Hon'ble Dr. Satish Chandra,J.
(Per: Tarun Agarwala,J.) The petitioner has filed the present writ petition for the quashing of the recovery certificate.
The facts leading to the filing of the writ petition is that respondent No.4, M/s American Paints Ltd., started a unit after applying for exemption under Section 4-A of the U.P. Trade Tax Act (hereinafter referred to as the "Act"), which was granted and the said unit was exempted from payment of Trade Tax upto 2007. The respondent No.4 ran into losses and recovery of trade tax dues was initiated against respondent No.4, pursuant to which the unit of respondent No.4 was attached by the trade tax authorities. The said respondent also took a loan from Pradeshiya Industrial & Investment Corporation of Uttar Pradesh Ltd. (hereinafter referred to as "PICUP"). The recovery proceedings were also initiated by the PICUP and on 25.1.2003, pursuant to a tacit understanding between the trade tax authorities with PICUP, the unit of respondent No.4 was attached under Section 29 of the State Financial Corporation Act. It is alleged that in these attachment proceedings the trade tax authorities and PICUP agreed that the proceeds of the auction would be disbursed in adequate proportions between the two departments. After the attachment, an advertisement was issued by PICUP inviting offers for sale of the assets of the unit. The petitioner made an offer of Rs.172.50 Lakhs, which was accepted and an agreement to sell was entered between the petitioner and PICUP.
In this agreement to sell, it was agreed, that the transfer of the assets would be free from all encumbrances and that the petitioner would not be liable for any statutory or tax liabilities in relation to the acquired assets. Subsequently, a sale-deed was executed and under Clause (b) thereof it was categorically stated that the property sold to the petitioner was free from all encumbrances, mortgages, interests, claims, liens etc. and that the vendor would indemnify and keep the petitioner harmless in the event of any adverse claim arising from any statutory or tax liability.
The petitioner contends that a sum of Rs.10,05,837/- was due against respondent No.4 and that recovery certificate was issued by the trade tax authorities for the said amount against respondent No.4 for the assessment years 1997-98 to 2000-01. Pursuant to the purchase made by the petitioner of the assets of respondent No.4, it is alleged, that the recovery certificate was modified and a show cause notice was issued to the petitioner to show cause as to why the amount should not be recovered from the petitioner. The petitioner further contended that pursuant to the show cause notice, the recovery certificate was issued against the petitioner and, consequently, the present writ petition was filed.
We have heard Sri Amit Negi, the learned counsel for the petitioner and Sri C.B.Tripathi, the learned Special Counsel appeared for the State of U.P.
The learned counsel for the petitioner contended that the assets of respondent No.4 was purchased pursuant to the proceedings initiated under Section 29 of the State Financial Corporation Act, which was free from all encumbrances and, consequently, the liabilities of respondent No.4, which is a going concern, could not be recovered from the petitioner merely because some of the assets of respondent No.4 had been purchased by the petitioner.
The arguments of the learned counsel for the petitioner appears to be attractive in the first flush, but on a closer scrutiny, we find that the stand of the petitioner is untenable for the following reasons.
We find from a perusal of the counter affidavit that the erstwhile Company was granted an exemption under Section 4-A of the Act exempting respondent No.4 from the payment of trade tax for a stipulated period, on the ground, that it was a new unit. The petitioner, upon purchase of the unit of respondent No.4, applied for continuation of the exemption under Section 4-A(2-B) of the Act. For facility, the said provision is extracted hereunder:
"(2-B) If there is discontinuation of business, within the meaning of sub-section (1) of Section 18, of the manufacturer who was eligible for exemption from or reduction in the rate of tax under sub-section (1), whether such exemption from or reduction in rate of tax was already granted or not, and if he is succeeded by another manufacturer, by means of sale, licence, contract, lease, managing agency or in any other manner such successor manufacturer may, subject to the provisions of sub-section (3), apply to the officer competent to grant eligibility certificate under Clause (d) of sub-section (2), within sixty days of such succession, for the grant, under this section, of exemption from or reduction in rate of tax for the unexpired portion of the period for which exemption from or reduction in the rate of tax was or could be granted to the former manufacturer:
Provided that the aforesaid officer may, in its discretion and for adequate and sufficient reasons to be recorded in writing, entertain an application moved within six months of the date of the expiration of the period specified in this sub-section.
Provided further that such manufacturer and successor manufacturer for the purpose of liability of tax shall be treated as the transferor and the transferee under Section 3-C.
Provided also that in computing the unexpired portion of the period, the period during which the production of successor manufacturer remains closed on account of an order passed by any Court or Board for Industrial and Financial Reconstruction or Appellate Authority for Industrial and Financial Reconstruction shall be excluded."
From a perusal of the aforesaid provision, it is clear, that where there is a discontinuation of business of the manufacturer, who was eligible for exemption, the successor manufacturer may apply before the competent authority for grant of eligibility certificate and for exemption from payment of tax or for reduction in the rate of tax for the unexpired portion of the period for which exemption was granted to the former manufacturer.
The second proviso further stipulates that the successor manufacturer, for the purpose of liability of tax, shall be treated as the transferor and the transferee under Section 3-C of the Act. Section 3-C of the Act provides as under:-
"3-C. Liability to tax of a dissolved firm, etc.- (1) Where a dealer is a firm, or association of persons or a joint Hindu family, and such firm, association or family has discontinued business,-
(a) tax, including penalty, if any, payable under this Act by such firm, association or family upto the date of such discontinuance may be assessed and determined as if no such discontinuance had taken place: and
(b) every person who was at the time of such discontinuance a partner of such firm or a member of such association or family shall, notwithstanding such discontinuance, be liable severally and jointly for the payment of tax assessed and penalty imposed and payable by such firm, association or family whether such assessment is made or penalty is imposed prior to or after such discontinuance, and, subject as aforesaid, the provisions of this Act shall apply as if every such person or partner were himself as a dealer:
Provided that where it is found that a change has occurred in the constitution of the firm or association, the firm or association as reconstituted as well as partners or members of the firm or association, as it existed before re-constitution, shall jointly and severally be liable to pay tax including penalty, if any, due from such firm or association for any period before its reconstitution.
(2) Liability to tax of transferee.- Where the ownership of the business of any dealer liable to pay tax is transferred, the transferor and the transferee shall jointly and severally be liable to pay the tax including penalty, if any, payable in respect of such business till the time of such transfer, whether the assessment is made or the penalty is imposed prior to or after such transfer.
(3) Where a tax including penalty, if any, is recovered from a re-constituted firm or association under the proviso to sub-section (1) or from a transferee under sub-section (2), such firm or association or a transferee shall be entitled to recover the same from the person who was originally liable to pay the tax."
A perusal of the aforesaid provision indicates that where a dealer or a firm, etc. discontinues its business, the tax payable by such dealer, firm upto the date of such discontinuance may be assessed and determined. Sub-clause (2) of Section 3-C of the Act provides that where the ownership of the business of any dealer is transferred, the transferor and the transferee shall jointly and severally be liable to pay the tax, if any, payable in respect of such business including the tax imposed prior to or after such transfer.
In the light of the aforesaid provision, we find that the petitioner applied for continuation of the exemption under Section 4-A(2-B) of the Act, which was granted to the petitioner by the competent authority, but was subjected to certain stipulation, namely, that the petitioner would be liable to pay the tax of the earlier manufacturer, namely, respondent No.4. This stipulation was made by the competent authority in accordance with the provision of the second proviso to Section 4-A(2-B) read with Section 3-C(2) of the Act.
We find that the said condition imposed by the competent authority was accepted by the petitioner and that the petitioner availed the exemption from payment of trade tax for the remaining period. The petitioner, however, did not pay the tax of the earlier period which was required to be paid by the the earlier manufacturer and which became jointly and severally payable by the petitioner under the provisions of Section 3-C(2) of the Act by the petitioner.
The petitioner cannot now turn around and contend that the said condition imposed was arbitrary or opposed to public policy or the condition was in contravention to the provision of sub-Clause (2) of Section 3-C of the Act. The petitioner is estopped from raising such contention at this stage, for the reason that having availed the exemption the petitioner cannot turn around and contend that at this belated stage that the said condition is a nullity being violative of the provisions of the Act or is opposed to public policy. The petitioner cannot approbate or reprobate at the same time.
A feeble attempt was made by the learned counsel for the petitioner that since the condition imposed in the exemption certificate was a nullity it could be challenged at any stage. In support of his submission, the learned counsel placed reliance upon a decision of the Supreme Court in Kiran Singh and others vs. Chaman Paswan and others, AIR 1954 SC 340(1) and a decision in Sarwan Kumar and another vs. Madan Lal Aggarwal, AIR 2003 SC 1475.
We have perused the aforesaid judgments and we find that the principle involved in the aforesaid decisions are not at all applicable to the present facts and circumstances of the case. Once the petitioner has availed the exemption, as per the exemption certificate granted to them, the petitioner cannot turn around and contend that the conditions imposed are onerous or contrary to the provisions of the Act.
For the reasons stated aforesaid, we find that the petitioner is not entitled for any relief.
The writ petition fails and is dismissed.
Dated: 7.8.2014.
AKJ.