2010 (12) TMI 1094 - HC - VAT and Sales Tax

Notice issued by the first respondent/Deputy Commercial Tax Officer, Srivilliputhur in his Roc.A3/2792/2002 dated March 24, 2008 seeking issuance of a writ of prohibition to prohibit the first respondent from proceeding further in pursuance of the impugned notice challenged Held that - A joint reading of section 24(1) and 24(2) of the Tamil Nadu General Sales Tax Act, 1959 with clause 3 of the agreement, reveals that there is an automatic charge over the property towards the arrears payable by the second respondent-company. The second respondent was well aware of the fact that the arrears related to the period from 1996-97 to 2002-03 have accrued as early as on January 2, 1998 onwards. Therefore, when they were selling the property by executing a sale deed on September 7, 2007 to the petitioner, they were all well aware of the dues payable by them. But, without clearing the dues, the second respondent s company in collusion with the petitioner sold out the property to the petitioner. Under the circumstances, this court cannot treat the petitioner as a bona fide purchaser as he has failed to ascertain the details of arrears payable by the second respondent to the first respondent before execution of the sale deed in his favour. Writ dismissed.

Summary

Issues:
Challenge to notice issued by Deputy Commercial Tax Officer seeking prohibition from proceeding further in auction for sales tax arrears. Claim of petitioner as bona fide purchaser to avoid liability for attachment of property.

Analysis:
The petitioner challenged a notice issued by the Deputy Commercial Tax Officer seeking to prohibit further action in an auction for sales tax arrears. The petitioner purchased a property and registered it under the sub-registrar's office. The petitioner argued that being a bona fide purchaser after obtaining an encumbrance certificate, they should not be held liable for the second respondent's tax arrears. The petitioner contended that the notice issued after two years from the purchase date was without jurisdiction, lacking necessary notices and details of tax arrears. The petitioner sought to set aside the notice.

The first respondent opposed the petition, stating that the second respondent, a cotton yarn manufacturer, availed deferral of sales tax under a scheme but failed to repay the loan as per schedule. The second respondent's properties were attached, and a sale deed was executed to the petitioner to evade attachment. The first respondent argued that an automatic charge existed over the property for arrears, and the sale to the petitioner was collusive to defraud the government. The court noted the awareness of dues by the second respondent during the property sale and upheld the attachment.

Referring to a previous case, the court emphasized that the claim of being a bona fide purchaser with an automatic charge cannot be decided in a writ petition but should be addressed in a civil court. Citing this precedent, the court dismissed the writ petition, allowing the petitioner to seek remedy in a civil court. The judgment concluded with the dismissal of the writ petition without costs, advising the petitioner to pursue remedies in the civil court as claimed to be a bona fide purchaser.