2008 (8) TMI 860 - HC - VAT and Sales Tax

Recovery proceedings - arrears of sales tax due from fifth respondent for the assessment year 1993-94 - Held that - Petitioner consciously or indifferently entered into the transaction and he has no escape from the consequences. In the circumstances, and on equitable grounds, direct the District Collector to inspect the property and estimate the present per cent value of the property excluding the value of building and machinery, which are put up for the industry, and if petitioner offers the market value, the same will be collected from petitioner and attachment will be lifted. It is for respondents Nos. 1 to 3 to proceed for recovery against the fifth respondent for the balance liability by attachment and sale of balance property or any other property transferred by him in similar manner, after issuing notice to transferees. If the defaulter has concealed or benami wealth and recovery is consciously avoided, section 65 proceedings also should be initiated against him.

Summary

Issues:
Challenge to recovery proceedings for arrears of sales tax on property purchased from defaulter's wife, interpretation of section 26A of Kerala General Sales Tax Act, validity of property transfer during pending proceedings, liability of property for tax arrears, consideration of petitioner as bona fide purchaser, willingness to pay market value for property in recovery proceedings.

Analysis:
The petitioner challenged recovery proceedings for arrears of sales tax on property bought from the defaulter's wife, arguing that since the seller was not in tax arrears, the property should not be subject to recovery. However, the respondent contended that the property transfer to the wife was to evade tax recovery, justifying attachment and sale under section 26A of the Kerala General Sales Tax Act. The court examined the provision of section 26A, which allows tax recovery from a defaulter's property despite any transfers made during pending proceedings. The court found that the property transfer to the wife during the defaulter's pending assessment rendered the sale void, enabling attachment and sale for tax arrears owed by the defaulter.

The petitioner cited a Supreme Court decision stating that sales tax is not a charge on property, questioning the validity of recovery against the property. However, the Government Pleader referred to a local court decision allowing property recovery even after sale, if proceedings were pending. The court emphasized that section 26A empowers tax recovery from property transfers during pending proceedings, disregarding any charges created, and upheld the state's authority to proceed against the property bought by the petitioner from the defaulter's wife. The court rejected the petitioner's argument that he was a bona fide purchaser, highlighting the need for critical examination when buying from a defaulter's spouse to avoid tax liability.

Regarding the petitioner's offer to pay the market value for the property in recovery proceedings, the court directed the District Collector to assess the property's present value, excluding industrial assets, and lift the attachment upon payment. The court instructed authorities to pursue recovery against the defaulter for the remaining liability and initiate proceedings if concealment or avoidance is suspected. The judgment concluded by disposing of the writ petition and outlining the steps for recovery against the defaulter while considering the petitioner's case on equitable grounds.