Nuvista Pharma Ltd. Vs. Chairman, National Board of Revenue and others, 2 LNJ AD (2013) 159

Case No: Civil Petition For Leave To Appeal No. 2592 Of 2010

Judge: Md. Muzammel Hossain,

Court: Appellate Division ,,

Advocate: Mr. Ajmalul Hossain QC,Mr. Murad Reza,,

Citation: 2 LNJ AD (2013) 159

Case Year: 2013

Appellant: Nuvista Pharma Ltd.

Respondent: Chairman, National Board of Revenue and others

Subject: Company Matter,

Delivery Date: 2011-01-04

APPELLATE DIVISION
(CIVIL)
 
A.B.M. Khairul Haque, CJ.
Md. Muzammel Hossain, J.
 S.K. Sinha, J.

Judgment
04.01.2011
 
Nuvista Pharma Limited
. . . Petitioner
-Versus-
The Chairman, National Board of Revenue and others
. . . Respondents.
 

Value Added Tax Act (XXII of 1991)
Section 59
Value Added Tax Rules, 1991
Rule 12
In order to change the name and ownership of the company, according to Section 59 of the VAT Act, 1991 and Rule 12 of the VAT Rules,1991 prior payment of outstanding dues of the VAT Authority is a condition precedent before changing the name and ownership of the company. In compliance with the provisions of the VAT Act, 1991 and Rules framed thereunder the petitioner company furnished Bank Guarantee dated 07.05.2007 for Tk. 2,75,42,815.02 in favour of the respondent No.1 as security of the outstanding dues of the respondent author-ity wherein it has been stated that "our liability under this guarantee is limited to Tk.2,75,42,815.02 (taka two crore seventy five lac forty two thousand eight hundred and fifteen and two paisa only). The petitioner company also gave a separate undertaking dated 07.05.2007 wherein all the directors of the company individually and jointly gave an unconditional undertaking that “Nuvista Pharma Ltd. will be liable to meet any claim from the VAT Authorities that may arise in future in the name of Organon (Bangladesh) Limited".

It appears that the predecessor of the petitioner company did not raise any objection against the outstanding arrear VAT liability demanded by the respondent authority. In the circumstances of the case after submission of the Bank Guarantee dated 07.05.2007 for Tk.2,75,42,815.02 supported by an unconditional undertaking by all the directors of the petitioner company against the outstanding VAT liability of Tk.2,75,42,815.02 the claim for release of the Bank Guarantee is not tenable in law.            …(13 and 14)
 
Uttara Bank Vs. Macncill & Kilburn, 33 DLR (AD) 298 ref.
 
For the Petitioner : Mr. Ajmalul Hossain, Q.C. Senior Advocate, instructed by Mr. Md. Wahidullah, Advocate-on-Record.

For the Respondents : Mr. Morad Reza, Additional Attorney General, instructed by Mr. B. Hossain, Advocate-On-Record.

Civil Petition For Leave To Appeal No. 2592 Of 2010
 
JUDGMENT
Md. Muzammel Hossain, J:

This petition for leave to appeal under Article 103 of the Constitution of the People's Republic of Bangladesh is directed against the judgment and order dated 27.10.2010 passed by a Division Bench of the High Court Division in Writ Petition No. 4968 of 2007 discharging the Rule with a direction to the petitioner to make full payment of the claimed amount within two weeks from the date of receipt of the judgment and order failing which the Bank Guarantee No.101TS124LG07 dated 07.05.2007 will be encashed.
 
The present petitioner filed Writ Petition No.4968 of 2007 challenging the direct formal demands made by the respondents alleging violation of Section 55 of Value Added Tax Act,1991 (Annexures-B-1, C-1, C-2, C-3 and C-4 to the writ petition and Annexures-I, J and K to the Supplementary Affidavit) and subsequent demand by their letter dated 23rd April,2007 (Annexure-E-1) of an open ended unconditional and continuous Bank Guarantee and a letter of Undertaking from the petitioner as security against their direct formal demand of Tk.2,75,42,815.02 (Taka Two Crore Seventy Five Lac Forty Two Thousand Eight Hundred and Fifteen and Two Paisa only) for approving the change of name of the petitioner company and seeking direction to release of the Bank Guarantee No.101TS124LG07 dated 7th May,2007 for Tk.2,75,42,815.02 (Taka Two Crore Seventy Five Lac Forty Two Thousand Eight Hundred and Fifteen and Two Paisa only) issued in favour of the respondent No.1 as security for CRAD Audit Objections raised against the petitioner (Annexure-F-1)
 
The facts of the case in brief are that Organon (Bangladesh) Limited, a pharmac-eutical company was registered for VAT. The majority shareholder of Organon Bangladesh Limited decided to discontinue the business in Bangladesh. As a result the shareholding and controlling interest in the petitioner company was changed. On 29th November, 2006 the new management of the petitioner company chan-ged the name of the petitioner from Organ (Bangladesh) Limited to Nuvista Pharma Limited. The petitioner applied to different authorities namely, the Registrar of Joint Stock Companies & Firms (RJSC), Board of Investments (BOI), Dhaka City Corporation (DCC), National Board of Revenue (NBR), Drugs Administration and Licensing Authority (Drugs), Customs, Excise and VAT Authority etc. to change the petitioner's name in their respective certificate and permissions. The petitioner applied to the VAT authorities under Rule 12 of the VAT Rules to record the change of the share transfer and the change of its name from Organon to Nuvista. The VAT authorities raised an issue regarding alleged outstanding VAT of Organon for the years 2001-2006 on the basis of CRAD audit objections to return of Tk.2,75,42,815.02. The amount was demanded by direct demands without issuing any show cause notice under Section 55 of the VAT Act. The demand was rejected by Nuvista for each year.
 
It is stated that the petitioner required VAT Registration Certificate to carry on its business as it had imported raw materials for manufacturing which has already arrived at the airport and that were awaiting for clearance. The petitioner had already got the import registration certificate and bank account changed to the new name of the company and all documents were done in the name of Nuvista Pharma Limited. But the clearance of VAT authorities remained unresolved and in the compelling circumstances as per direction of VAT authorities the petitioner Nuvista Pharma Limited provided unconditional Bank Guarantee and undertaking from the directors of Nuvista under Section 59 of the VAT Act. Thereafter the change of name and ownership was approved and permitted by the VAT authorities on those terms. The petitioner Nuvista filed the instant writ petition challenging the alleged direct demands as stated above and sought release of the Bank Guarantee and undertaking stating that no liability for VAT had arisen. The process for recovering VAT under declared or paid has not been followed and the guarantee will severely hamper the profitability, liquidity and operating capability of the company which amounted to duress. The respondents cannot claim VAT for more than last three years as per provision of Section 55 of the Value Added Tax Act, 1991 and they are illegally claiming the additional VAT in violation of Section 55 of the aforesaid Act. The claim of additional VAT against the petitioner is illegal, unlawful and arbitrary and the respondent's claim for payment of additional VAT cannot sustain in law.
 
It is further stated that there were SlX consignments that were awaiting clearance at the International Airport against letters of credit opened in the name of Nuvista Pharma Limited and these consignments could not be cleared by the customs authorities because the VAT Registration number was in the name of former company Organon (Bangladesh) Limited and in the compelling circumstances the petitioners had to provide Bank Guarantee and the letter of undertaking on 07.05.2007 in order to get approval of change of name of the company from Organon (Bangladesh) Limited to Nuvista Pharma Limited.
 
A Division Bench of the High Court Division by the impugned judgment and order dated 27.10.2010 discharged the Rule. Being aggrieved by the impugned judgment and order passed by the High Court Division the petitioner preferred the instant Civil Petition for Leave to Appeal before this Court.
 
Mr. Ajmalul Hossain QC, the learned Senior Advocate appearing for the petitioner submits that the High Court Division erred in law in passing the impugned judgment and order discharging the Rule as it failed to consider that the petitioner's legal arguments that the respondents under the law are not allowed to make their claim inasmuch as pursuant to section 55 of the Value Added Tax Act,1991 the respondents cannot claim VAT for more than last three years and as such they are claiming additional VAT in violation of the provision of Section 55 of the aforesaid Act. He then submits that the VAT is chargeable only on taxable supplies as per sections 2, 3 and 6 of the VAT Act and that there must be identified goods supplied for consideration and VAT is not charged on the quantities of raw materials and as such there cannot be any basis for the liability for VAT arising in the first place. Mr. Hossain then submits that the respondent's act of retaining the Bank Guarantee and personal undertaking where there is no valid and specific claim for additional VAT against the petitioner is unlawful and arbitrary and as such respondents' claim for payment of additional VAT cannot sustain in law. He finally submits that CRAD is not the appropriate VAT authority to re-determine VAT under-declared or under-paid and therefore, direct demands without following the process under Section 55 of the VAT Act are bad in law and the impugned judgment and order passed by the High Court Division is liable to be set aside.
 
In the instant case the petitioner Nuvista Pharma Limited after buyout of the manag-ement of the predecessor of the petitioner company Organon (Bangladesh) Ltd. in the year 2007 after complying with the provision of Section 59 of the VAT Act,1991 and Rule 12 of the VAT Rules,1991 changed the name of the company from Organon (Bangladesh) Limited to Nuvista Pharma Limited by furnishing unconditional Bank Guarantee and undertaking. It has been judicially noticed by the High Court Division that the petitioner company admitted the demand made by the respondent and furnished unconditional Bank Guarantee as per provision of Section 59 of the VAT Act and Rule 12 of VAT Rule for changing the name and ownership of the company and got the same properly approved with the respondent authorities and various other authorities. It appears from the record that the predecessors of the petitioner company Organon (Bangladesh) Limited did not take any action against the demand notice dated 23.04.2007 (Annexure-E1) on the ground of non-compliance of procedure of the VAT Act before making the demand. The pertinent question before us for consideration is whether after change of the name of the petitioner company from Organ (Bangladesh) Limited to Nuvista Pharma Limited having complied with the provisions of the VAT Act and Rules framed thereunder by furnishing Bank Guarantee and undertaking the petitioner can maintain a writ petition challenging the aforesaid demand made by the respondent seeking the unconditional Bank Guarantee to be declared unconstitutional on the ground of non-compliance of various provisions of VAT Act and Rules. In the instant case admittedly the demand was made against the petitioner by the respondent. From the materials on record it appears that the respondent authority by Annexures-C series demanded various outstan-ding arrear VAT. Separate demand notices were issued at different times as per provisions of law but the petitioner knowing fully about the said arrear VAT liability intentionally refrained from making the payment of arrear VAT Liability which was detected by the Local Revenue Audit for the year 2001-2006 and that audit was conducted each year and there was separate demand notice for each year on time but the petitioner did not take any step for payment of the said arrears VAT liability or did not prefer any appeal. It appears that audit has been conducted by the auditors of the Local and Revenue Audit Directorate of the Government based on records such as price declaration, monthly returns and Mushak Challan, copy of Cash Book Register etc. filed by the assesses to the office of the Divisional Officer of Customs, Excise & VAT and also to the office of the Circle Superintendent, Customs, Excise & VAT. The respondent authority issued demand notices for payment of arrear VAT / evaded VAT on time after each year audit by the local revenue audit in accordance with law.
 
The VAT Act, 1991 is a special law enacted for realization of VAT on "cY¨" and "‡mev" which has been very clearly stated in it’s preamble.  As per provisions of the aforesaid Act a special procedure for imposition and realization of VAT is required to be followed. Section 15 of the VAT Act provides for registration of VAT. According to Section 2(b) any person includes business organization, incorporated body and any association. Section 18 of the VAT Act, 1991 provides that if any person wants to change the name, address and any other information mentioned in the application for registration for VAT he may apply to the concerned authority at least 14 days before the date of change. Section 59 of the Act contains mandatory provisions for change of ownership of the business organization and the company which reads as under:
 
"৫৯। মালিকানা হস্তান্তর।-কোন নিবন্ধিত ব্যক্তি তাহার ব্যবসায় প্রতিষ্ঠানের আওতাধীন কোনো স্থাবর সম্পত্তি বা মালিকানা উক্ত ব্যবসায় পরিচালনায় এই আইনের অধীন প্রদেয় সকল মূল্য সংযোজন কর বা, ক্ষেত্রমত, মূল্য সংযোজন কর ও সম্পূরক শুল্ক, সম্পূর্ণরূপে পরিশোধ না করা পর্যন্ত, হস্তান্তর করিতে পারিবেন না।
তবে শর্ত থাকে যে, উক্ত প্রতিষ্ঠানের স্থাবর বা অস্থাবর সম্পত্তি বা মালিকানা ক্রয়কারী ব্যক্তি প্রদেয় মূল্য সংযোজন কর বা ক্ষেত্রমত, মূল্য সংযোজন কর ও সম্পূরক শুল্ক পরিশোধ করার বিষয়ে কোনো তফসিলী ব্যাংকের নিঃশর্ত ব্যাংক গ্যারান্টি দাখিল করিলে যথোপযুক্ত বিবেচনায় সংশ্লিষ্ট কমিশনার তৎকর্তৃক নির্ধারিত শর্তে উহা হস্তান্তরের অনুমতি প্রদান করিতে পারিবেন।"
 
Rule 12(1) provides that for change of the place of business or for change of any situation of the business organization a registered person has to pay VAT or turnover tax or any supplementary duty minimum 14 days before such change and then submit a declaration in the prescribed form "VAT-9" to the Local VAT Office. It is pertinent to reproduce Rule 12(1) of VAT Act,1991 which runs as under:
 
"১২। ব্যবসায়ের স্থান বা পরিস্থিতির পরিবর্তন।- (১) কোনো নিবন্ধিত ব্যক্তির ব্যবসায়ের স্থান বা পরিস্থিতির পরিবর্তন হইলে তাহাকে উক্ত পরিবর্তনের অন্যূন চৌদ্দ দিন পূর্বে মূল্য সংযোজন কর বা ক্ষেত্রমত, সম্পূরক শুল্ক বা টার্ণওভার কর সম্পূর্ণ পরিশোধ সাপেক্ষে স্থানীয় মূল্য সংযোজন কর কার্যালয়ে বা প্রযোজ্যক্ষেত্রে, কার্যালয় সমূহে ফরম ’মূসক-৯’ এ একটি ঘোষনাপত্র দাখিল করিতে হইবে|"
 
The case of the petitioner is that there was a change in its shareholding and controlling interest. The new management of the petitioner company changed the name of the company from Organon (Bangladesh) Limited to Nuvista Pharma Limited. The petitioner company was previously running their business with VAT Registration in the name of Organon (Bangladesh) Limited and accordingly they obtained the VAT Registr-ation Certificate in the name of Organon (Bangladesh) Limited to carry on its business for importing raw materials for manufacturing. For this purpose the company had imported raw materials for manufacturing which has already arrived at the Shahajalal International Airport. Because of the change of name of the petitioner company it could not take delivery of it's goods from the airport, since the claim of the VAT Authority against the Nuvista Pharma Limited remain unresolved. Having faced with such a situation the petitioner company was required to obtain VAT Registration in the name of Nuvista Pharma Limited because of the change of name of the company. In compliance with the provisions of Sections 18 and 59 of the VAT Act, 1991 read with Rule 12(1) of the VAT Rules, 1991 the petitioner company was required to pay the outstanding arrear of VAT liability of Tk.2,75,42,815.02 based on CRAD Audit Objection for the years 2001-2006. The petitioner company in order to get registration of their change of ownership and other particulars of the company applied to the respondent authority. Having complied with the provisions of Sections 18 and 59 of the VAT Act,1991 read with Rule 12(1) of the VAT Rules, 1991 the petitioner company furnished unconditional Bank Guarantee. It appears from the record that the respondent No.2 Commissioner, Customs Excise and VAT, Dhaka by memo dated 23.04.2007 (Annexure-E-1) informed the Additional Commissioner, Customs approving the change of the name of the petitioner company from Organon (Bangladesh) Limited to Nuvista Pharma Limited subject to submission of an unconditional and continuing Bank Guarantee for Tk.2,75,42,815.02 under Section 59 of the VAT Act,1991.
 
It has also been mentioned that if in the future any demand is made in respect of any outstanding VAT liability of the predecessor of the present petitioner company, it shall have to pay the same as per provisions of Section 59 of the said Act. From the scheme of the Act it is to be observed that payment of outstanding VAT, or any other dues of the respondent Government for change of name and ownership of the company it is mandatorily required that the company shall pay the said dues before making any application for change of name and ownership of the company. From the scheme of the Act it is also obvious that payment of outstanding dues is required to be paid before changing the place and situation of the registered person or business concern and without prior payment of outstanding dues there shall not be any change of VAT Registration in respect of the name and ownership of the company.
 
In order to change the name and ownership of the company, according to Section 59 of the VAT Act,1991 and Rule 12 of the VAT Rules,1991 prior payment of outstanding dues of the VAT Authority is a condition precedent before changing the name and ownership of the company. In compliance with the provisions of the VAT Act,1991 and Rules framed thereunder the petitioner company furnished Bank Guarantee being No.101TS1241LG07 dated 07.05.2007 for Tk.2,75,42,815.02 in favour of the respondent No.1 as security of the outstanding dues of the respondent authority wherein it has been stated that "our liability under this guarantee is limited to Tk.2,75,42,815.02 (taka two crore seventy five lac forty two thousand eight hundred and fifteen and two paisa only) (Annexure-F)”. The petitioner company also gave a separate undertaking dated 07.05.2007 (Annexure-F-2) wherein all the directors of the company individually and jointly gave an unconditional undertaking that “Nuvista Pharma Ltd. will be liable to meet any claim from the VAT Authorities that may arise in future in the name of Organon (Bangladesh) Limited".
 
It appears that the predecessor of the petitioner company did not raise any objection against the outstanding arrear VAT liability demanded by the respondent authority as contained in Annexure-E1 on the ground of non-compliance of procedure of the VAT Act before making the demand. In the circumstances of the case after submission of the Bank Guarantee No. 101TS1241LG07 dated 07.05.2007 for Tk.2,75,42,815.02 supported by an unconditional undertaking by all the directors of the petitioner company against the outstanding VAT liability of Tk.2,75,42,815.02 the claim for release of the Bank Guarantee is not tenable in law. However, the petitioner company can claim refund of any mistaken payment or excessive payment in respect of VAT turnover tax or any other dues if any to the respondent authority as envisaged in Section 67 of the VAT Act.
 
At the time of issuance of Rule an ad-interim order was passed stating that injunction on the Bank Guarantee can not sustain in view of the decision of the case of Uttara Bank -Vs- Macneill & Kilburn reported in 33 DLR(AD) 298 wherein it has been held that there cannot be any injunction whatsoever upon any Bank Guarantee. The Appellate Division observed-
 
"The decisions show that court will not interfere by granting an injunction from performing or discharging the contractual obligations. Such is the case here. The letter of guarantee was given in this case by the plaintiff and the defendant placed it for the encashment of the letter of guarantee. The bank (chartered bank) is only obliged to comply with the demand made by the Appellant Uttara Bank. It is nobody's case that there is any fraud of which the bank got notice."
 
We have heard the learned Advocate appearing for the petitioner, perused the leave petition, impugned judgment and order passed by the High Court Division and all other connected papers on record. We are in respectful agreement with the decision of the Appellate Division reported in 33 DLR (AD) 298. In view of the above mentioned findings and observations, we do not find any illegality in the impugned judgment and order. In the premises we do not find any merit in the leave petition.
 
In the result, the leave petition is dismissed.
 
Ed.