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2015 (12) TMI 1658 - HC - VAT and Sales TaxRecovery of arrear sales tax - petitioner was asked to pay the arrears of tax on property of seller, from whom the property was purchased by the petitioner - the petitioner has approached this Court stating that he is a bona fide purchaser for value without notice of the charge over the property and hence, his interest should be protected - Held that - it is, no doubt, clear that the petitioner had purchased the property in question without notice of the charge over the same from his vendor and the same has also not been reflected in the Encumbrance Certificate issued by the Registration Department. In such circumstances, this Court is of the view that the impugned order passed by the respondent is vitiated in law - the petitioner, being a bona fide purchaser for consideration without notice of the charge over of the property, cannot be proceeded against insofar as the arrears of sales tax of his vendor - petition allowed - decided in favor of petitioner.
Issues Involved:
1. Validity of the demand for arrears of sales tax from the petitioner. 2. Protection of the bona fide purchaser under Section 24A of the Tamil Nadu General Sales Tax Act. 3. Priority of government claims under Section 24(2) of the Tamil Nadu General Sales Tax Act. Detailed Analysis: 1. Validity of the demand for arrears of sales tax from the petitioner: The petitioner challenged the respondent's proceedings dated 9.7.2002 and 11.9.2002, which demanded the petitioner pay arrears of sales tax and proceeded against the property in question. The petitioner, a manufacturer of automobiles, purchased the property from M/s. Auto Spin Machinery P Limited in 1997. Notices were issued to the petitioner in 2001, alleging that the vendor owed sales tax arrears for 1993-94 and 1994-95, and directing the petitioner to pay the amount. The petitioner denied liability, asserting he was a bona fide purchaser for value without notice of the charge over the property. 2. Protection of the bona fide purchaser under Section 24A of the Tamil Nadu General Sales Tax Act: The petitioner argued that as a bona fide purchaser for value, he was protected under Section 24A of the Tamil Nadu General Sales Tax Act. The petitioner relied on the Division Bench decisions in Deputy Commercial Tax Officer, Thudiyalur Assessment Circle, Coimbatore v. R.K. Steels and A. Senthil Kumar v. Assistant Commissioner (CT). The court noted that the petitioner purchased the property without notice of the charge, and the Encumbrance Certificate did not reflect any charge. The court referred to the Supreme Court's ruling in Ahmedabad Municipal Corporation v. Haji Abdul Gafur Haji Hussenbhai, which held that a bona fide purchaser for consideration without notice of the charge is protected unless a statute explicitly provides otherwise. 3. Priority of government claims under Section 24(2) of the Tamil Nadu General Sales Tax Act: The respondent argued that under Section 24(2) of the Act, government claims for sales tax arrears have priority over other claims against the property of the dealer. However, the court observed that the petitioner had no notice of the sales tax arrears and that the charge was not reflected in the Encumbrance Certificate. The court emphasized that the Supreme Court's decision in Ahmedabad Municipal Corporation clarified that the charge is not enforceable against a bona fide purchaser without notice unless explicitly stated in the statute. Judgment: The court concluded that the petitioner, as a bona fide purchaser for value without notice of the charge, could not be held liable for the sales tax arrears of the vendor. The court quashed the impugned proceedings of the respondent, holding that the petitioner's interest was protected under Section 24A of the Tamil Nadu General Sales Tax Act. The writ petition was disposed of, and the respondent's orders were set aside.
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