2020 (11) TMI 1005 - HC - VAT and Sales Tax

Recovery of sales tax dues - recovery from the property of the Assessee in default - the property is transferred to a bona fide purchaser without notice of encumbrances over the property on account of Sales Tax dues - protection to buyer against recovery of the Sales Tax dues when the Encumbrance Certificate issued to such purchaser by the Sub-Registrar to the effect that there is no encumbrance on the said property - What will prevail-whether Encumbrance Certificate or priority of State dues? HELD THAT - There are different views from different Benches of this High Court - the matter would require further consideration. The learned Special Government Pleader appearing for the Revenue shall also give the details of the determination of the arrears of Tax against the Assesssee in default in the present case intimation of the charge if any over the property to the Sub Registrar and registration thereof if any - For a period of 3 weeks the Respondent Commercial Taxes Department may not proceed to recover the dues in question from the property in question purchased by the Petitioner. However they will be free to proceed against other properties of the Assessee in default or take other measures for recovery of such dues against the Assessee in accordance with law and submit a Report of the same. Put up after 3 weeks as prayed on 17.12.2020.

Summary

Issues:
1. Recovery of Sales Tax dues from property transferred to a bona fide purchaser without notice of encumbrances.
2. Protection of buyer against recovery of Sales Tax dues.
3. Conflict between Encumbrance Certificate and priority of State dues.

Analysis:
The High Court addressed a crucial legal question regarding the recovery of Sales Tax arrears from a property transferred to a bona fide purchaser without knowledge of encumbrances related to the tax dues. The primary issue was whether such a buyer should be shielded from the recovery of Sales Tax dues, especially when an Encumbrance Certificate issued by the Sub-Registrar states no encumbrance on the property. This raised the dilemma of which should prevail - the Encumbrance Certificate or the priority of State dues.

The Court issued notice to the Respondent-Department and the Advocate General to appear within three weeks due to the potential involvement of State dues governed by different enactments. The Special Government Pleader representing the Revenue acknowledged the existence of conflicting decisions from various High Court Benches, including one rendered by the Court itself. Reference was made to a Supreme Court case emphasizing the duty of the Commercial Taxes Department to inform the Sub Registrar about property charges to safeguard State Revenue's primary charge over the defaulter's property.

Further deliberation was deemed necessary by the Court. The Special Government Pleader was directed to provide details on the tax arrears against the defaulting Assessee, any charges on the property, and any registration related to it. Additionally, information on recovery proceedings against the original defaulter was requested. The Advocate General was tasked with offering insights on coordinating different departments and Sub-Registrar offices for a harmonious interpretation.

A temporary stay of three weeks was granted, preventing the Commercial Taxes Department from recovering dues from the property purchased by the Petitioner. However, the Department retained the right to pursue other properties of the defaulter or take lawful measures for recovery against the Assessee. A follow-up hearing was scheduled after three weeks as requested on 17th December 2020.