Slump Sale under BTA would not amount to Sale of Goods under MVAT Act: Bombay HC rules in favour of Piramal Enterprises Ltd [Read Order]

In a recent case, the Bombay High Court observed that a Slump Sale under the Business Transfer Agreement ( BTA ) would not amount to the Sale of Goods under Maharashtra Value Added Tax Act, 2002 ( MVAT Act ) and set aside the reviewing order being illegal. It was viewed that there is no prohibition in the statute that the reviewing authority ought not to travel beyond the show cause notice to render the show cause notice bad in law. 

Piramal Enterprises Limited, the petitioner challenged the order passed by respondent no.2-Joint Commissioner of State Tax ( reviewing authority ) under Section 25 of the Maharashtra Value Added Tax Act, 2002 ( MVAT Act ) exercising the review jurisdiction.  By the impugned order, respondent no.2 has reviewed the order dated 16 March 2015 passed by the assessing officer finalizing the petitioner’s assessment for the financial year 2010-11.

The proceedings are as to whether the respondents in the facts of the case could tax the 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 entered into a Business Transfer Agreement dated 21 May 2010 (“BTA”) with one M/s. Abbott Healthcare Pvt. Ltd. ( “Abbott Healthcare”) to sell, assign, transfer, convey and deliver to Abbott Healthcare “the Base Domestic Formulations Business” (comprised of Healthcare Solutions business and the mass market branded formulation – (Truecare 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 also include remaining tangible and intangible assets, in terms of which the consideration payable for the acquisition of the said business as a going concern, was increased to US $ 3.80 billion.   

The petitioner was subjected to assessment for financial year 201011 under Section 23 of the MVAT Act.  An assessment order dated 16 March 2015 was passed, inter alia 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 for the Value Added Tax (“VAT”) under the MVAT Act. This, according to the petitioner, was after taking into account all relevant aspects concerning the BTA. Accordingly, the consideration received towards the ‘sale of the business’ was excluded from the turnover of the petitioner, for levy of VAT under the MVAT Act. 

After about two years, the petitioner received a show cause notice dated 06 April 2017 issued under Section 25 of the MVAT Act read with Rule 30 of the Maharashtra Value Added Tax Rules, 2005 ( “MVAT Rules” ) in Form 309 proposing to review the assessment (supra) for the financial year 2010-11, by holding that the business transfer was incorrectly allowed as a slump sale. According to the petitioner, the review was premised only on 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.

It was submitted that the review jurisdiction cannot be a jurisdiction under which the reviewing authority would intend to tax something which on a holistic reading of the BTA was per se not taxable under the MVAT Act. 

The grounds on which the review jurisdiction was to be exercised by the reviewing authority as informed to the petitioner was confined to what was set out in the review notice under the heading “Gist of the order proposed to be passed”, which was on the fundamental premise that from Schedule 3.3 of the BTA, it was noticed by the reviewing authority that allocation of the cash consideration for stamp duty purposes for various types of assets and more particularly, bifurcation of the consideration of tangible immovable assets, trade mark and associate rights, brands break up rights under exclusive distribution agreement, trade mark licence, would amount to turnover of sale which has not been brought to tax and that the liability to tax was understated in the context of slump sale, which is alongwith the assets and liabilities. 

The division bench of Justice Jitendra Jain and Justice G S Kulkarni observed that 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. Further held that the reviewing authority acted more than jurisdiction in passing the impugned order. 

It was viewed that there is no prohibition in the statute that the reviewing authority ought not to travel beyond the show cause notice to render the show cause notice bad in law. 

In the case, the Commissioner of Income Tax, Mumbai vs. Amitabh Bachchan, it was observed that the revisional powers under Section 263 of the Income Tax Act, 1961, what has to be seen is the satisfaction that an order passed by the authority under the Act is erroneous and prejudicial to the interest of the revenue, is the basic condition for the exercise of such jurisdiction under the said provision. 

It was observed that once such satisfaction is reached, jurisdiction to exercise the power would be available subject to the principles of natural justice which has been observed to be implicit in the requirement cast by the Section to allow the assessee to be heard. 

The Court set aside the impugned order and the consequent demand notice.

To Read the full text of the Order CLICK HERE

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