Slump Sale Doesn't Amount To Sale Of Goods Within MVAT Act: Bombay High Court

The Bombay High Court has held that slump sale under the Business Transfer Agreement (BTA) would not amount to sale of goods within the purview of the Maharashtra Value Added Tax (MVAT) Act.

The bench of Justice G. S. Kulkarni and Justice Jitendra Jain has observed that it was completely a flawed approach on the part of the reviewing authority to tax part of the BTA considering it to be petitioner's sales/turnover of sales, for the financial year 2010-11 in respect of the amounts of the intangible assets as set out in schedule 3.3 of the BTA. Thus, in the context of the BTA, the reviewing authority could not have regarded the intangible items to be in any manner “sale of goods”, so as to fall within the petitioner's turnover of sales.

The issue raised was whether the department could tax sale of the petitioner's 'Base Domestic Formulation Business' as a “going concern” (slump sale) under the provisions of the Maharashtra Value Added Tax Act, 2002.

During the financial year 2010-11, the petitioner/assessee entered into a Business Transfer Agreement (BTA) with Abbott Healthcare to sell, assign, transfer, convey and deliver to Abbott Healthcare “the Base Domestic Formulations Business” on a “going concern” basis for a total cash consideration of Indian Rupees equivalent of US $ 3.72 billion.

Under the BTA, for the limited purpose of adjudication of stamp duty, a bifurcation of the part consideration was provided in terms of Article 3 read with Schedule 3.3 of the BTA.

The petitioner and Abbott Healthcare entered into an amendment agreement to the BTA, to include remaining tangible and intangible assets, in terms of which the consideration payable for the acquisition of the business as a going concern, was increased to US $ 3.80 billion.

The assessee was subjected to assessment for financial year 2010- 11 under Section 23 of the MVAT Act. An assessment order was passed holding that the transaction contemplated and effected under the BTA, was a transfer of a business “on a going concern basis” and hence, not exigible to the Value Added Tax under the MVAT Act. The consideration received towards the 'sale of the business' was excluded from the turnover of the petitioner, for the purpose of levy of VAT under the MVAT Act.

After about two years, the petitioner received a show cause notice proposing to review the assessment for the financial year 2010-11, by holding that the business transfer was incorrectly allowed as a slump sale. The notice was solely on the ground that the allocation of cash consideration for stamp duty purposes was provided in Schedule 3.3 of the BTA, which included consideration for tangible, intangible, movable and immovable assets, which was required to be considered as “turnover” of the petitioner's sales for the period and exigible to tax.

The assessee contended that the review was premised only on the basis of the itemized break-up of the total consideration being provided by the parties purely for the stamp duty purposes and as permissible in law. Hence, VAT could not be levied on the assets transferred, as a part of the business transfer.

The Joint Commissioner confirmed the notice issued under Section 25 of the MVAT Act and raised the impugned demand notice.

The department contended that the order can be effectively challenged before the Maharashtra Sales Tax Tribunal under Section 26 of MVAT Act, 2002, hence, a writ petition filed without exhausting alternative remedy ought not to be entertained. There is a pre-deposit of 10% of the tax before filing an appeal as per the provisions of Section 26(6A) of the MVAT and to avoid pre-deposit, the petitioner has filed the writ petition.

The court determined that the order was unlawful and that the reviewing body had overreached its jurisdiction in issuing it.

Counsel For Appellant: Rafique Dada

Counsel For Respondent: V. A. Sonpal

Citation: 2024 LiveLaw (Bom) 306

Case Title: Piramal Enterprises Limited Versus The State of Maharashtra

Case No.: Writ Petition No. 2836 Of 2021

Click Here To Read The Order