2008 (8) TMI 936 - HC - VAT and Sales Tax

Summary

Issues involved: Challenge to Ext.P11 and P12 orders regarding sales tax liability on property purchased, interpretation of Sections 26A and 26B of KGST Act.

In the judgment, the court addressed the challenge to Ext.P11 and P12 orders, which held the property purchased by the petitioners subject to sales tax liability u/s 26A of the KGST Act. The court noted that the original owner of the properties was in arrears of sales tax amounting to Rs. 12,38,443. The property was initially sold in a revenue auction, but the sale was revoked due to assessments being set aside and remanded in appeal proceedings. Subsequently, the properties were sold in court auctions and purchased by respondents 4 to 6, who then sold them to the petitioners. The petitioners claimed that the properties were free from sales tax liability, and therefore, the court auctions and their subsequent purchase conferred valid title free of charge. The court considered the contentions raised by both parties and examined the application of Sections 26A and 26B of the KGST Act in this case.

The first contention raised was regarding the application of Section 26A and the timing of the enforcement of Section 26B. The petitioners argued that Section 26A did not apply, while respondents 1 to 3 contended that Section 26A was in force from 1.4.1993. The court provided the text of both Sections 26A and 26B for reference. The Government Pleader relied on a Division Bench judgment that held Section 26A applicable even if assessments were pending at the time of transfer, emphasizing that bonafide purchase for valid consideration was not a defense against Section 26A. The petitioners argued that the defaulter did not create any charge on the property, thus Section 26A was not applicable. However, the court observed that the property was subject to a charge created by decree, and the sale in execution proceedings by the civil court was akin to a sale by the judgment debtor, falling under the purview of Section 26A.

The court further analyzed the interplay between Sections 26A and 26B, noting that both provisions aimed to create a prior charge on the defaulter's property for recovering arrears of sales tax. It highlighted that the sale in execution proceedings, even if conducted by the civil court, would still be covered by Section 26A. Given that revised assessment proceedings were pending at the time of sale, the court deemed the sale to respondents 4 to 8 as void, making subsequent sales to the petitioners also void. Consequently, Ext.P11 and P12 orders were upheld, and the writ petition was dismissed. However, the petitioners were given the option to settle the defaulter's liability under an amnesty scheme, allowing them to retain the property upon settlement. The court directed the Tahsildar to sell the properties if the liability was not settled, with any excess amount recovered over arrears of sales tax to be given to the petitioners. The court emphasized that amnesty benefit should be granted to the petitioners for settling the defaulter's liability as per the provided directions.