On the Issue of Deemed Dealer: The Court held that SASF was a “deemed dealer” under Section 2(8) of the MVAT Act. The Court found that SASF fell under clause (x) of the Explanation to Section 2(8), which includes bodies constituted by the Central Government. The Court rejected SASF’s argument that it was not engaged in business, holding that the deeming provision applied irrespective of whether SASF carried on business. (Paras 24-31)

On the Issue of Prospective Effect: The Court held that SASF was entitled to the benefit of prospective effect under Section 56(2) of the MVAT Act. The Court found that SASF had acted in good faith, believing that its activities were exempt under Article 285 of the Constitution. The Court also noted that SASF had no independent income and that recovering taxes from past transactions would cause grave hardship. (Paras 38-42)

Deemed Dealer under MVAT Act: Entities falling under the Explanation to Section 2(8) of the MVAT Act, including bodies constituted by the Central Government, are deemed to be dealers irrespective of whether they carry on business. The deeming provision applies when such entities sell goods, whether by auction or otherwise. (Paras 24-31)

Prospective Effect under Section 56(2): The discretion to grant prospective effect under Section 56(2) of the MVAT Act should be exercised in cases where the taxpayer has acted in good faith and where imposing retrospective liability would cause grave hardship. The Court emphasized that the unique nature of SASF’s activities and its status as a government-constituted trust justified the grant of prospective effect. (Paras 38-42)

The Court answered the questions of law in MVAT Appeal No.16 of 2016 in favour of the Revenue, holding that SASF was a “deemed dealer” under the MVAT Act. However, in MVAT Appeal No.2 of 2020, the Court ruled in favour of SASF, granting it the benefit of prospective effect for the tax liability. (Paras 43-46)

Major Acts:

1. Constitution of India (COI), Article 285 – Exemption of Union Government property from State taxes.

2. Maharashtra Value Added Tax Act, 2002 (MVAT Act) – Sections 2(4), 2(8), 2(24), 56(1), 56(2).

3. Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act) – Section 2(h).

4. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) – Recovery of stressed assets.

Subjects:

• Deemed Dealer – MVAT Act, Section 2(8), Explanation.

• Prospective Effect – MVAT Act, Section 56(2).

• Stressed Assets Stabilization Fund (SASF) – Government-constituted trust for recovery of non-performing assets.

• Public Financial Institution – Notification under RDDB Act, 1993.

• Sale of Movable Property – Tax liability under MVAT Act.

• Article 285, COI – Exemption of Union Government property from State taxes.

Facts:

1. Nature of the Litigation:

   • The Appellant, Stressed Assets Stabilization Fund (SASF), a trust set up by the Central Government, challenged its classification as a “deemed dealer” under the Maharashtra Value Added Tax Act, 2002 (MVAT Act). The trust was established to recover non-performing assets (NPAs) of the Industrial Development Bank of India (IDBI) by selling stressed assets, including movable and immovable properties. The State of Maharashtra contended that SASF was liable to pay sales tax on the sale of movable properties.

2. Who is Asking the Court and for What Remedy?:

   • SASF sought relief from being classified as a “deemed dealer” under the MVAT Act and requested prospective effect for the tax liability, arguing that it was not engaged in the business of buying or selling goods and that its activities were exempt under Article 285 of the Constitution of India.

3. Reason for Filing the Case:

   • The Commissioner of Sales Tax had determined that SASF was a “deemed dealer” under Section 2(8) of the MVAT Act, liable to pay sales tax on the sale of movable properties. SASF appealed this decision, arguing that it was not engaged in business activities and that the sale of stressed assets was not subject to sales tax.

4. What Has Already Been Decided Until Now?:

   • The Maharashtra Sales Tax Tribunal (MSTT) upheld the Commissioner’s decision, classifying SASF as a “deemed dealer”. However, the Tribunal was divided on whether SASF should be granted prospective effect for the tax liability. A Larger Bench of the MSTT later denied the benefit of prospective effect, leading to the present appeal.

Issues:

1. Whether SASF is a “deemed dealer” under Section 2(8) of the MVAT Act?

   • The Court examined whether SASF, as a government-constituted trust, fell under the Explanation to Section 2(8) of the MVAT Act, which deems certain entities as dealers irrespective of whether they carry on business. (Paras 20-31)

2. Whether SASF is entitled to the benefit of prospective effect under Section 56(2) of the MVAT Act?

   • The Court considered whether SASF should be granted prospective effect for the tax liability, given its unique status as a trust set up by the Central Government for the recovery of stressed assets. (Paras 32-42)

Submissions/Arguments:

1. Appellant’s Arguments (SASF):

   • SASF argued that it was not engaged in the business of buying or selling goods, as defined under Section 2(4) of the MVAT Act. It contended that its activities were limited to recovering stressed assets and that the proceeds were transferred to the Central Government, making it exempt under Article 285 of the Constitution. (Paras 11-18)

   • SASF also argued that the sale of stressed assets was on an “as is where is” basis, and no movable property was sold separately. (Paras 13-14)

   • SASF requested prospective effect for the tax liability, arguing that it had acted in good faith and that recovering taxes from past transactions would cause grave hardship. (Paras 16-18)

2. Respondent’s Arguments (State of Maharashtra):

   • The State argued that SASF was a “deemed dealer” under Section 2(8) of the MVAT Act, as it sold movable properties through auctions. The State contended that SASF was aware of its tax liability and that ignorance of the law was no excuse. (Paras 35-37)

   • The State opposed the grant of prospective effect, arguing that SASF had knowingly sold movable properties and should have collected sales tax. (Paras 36-37)