ‘whatever there is’ basis as per the terms of sale and were free from all encumbrances of the secured creditors and commercial tax dues. The certificate referred to above was issued by the authorised officer of IDBI, on 29th May 2007 at Indore (M.P.).
 

Referring to the annexure of Invitation to Tender, the list of properties situated at Pithampur Industrial Area inter alia contained Electric Arc Furnace of 35 MT capacity and other similar plants and machineries embedded to the earth at Plot Nos. 153A, 153B, 153C & 153D at the said Industrial Area at Pithampur, Distt. Dhar, near Indore (M. P.). It may be mentioned that the entire list of plant and machinery as described in the annexure also contained certain movable properties like steel cupboards, trollies, furniture and fixtures, but all such properties and assets have been sold and were purchased by the querists for a consolidated consideration mentioned hereinabove, meaning thereby that neither was there any intention to sell the movables by IDBI for a separate consideration nor the querists desired to purchase any of the movable properties in separatim, but as a part of total package offer for all properties and assets belonging to the said borrower.
 

On the above facts, the querists desire to have my opinion as to whether the sale by IDBI of the properties and assets at Pithampur Industrial Area in M.P. would attract any tax liability under the provisions of Maharashtra VAT Act, 2002, simply because IDBI and the said company have their respective registered offices in Mumbai.
 

Section 2(4) of the MVAT Act define the term ‘business’ to include any service, trade, commerce or manufacture, adventure or concern in the nature of service, trade, commerce or manufacture with or without profit motive. Sub-section (8) of section 2 define the term ‘dealer’ who in the course of his business buy or sell goods in the State for the purpose of or consequential to his engagement in business, trade, commerce etc. The Explanation appended to the said definition enumerates certain bodies and entities who sell any goods, whether by auction or otherwise, for a valuable consideration. Such enumerated bodies and entities include Insurance and Financial Corporations as well as banks included in Schedule to the Reserve Bank of India. IDBI happens to be one of such bank.

Section 2(12) define ‘goods’ to mean every kind of movable property other than newspapers, actionable claim money, stock etc. as well as such properties which were attached to or forming part of the land, but were agreed to be severed by the sellers before sale or under the contract of sale. Section 6 which is a charging section, provides for levy of sales tax on the turnover of sale of goods specified in Column 2 in Schedule B, C, D or as the case may be E, at the rate set out against each of the item in the respective Schedule. Section 8 provide for a prohibition or a bar on the liability to tax of sale or purchase which take place outside the State, in the course of import or export or in the course of inter-State trade. Those terms are to be applied in accordance with the principles in section 3, 4 & 5 of the Central Sales Tax Act, 1956.
 

Turning to the provisions of the Central Sales Tax Act, 1956, the aforesaid referred to, three sections are relevant. Section 3 of the Central Sales Tax Act provide for the principles which govern the determination about the nature of the transaction of sale or purchase of goods that would be treated as taking place in the course of inter-State trade or commerce. Section 4 provide for the principles for determining the situs of sale as to the transaction taking place within the State or outside the State. By applying that section, if the situs of a sale transaction is determined to be in Madhya Pradesh, no other State can have any jurisdiction for levy of tax on such transaction. Section 5 refer to the principles for determining the nature of the transaction to be in the course of import or export. I may add that such restrictions flow from Articles 286(1)(b) and 286(2), Entry 92A of Union List as well as Articles 301 to 304.

Apart from the above relevant provisions, the provisions of the Constitution of India will also have its impact on the transaction of sale in question, of the properties belonging to the borrower.

Entry 54 of List II (State List) authorise the State legislature to provide for levying tax on the sale or purchase of goods other than newspapers, but subject to the provisions of Entry 92A of List I (Union List) appended to Seventh Schedule of the Constitution. The term ‘tax on the purchase or sale of goods’ as appearing in the said Entry 54 has to be understood to cover the transactions enumerated under Article 366(29A). The said Article 366(29A) also define the term ‘goods’ under sub-Article (12) to include all materials, commodities and articles.

The power of the State legislature, therefore, for levying sales tax is restricted only to the goods as defined in Article 366(12) referred to above that take place within the State of Maharashtra. In other words, any transaction, may be that of sale for a valuable consideration, but when pertain to immovable property or even movable when sold outside the State, would be outside the scope of the legislative power of the State.

From the facts placed before me, it is clear that the querists being successful bidder, have purchased certain properties and assets situated at Pithampur Industrial Area in the State of M.P., for a consolidated consideration mentioned in the tender. The annexure to the Invitation to Tender also make it clear that the properties and the assets kept for sale in auction were duly installed and embedded to the land at the concerned plot at Pithampur in M.P. The description of individual plant and machineries also support my view that what was sought to be sold in auction. What was agreed to be purchased by the querists were the entire properties mentioned hereinabove on ‘as is where is’ and ‘whatever there is basis. In other words, no part of Plant and Machinery, were agreed to be severed by any of the secured creditors/financiers and the entire transaction of sale of properties belonging to the borrower was for one lump sum consideration in exercise of the powers conferred upon the financier bank under the provisions of Securitisation and Re-construction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SURFAS Act, 2002) and the Security Interest (Enforcement) Rules, 2002. It may be recalled that the said Act was enacted by the Parliament for the purpose of regulating securitisation and reconstruction of financial assets and enforcement of security interest. Under section 13(4)(a) of the said Act, the banks have been empowered to take possession of secured assets and sell the same for liquidating its Non Performance Assets (NPA).

The facts also depict that the said company though have their Registered office in Mumbai, the assets sold by IDBI under the provisions of SURFAS Act, 2002 were situated or lying at Pithampur in the State of M.P., while the purchaser (querists) have its place of business at Gandhidham in the State of Gujarat.

Taking an overall view of the facts placed before me and the relevant provisions of all the relevant statutes discussed hereinabove, I am of the opinion that the seller, IDBI, have no liability of any nature under the provisions of Maharashtra VAT Act, 2002. I also derive the support for my opinion from the provisions of Banking Regulations Act which inter alia, by Section 8, prohibit the bankers to indulge in any transaction of business, trade, commerce, manufacture etc. as contemplated under the provisions of sales tax law.

Similar controversy arose before the courts of law as well. Before the Andhra Pradesh High Court in the case of Corporation Bank vs. Government of Andhra Pradesh (125 STC 346), the bank realised certain amount by selling the articles pledged with them by the borrower. The Andhra Pradesh High Court, after considering the definition of the term ‘dealer’ under the Andhra Pradesh Act which inter alia, also contained the Explanation similar to the one available under the Maharashtra VAT Act and other relevant provisions, held that the transaction of selling the articles pledged was basically for the purpose of a banking activity of advancing the money and not as a transaction of sale for the purpose of sales tax. The court also held that the bank was not amenable to sales tax on the sale of articles pledged with it as security for loan. The aforesaid judgment have recently been affirmed by the Supreme Court, though on different reasoning. That case is published in [(2007) 6 VST 755 (SC)].

Before the Kerala High Court, in the case of Assistant Commissioner (Assessment) vs. M/s Hindustan Vidyut Products Ltd. (131 STC 252), the question about the liability of an official liquidator to pay sales tax arose. In that case, the company was ordered to be wound up by the Kerala High Court for which an official liquidator was appointed by the court to take charge of the assets, sell the same and consider the fulfilment of liabilites of the company. The court also held the transactions by the official liquidator as not that of a dealer, with the result official liquidator was held to be not liable to pay any sales tax under the provisions of Kerala General Sales Tax Act.

I also derive support from the latest judgment of the Supreme Court in the case of Federal Bank Ltd vs. State of Kerala [(2007) 6 VST 736 (SC)], wherein the Hon’ble Apex Court referred to the provisions of Contract Act, Sale of Goods Act, Kerala General Sales Tax Act and Banking Regulation Act. After reviewing the relevant provisions in all the above stated enactments, the Court held that when a bank sells the pledged articles, it was not acting as an agent of the borrower even under the Banking Regulation Act. The banks acting under section 176 of the Contract Act, 1872 have a right to sell the articles pledged in exercise of the statutory power under the said Act. Referring to the prohibition from trading in goods mentioned in section 8 of the Banking Regulation Act, the Supreme Court held that dealing in the non-banking assets was a business for realisation of the security whenever required. The bank in such a case not only recover the principal amount advanced to the borrower, but also recover interest and other charges falling within the Third Schedule to the Banking Regulation Act.

Applying the aforesaid ratio to the facts of the case before me, it can well be said that the IDBI selling the properties of the borrower was exercising the statutory powers under section 13 of the SURFAS Act, 2002 for realisation of the advances given to the borrower, not only by the said bank but also by other similar banks referred to in Para 2 hereinabove. Once it is held that such a transaction was a banking business, it cannot be termed as a transaction of carrying on business, trade, commerce, manufacture etc for sale or purchase of goods. The existence of such ingredients is a condition precedent for holding any transaction to be that of business, trade, commerce, manufacture etc. Therefore, the activity of IDBI, though involve sale of properties belonging to the borrower, it does not amount to a transaction of sale of goods and that too in the State of Maharashtra, with the result there would be no liability under the Maharashtra VAT Act, 2002.

The querists also desire to know their liability under MVAT Act qua the above referred purchases. In my opinion, they too will not have any liability under the said Act for the following reasons:

The transaction is for one consolidated consideration which is for all properties of the said company on ‘as is where is’ and ‘whatever there is’ basis. In absence of any separate consideration for sale / purchase of movable properties and its delivery separately, it cannot be covered under MVAT Act.

The situs of sale is at Pithampur in M.P., by the provisions of section 4 of the C.S.T. Act and once that is determined to have taken place in the State of Madhya Pradesh, it could be outside all other States, including the State of Maharashtra.

The intention of the seller — IDBI and the buyer – querists was a package containing all properties (immovable and movable). No intention of seller / buyer can be culled out to be a separate transaction of any movable property (the terms and conditions of sale, offer by the querists and its acceptance by IDBI).

Arrears of the defaulter cannot be recovered from the buyer of assets through bank under the provisions of SURFAS Act. The buyer cannot be termed as a transferee of business, which I am told was closed many years back [(Refer State of Karnataka vs. M/s Shreyas Paper (144 STC 331) (SC)].