2007 (9) TMI 583 - HC - VAT and Sales Tax

Whether it is necessary that a demand for collection of arrears of sales tax be made to attract section 26A of the Kerala General Sales Tax Act 1963 ? Whether the assignees of an assessee under the Kerala General Sales Tax Act 1963 which transaction is hit by section 26A could claim that they are bona fide transferees so as to avoid the rigour of section 26A? Whether before revenue recovery sale the person in possession could be directed to vacate the house in the property sought to be sold? Held that - In the present case the transfers were effected after proceedings were initiated against the assessee under the Act. Therefore the assignment deeds executed by the partners of the assessee-firm in favour of the petitioners are void under section 26A. Exhibit P 2 order is valid and the learned single judge has rightly rejected the contentions raised by the petitioners. In the instant case powers under sections 37 and 38 were not invoked. On the other hand respondents 5 and 6 were directed to vacate the houses. We hold that exhibits P3 and P4 notices cannot be implemented against the petitioners. However it is made clear that this will not preclude the respondent concerned from initiating steps under sections 37 and 38 of the Revenue Recovery Act after notice to the petitioners. Therefore exhibits P3 and P4 notices as against the petitioners shall be kept in abeyance till appropriate proceedings under section 37 of the Kerala Revenue Recovery Act are initiated or until the sale is finalised as per the Act whichever event occurs earlier. Writ appeal partly allowed

Summary

Issues:
1. Interpretation of Section 26A of the Kerala General Sales Tax Act, 1963.
2. Validity of transfers by assignees under the Act.
3. Rights of possession before revenue recovery sale.

Interpretation of Section 26A:
The court examined the applicability of Section 26A of the Kerala General Sales Tax Act, 1963, which renders void any transfer of assets by an assessee during ongoing proceedings or after their completion if there are outstanding tax liabilities. The court clarified that the transfer is considered void only against any claims related to tax or sums payable by the assessee under the Act. The court emphasized that the timing of the transfer, even before the completion of assessments or demands for payment, is crucial for invoking Section 26A. The court highlighted that the validity of the transfer is upheld between the parties involved but is void concerning any tax-related claims against the assessee. The court cited a previous case to support the constitutional validity of Section 26A, emphasizing its purpose to prevent attempts by an assessee to transfer assets to evade tax liabilities.

Validity of Transfers by Assignees:
The court examined whether assignees of an assessee under the Act could claim to be bona fide transferees to avoid the implications of Section 26A. The court analyzed specific cases where assignees claimed ownership of properties transferred during ongoing assessment proceedings. The court concluded that transfers made by partners of the assessee-firm to the petitioners were void under Section 26A as the transfers occurred after proceedings were initiated against the assessee. The court emphasized that such transfers are void against any claims related to tax or sums payable by the assessee under the Act, irrespective of the transferees' claims of being bona fide purchasers.

Rights of Possession Before Revenue Recovery Sale:
Regarding the rights of possession before a revenue recovery sale, the court addressed the notices issued to vacate houses in properties sought for sale. The court clarified that while the notices were directed to respondents 5 and 6, who were in possession of the properties, the petitioners claimed to be residing in the houses. The court explained the procedural steps for revenue recovery sales under the Kerala Revenue Recovery Act, emphasizing that possession eviction is not a prerequisite for conducting the sale. The court highlighted the powers conferred on the Collector for property management and possession delivery post-sale confirmation. The court ruled that the notices to vacate houses could not be implemented against the petitioners but allowed for potential proceedings under sections 37 and 38 of the Revenue Recovery Act. The court directed to keep the notices in abeyance until such proceedings are initiated or until the sale is finalized.

In conclusion, the writ appeal was partly allowed concerning the challenge against the notices to vacate houses and dismissed for other aspects, with no order as to costs. All pending interlocutory applications were closed in light of the judgment.