2016 (1) TMI 1223 - HC - VAT and Sales Tax

Recovery of sales tax - Proceedings against the property purchased by the appellants - there was a sales tax arrears against the property of which the appellants were not aware of - Held that - it is open for the revenue authorities to take steps to recover the amount from the properties sold by the defaulter at Muvattupuzha we do not think that the revenue authorities will be justified in proceeding against the property of the appellants in this case. The appellants have a case that they are the subsequent purchasers of the property and that they were not aware of the sales tax arrears. They also have a case that there is no charge created on the properties purchased by them. It is apparent from the materials on record that though it will be proper on the part of the revenue authorities to proceed against the properties in the hands of the defaulter his wife and children in the absence of any statutory provision which creates a charge on such properties or creates a legal impediment to treat such transfer void it may not be possible for the revenue authorities to proceed against the properties in the hands of the appellants. Even according to the appellants they purchased the properties as per sale deed dated 27/04/2007 28/04/2007 and 17/05/2007. At the time when the properties were purchased no proceedings were initiated against the properties. Proceedings were taken only when Ext.P10 had been issued on 11/08/2008. As far as the appellants are concerned we do not think that the revenue authorities are entitled to invoke Section 44 of the Act - Therefore in the absence of any statutory provision which creates a charge on the property or declares the transfer as void and not binding on the Government and since there was no attachment on the properties prior to the date on which the appellants had purchased the property the said property cannot be proceeded by invoking the provisions of the Act. The property of the appellants were proceeded only on account of a mistake of fact we do not think that it amounts to wilful contempt. Accordingly we do not find it necessary to proceed with the contempt case - the title of petitioners held good - petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Recovery of sales tax dues from properties acquired by third parties.
2. Jurisdiction and authority of revenue officials.
3. Validity of property transfers made by the defaulter.
4. Applicability of Sections 26A and 26B of the KGST Act.
5. Bona fide purchaser defense.
6. Contempt of court for disobedience of interim orders.

Detailed Analysis:

1. Recovery of Sales Tax Dues from Properties Acquired by Third Parties:
The primary issue was whether the properties acquired by third parties from the defaulter E.V.Thomas or his family could be subjected to recovery for sales tax dues. The court examined various writ petitions where petitioners contended that they were bona fide purchasers unaware of any tax liabilities or attachments on the properties at the time of purchase. The court held that the revenue authorities were justified in taking action against properties that were sold by the defaulter after demand notices for tax arrears were issued, thus creating a charge on the property.

2. Jurisdiction and Authority of Revenue Officials:
The petitioners challenged the jurisdiction of the Tahsildar and other revenue officials in declaring property transfers null and void. The court upheld the actions of the revenue officials, stating that they acted within their powers under the Kerala Revenue Recovery Act (RR Act) and the Kerala General Sales Tax Act (KGST Act). The court noted that the orders impugned were not passed under the Benami Transactions (Prohibition) Act, 1988, and the petitioners were directed to prefer a revision before the Government under Section 83 of the RR Act.

3. Validity of Property Transfers Made by the Defaulter:
The court scrutinized the transfers made by E.V.Thomas to his wife and children, which were alleged to be fraudulent and intended to defeat the recovery of sales tax arrears. It was observed that the defaulter had transferred properties after demand notices were issued, indicating an intention to evade tax liabilities. The court ruled that such transfers were not binding on the Government, and the properties could be attached and sold for recovery of dues.

4. Applicability of Sections 26A and 26B of the KGST Act:
Petitioners argued that Sections 26A and 26B of the KGST Act, which void certain transfers and create a first charge on the property for tax dues, were not applicable as they were introduced after the sales tax arrears became due. The court held that even if these sections were not applicable, Section 23(1) of the KGST Act created a charge on the property once a demand notice was issued, and this charge remained until the liability was settled.

5. Bona Fide Purchaser Defense:
Several petitioners claimed they were bona fide purchasers for value without notice of any tax liabilities or attachments. The court distinguished between different cases, noting that while some purchasers might have been unaware of the tax dues, the properties were still subject to the charge created by the demand notices. However, in the case of appellants in W.A.No.1835/2008, the court found that they were subsequent purchasers from the defaulter's family and were not aware of any proceedings or attachments at the time of purchase. Therefore, the court set aside the orders declaring their title deeds void.

6. Contempt of Court for Disobedience of Interim Orders:
In Contempt Case No.661/2011, the petitioners alleged willful disobedience of an interim order staying further recovery proceedings. The court found that the attachment of properties was due to a mistake of fact and did not amount to willful contempt. Consequently, the contempt case was dropped.

Conclusion:
The court allowed W.A.No.1835/2008, setting aside the judgment of the learned Single Judge and the orders declaring the title deeds void. The related writ petition W.P.C.No.16382/2009 was closed. Other writ petitions (W.P.C.Nos.23327/2008, 24024/2008, 28143/2007, and 24720/2007) were dismissed, and Contempt Case No.661/2011 was dropped.