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2019 (10) TMI 1445 - HC - VAT and Sales TaxRecovery of arrears of sales tax - charges existing against property or not - case of the petitioner is that he is a bona fide owner and his father from whom the property devolved upon him is a bona fide purchaser - encumbrances upon title of the property or not - HELD THAT - In the present case let us assume for a moment that an automatic charge has been created by operation of Section 24(1). Such charge once created has remained within the domain of knowledge of only the Assessing Authority of the defaulter not having been conveyed to the public at large or converted into a tangible and enforceable charge by registration of an encumbrance with the Sub-Registrar. The orders of assessment passed upon R2 in the present case are dated 22.11.1999 for four periods of assessment 1994-95 to 1997-98. The first move that the Commercial Taxes Department has made to consolidate their so-called claim upon the property is by issuance of letter to the office of the Sub-Registrar (SRO) on 20.03.2013 - for the period 31.12.1999 to 20.03.2013 the Commercial Taxes has rested content with the charge stated to have been created by operation of Section 24(1). This charge has no value whatsoever unless it has been followed up by the specific procedure set out under Sections 26 and 27 of the RR Act. The procedure set out under the RR Act which is applicable to auctions under the Commercial Tax Act has been enacted bearing in mind the interests of all parties. The interests of the Commercial Taxes Department have been protected under Section 24(1) by providing for the creation of an automatic charge. It is further protected by Section 24-A that envisages a situation where a defaulting assessee may transfer its properties to a third party merely to defraud the interests of the revenue. In such an event the provisions of Section 24-A would kick in and render any such transfer which has been effected merely to defraud the revenue void. Section 24(1) of the Act equates commercial tax dues with a simple mortgage over the properties of a defaulter. Section 24(2) elevates the charge to the status of an enforceable priority over all other claims against any property except claims for land revenue and of the Land Development Bank subject to the procedure for recovery of such dues as set out under the RR Act having been followed scrupulously by the Commercial Taxes Department. It is only on 08.11.2013 that Notice in Form 4 of the Revenue Recovery Act was issued to the defaulter i.e. R2 for collection of arrears. Form Nos.5, 7 and 7A of the Revenue Recovery Act attaching the property have been issued on 08.11.2013 and 30.12.2013 and the publication of the attachment in the Namakkal District Gazette has been on 21.03.2014 at Serial nos.12 13 and 14 of the compilation. The affixation of notice conspicuously upon the property in question and the notification of such attachment by proclamation have admittedly not been carried out. Moreover the events at serial nos.12 onwards have transpired long after purchase of the property by the father of the petitioner on 29.03.2002 and settlement of the property in question in favour of the petitioner on 22.06.2009 - the impugned order of attachment is set aside. Petition allowed.
Issues Involved:
1. Whether the petitioner, as a bona fide purchaser, is liable for the sales tax arrears of the previous owner under the Tamil Nadu General Sales Tax Act, 1959. 2. The scope and application of Section 24 and Section 24-A of the TNGST Act concerning the automatic charge on property and the protection of bona fide purchasers. 3. Compliance with procedural requirements under the Tamil Nadu Revenue Recovery Act, 1864 for recovery of tax dues. Issue-wise Detailed Analysis: 1. Liability of Bona Fide Purchaser for Previous Owner's Sales Tax Arrears: The petitioner claimed to be a bona fide purchaser of the property, unaware of any sales tax arrears owed by the previous owner, R2. The petitioner argued that due diligence was exercised before purchasing the property, confirming no encumbrances were listed. The Commercial Taxes Department raised demands for arrears related to R2's business, Sarathy Engineering Works, for the periods 1993-94 to 1997-98. 2. Scope and Application of Section 24 and Section 24-A of the TNGST Act: Section 24(1) of the TNGST Act creates an automatic charge on the properties of a person liable to pay tax. However, Section 24(2) specifies that recovery of such dues must follow the procedure under the RR Act, including public proclamation and publication in the District Gazette. Section 24-A renders void any transfer intended to defraud the revenue but protects bona fide purchasers who had no notice of pending proceedings or tax dues. The court held that while Section 24(1) creates an automatic charge, it must be followed by the procedural requirements under Section 24(2) to be enforceable against third parties. The proviso to Section 24-A protects bona fide purchasers who had no notice of the tax arrears. 3. Compliance with Procedural Requirements under the RR Act: The court examined whether the Commercial Taxes Department followed the procedural requirements under the RR Act for recovering tax dues. Sections 26 and 27 of the RR Act mandate public proclamation and publication of the attachment notice to inform the public of the encumbrance. In this case, the Commercial Taxes Department issued a letter to the Sub-Registrar in March 2013, and the encumbrance was confirmed in April 2013. However, the Notice in Form 4 was issued only in November 2013, long after the petitioner’s father purchased the property in 2002 and settled it upon the petitioner in 2009. The court found that the department did not follow the required procedures under the RR Act, such as public proclamation and affixation of notice on the property. Conclusion: The court concluded that the Commercial Taxes Department failed to follow the procedural requirements under the RR Act, rendering the automatic charge under Section 24(1) unenforceable against the petitioner, a bona fide purchaser without notice of the tax arrears. The impugned order of attachment was set aside, and the writ petition was allowed, protecting the petitioner’s ownership of the property.
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