2013 (3) TMI 205 - HC - VAT and Sales Tax

No Due Certificate from the seller obtained - whether the petitioner bona fide purchaser of the property from the said Mr.S.Prabhakaran in the year 2004 and that she was not aware of any of the proceedings or arrears of tax payable by the dealer? - orders passed under Section 8 of the Revenue Recovery Act against appeleant - Tamil Nadu General Sales Tax, 1959 - Held that - Proviso to section 24-A of the Act, is to protect a honest person, who had purchased the property from a seller and further observed that there should not be any collusion with the seller, but the necessary ingredients of Section 24-A of the Act should be there, i.e., the sale effected should be for adequate consideration and want of notice. Taking note of Section 3 of the Transfer of Property Act if there was any wilful absentism or gross negligence in making any enquiry, that would tantamount to notice of fact, by the purchaser of the property, upon which a charge is created by operation of law. As per the version of the petitioner, she had purchased the property from a subsequent purchaser in the year 2004 and it was not a direct purchase from the defaulter. There is nothing on record to indicate that action has been taken against the vendor of the purchaser. There are no averments to suggest collusion of the petitioner with the defaulting dealer. Though the respondent has contended that the petitioner ought to have obtained a No Objection from the revenue before purchasing the property, no provisions have been quoted by the respondent in the counter affidavit. Needless to say that a purchaser in normal course would only verify from the Registration Department as to whether the property to be purchased has any encumbrance. Unless the charge is duly registered in the Registration Department, it would not be possible for any prospecting buyer to know whether there is any charge over the property, for any arrears of tax or any statutory dues to be paid to the Government or statutory body. As stated supra, no materials have been produced before this Court to prove that notice demanding arrears of tax, has been served on the defaulter. No materials have been placed before this Court to prove that steps have been taken under the provisions of the Revenue Recovery Act, against the defaulter or the subsequent first purchaser, from whom the petitioner has purchased the property in the year 2004, after six long years, since the date of finalization of the assessment. In the absence of any specific plea of collusion, rebuttal of even doubting the bona fide of the purchase, the action taken in the year 2005, after seven years, from the date of finalisation of the assessment, against the second purchaser, who has taken diligent steps to verify from the Registration Department, before purchasing the property cannot be approved. That apart, there are no materials to indicate that the petitioner had any constructive notice of the charge. See Ahmedabad Municipal Corporation s case 1971 (3) TMI 89 - SUPREME COURT . Thus it can be concluded that the petitioner is a bona fide purchaser and is entitled to protection under the proviso to Section 24(A) of the Act. Hence, the impugned restraint order dated 13.02.2006 issued by the respondent is liable to be set aside and accordingly set aside.

Issues Involved:
1. Validity of distraint order against a bona fide purchaser for arrears of tax owed by a previous owner.
2. Applicability of Section 24-A of the Tamil Nadu General Sales Tax Act, 1959.
3. Requirements for establishing bona fide purchase without notice of tax arrears.
4. Legal precedents and their applicability to the case.

Issue-wise Detailed Analysis:

1. Validity of distraint order against a bona fide purchaser for arrears of tax owed by a previous owner:
The petitioner challenged the distraint order dated 13.02.2006 issued by the Deputy Commercial Tax Officer for arrears of tax owed by a previous owner, Mr. R. Thirupathy. The petitioner argued that she purchased the property in 2004 from Mr. S. Prabhakaran without knowledge of any tax arrears. The respondent issued notices demanding payment of Rs. 82,593/- in arrears of tax owed by Mr. Thirupathy, asserting that the petitioner was responsible since the property was purchased without obtaining a No Due Certificate.

2. Applicability of Section 24-A of the Tamil Nadu General Sales Tax Act, 1959:
The petitioner's counsel argued that under Section 24-A, a transfer of property is not void if made for adequate consideration and without notice of pending tax proceedings. The petitioner claimed protection under this provision, asserting she was a bona fide purchaser without notice of the tax arrears. The court examined whether the petitioner met the criteria for protection under this section.

3. Requirements for establishing bona fide purchase without notice of tax arrears:
The court considered whether the petitioner had actual or constructive notice of the tax arrears. The petitioner claimed she verified the encumbrance details with the Sub-Registrar's office and found no encumbrances. The court noted that constructive notice involves knowledge of facts that would lead a prudent person to inquire further. The respondent did not provide evidence to rebut the petitioner's claim of bona fide purchase or prove that the petitioner had notice of the tax arrears.

4. Legal precedents and their applicability to the case:
The court reviewed several precedents, including:
- Deputy Commercial Tax Officer Vs. R.K. Steels (1998) 108 STC 161 (Mad): This case established that a bona fide purchaser without notice of tax arrears is protected.
- D. Senthilkumar and others Vs. Commercial Tax Officer (2006) 148 STC 204 (Mad): The court reaffirmed that a bona fide purchaser without notice is not liable for the previous owner's tax arrears.
- State of Karnataka Vs. Shreyas Papers P. Ltd. (2006) 144 STC 331 (SC): The Supreme Court held that a charge on property for tax arrears is not enforceable against a bona fide purchaser without notice.

The court concluded that the petitioner was a bona fide purchaser who had taken diligent steps to verify the property's status and had no notice of the tax arrears. The respondent failed to prove any collusion or negligence on the petitioner's part.

Judgment:
The court held that the petitioner is entitled to protection under the proviso to Section 24-A of the Act. The distraint order dated 13.02.2006 was set aside, and the writ petition was allowed. The court emphasized that the legislative protection for bona fide purchasers should be extended to the petitioner, and no costs were awarded. Consequently, the connected miscellaneous petition was closed.

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