Safiya Malik

The Bombay High Court has delivered a judgment addressing the applicability of the Maharashtra Value Added Tax (MVAT) Act to transactions of the Stressed Assets Stabilization Fund (SASF). The judgment examines the tax liability of SASF and whether it qualifies as a "deemed dealer" under the MVAT Act. The decision also considers whether transactions involving the recovery of stressed assets constitute a taxable event and if prospective effect should be granted to the Determination Order issued by the Commissioner of Sales Tax.

The case involved two appeals challenging orders of the Maharashtra Sales Tax Tribunal (MSTT). The first appeal contested the Tribunal's affirmation of the Determination Order by the Commissioner of Sales Tax, which classified SASF as a "deemed dealer" under Section 2(8) of the MVAT Act. The second appeal challenged the Tribunal's denial of prospective effect for the Determination Order.

SASF was established as a trust by the Government of India pursuant to a Trust Deed dated September 24, 2004. Its purpose was to acquire and recover stressed assets previously held by the Industrial Development Bank of India (IDBI). The trust was created as a Special Purpose Vehicle (SPV) to manage and recover non-performing assets valued at approximately Rs. 9,000 crores as of March 31, 2004. The assets were transferred to SASF through a Transfer Deed executed between IDBI and SASF on September 30, 2004.

The Government of India allocated Rs. 9,000 crores in its budget to provide a loan to SASF for the acquisition of these stressed assets. Under this arrangement, the trust was required to realize the assets through recovery mechanisms, including settlements with borrowers and legal proceedings, and remit the proceeds to the Central Government. The trust was established with a limited tenure and was to be dissolved upon completion of the realization process or after twenty years, whichever occurred earlier.

In December 2013, the Investigation Branch of the Maharashtra Sales Tax Department visited SASF’s office. The department reviewed SASF’s transactions and noted that SASF had conducted sales of movable assets while recovering dues. It was determined that the taxability of such transactions would be subject to assessment under the MVAT Act.

SASF argued that it was not engaged in the business of buying or selling goods and was merely fulfilling its trust obligations. It contended that it was created by and for the Government of India and that any proceeds from asset recovery were remitted to the government. SASF maintained that its transactions involved immovable properties, which are not subject to MVAT, and that the Commissioner of Sales Tax had erred in classifying it as a "deemed dealer."

The Commissioner of Sales Tax, in its Determination Order dated March 28, 2014, held that SASF was a "deemed dealer" under Section 2(8) of the MVAT Act and that transactions involving the sale of movable assets constituted taxable events. The Commissioner determined that SASF was liable for sales tax on such transactions and did not grant prospective effect.

The Bombay High Court examined the statutory framework of the MVAT Act, specifically the definitions of "business," "sale," and "dealer." The Court analyzed whether SASF's activities met these definitions and whether it qualified as a "deemed dealer."

The Court stated:

"The Explanation to Section 2(8) of the MVAT Act provides that certain entities, including financial corporations, institutions, and bodies owned or controlled by the government, are deemed dealers if they sell goods, whether by auction or otherwise."

SASF's contention that it was not engaged in a commercial activity was considered, with the Court stating:

"Once the appellant falls within one of the categories enumerated in the Explanation to Section 2(8), it is deemed to be a dealer notwithstanding the absence of a profit motive or conventional business activity."

Regarding the nature of SASF's transactions, the Court observed:

"The sale of stressed assets through auction constitutes a transfer of property in goods and is therefore subject to taxation under the MVAT Act."

The Court also examined whether SASF's transactions involved movable or immovable property. It noted that SASF had conducted sales of plant and machinery through public auctions and that these transactions involved goods that could be severed from immovable property. The Commissioner of Sales Tax left the determination of whether specific assets were movable or immovable to field officers for verification at the assessment stage. The Court held that in cases where plant and machinery were auctioned separately from land, such transactions fell within the purview of MVAT.

On the issue of prospective effect, the Court examined Section 56(2) of the MVAT Act, which allows for discretionary grant of prospective effect to Determination Orders. The provision permits the Commissioner to rule that a determination shall not apply to past transactions if circumstances warrant such relief.

SASF had argued that it operated under the belief that it was exempt from tax under Article 285 of the Constitution of India, which prohibits state taxation of property belonging to the Union Government. The Court examined this argument and stated:

"The transactions in question involved sales to third parties, and Article 285 did not extend immunity to such transactions."

The Court addressed the key legal questions raised in the appeals. In the first appeal, which challenged SASF’s classification as a "deemed dealer," the Court upheld the Commissioner’s determination that SASF was liable for MVAT, stating that its transactions involving the sale of movable property constituted taxable events under the Act:

"In light of the aforesaid discussion, Questions (a), (b), and (c) raised in MVXA No.16 of 2016 are answered in the affirmative i.e. against the Appellant and in favour of the Revenue."

For the second appeal, which sought prospective effect for the Determination Order, the Court held that SASF’s argument regarding prospective application was accepted to some extent, leading to a ruling against the revenue on that specific point, while the remaining issues were considered resolved:

"Question (a) in MVXA No.2 of 2020 is answered in the negative i.e. in favour of the Appellant and against the Revenue. As far as the other questions in MVXA No.2 of 2020 are concerned, the same require no answer in light of what we have held above."

Case Title: Stressed Assets Stabilization Fund v. State of Maharashtra

Neutral Citaton: 2025:BHC-OS:3381-DB

Case Numbers: Maharashtra Value Added Tax Appeal No.16 of 2016 and Maharashtra Value Added Tax Appeal No.2 of 2020 In Appeal No.23 of 2014

Bench: Justice B. P. Colabawalla & Justice Firdosh P. Pooniwalla

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