2011 (12) TMI 494 - HC - VAT and Sales Tax

Order passed u/s 65 the Gujarat Sales Tax Act Attachment of property - Sales tax benefit in form of deferment - petitioner being the bona fide purchaser - Held that - Purchase of the property was by Smt. Meena Parikh, who had purchased it from the State Bank of India, which had sold it after invoking notice under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the total area of the land is 7,000 sq. meters and the area of the land purchased by the present petitioner was 4,812 sq. meters on August 31, 2007 by an entry No. 4497 effected in the Revenue record - prior to the purchase, there was no objection raised against that and as rightly pointed that sales tax dues cannot claim priority over the secured dues of the bank - The bank after exercising its powers had sold the same by way of an auction. In Tax Recovery Officer v. Industrial Finance Corporation of India 2012 (8) TMI 541 - Gujarat High Court it has been held that unsecured Crown debt has no priority over secured debt of a secured creditor - there is nothing on record to suggest that under the Central Excise Act or the Rules framed thereunder priority of charge over the secured debt has been created no such law has been brought on record to suggest that the Central Government has any first charge or priority over the secured or unsecured debt - dues of the Sales Tax Department cannot have primacy over the secured debt of banks the petitioner was fully secured by the Kabulatnama given in his favour by both Smt. Meena Parikh and the directors of the erstwhile company. The purchaser has purchased the property for value without notice from the auction held by secured creditor-financial institution - It cannot be affected by any subsequent attachment nor by way of any earlier deed on the part of the erstwhile owners and, therefore, on both these counts also the title of the present petitioner cannot be affected - therefore, any notice issued in relation to the land purchased by the present petitioner by way of a registered sale deed on and by an entry mutated cannot be effected and the same requires to be protected by way of an order in this petition - in the wake of the order dated August 4, 2009, in appeal under section 65 of the Sales Tax Act, though has put an end to the liability of the erstwhile owner, even if there are any dues remaining to be recovered from the owner from the remaining portion of the land, out of the total admeasuring 4812 sq. meters executed in favour of the present petitioner by way of a registered sale dated August 31, 2007 by an entry No. 5417, the Sales Tax Department can initiate actions against erstwhile owners or the subsequent transfer Shri Meena Parikh but that in any manner cannot affect the title of the present petitioner thus, the first order of attachment dated July 18, 2003 and the second order of attachment dated August 23, 2008 recorded vide entry No. 2155 are quashed - the petitioner being the bona fide purchaser value without notice Sales Tax Department shall not proceed with the sale of the property Decided in favour of petitioner.

Summary

Issues Involved:
1. Legitimacy of the attachment order by the Sales Tax Department.
2. Priority of sales tax dues over secured debts.
3. Bona fide purchaser's protection against prior unrecorded claims.

Issue-Wise Detailed Analysis:

1. Legitimacy of the attachment order by the Sales Tax Department:
The property in question was initially owned by M/s. Swet Zinc Limited, which defaulted on sales tax payments, leading to an outstanding amount of Rs. 8,14,106 with interest. The Sales Tax Department attached the property on July 18, 2003, but failed to ensure the entry was mutated in the revenue records. The property was subsequently sold to Smt. Minaben Parikh and then to the petitioner without any recorded notice of the attachment. The court noted that the Sales Tax Department's failure to ensure the mutation of the attachment entry allowed the property to change hands without the sales tax dues being noticed. This non-action and lack of vigilance by the Sales Tax Department led to the transfer of the property without the dues being recorded, thus rendering the attachment ineffective against the petitioner.

2. Priority of sales tax dues over secured debts:
The court addressed whether sales tax dues have priority over secured debts, such as those held by the State Bank of India under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The court referenced the Division Bench decision in Tax Recovery Officer v. Industrial Finance Corporation of India, which held that unsecured Crown debt does not have priority over secured debt of a secured creditor. The court affirmed that the Sales Tax Department's dues cannot claim priority over the secured dues of the bank, especially since the bank had already exercised its powers under the SARFAESI Act and sold the property in an open market auction.

3. Bona fide purchaser's protection against prior unrecorded claims:
The petitioner purchased the property from Smt. Minaben Parikh, who had acquired it from the State Bank of India. The petitioner had taken all necessary precautions, including advertising for objections and obtaining a Kabulatnama confirming the property had a clear title. The court emphasized that the petitioner was a bona fide purchaser for value without notice of the prior attachment, as the attachment was not recorded in the revenue records at the time of the sale. The court ruled that the petitioner's title to the property could not be affected by the subsequent attachment order dated July 23, 2008, as the sale to the petitioner had already been concluded.

Conclusion:
The court allowed the petition, quashing both the first attachment order dated July 18, 2003, and the second attachment order dated August 23, 2008. It held that the petitioner, being a bona fide purchaser for value without notice, could not have his title affected by the unrecorded sales tax dues. The Sales Tax Department was directed not to proceed with the sale of the property in question, and the petition was allowed with consequential reliefs. The court also emphasized the need for the Sales Tax Department to ensure proper execution and vigilance in recording attachment orders to prevent similar issues in the future.