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2016 (11) TMI 1080 - HC - VAT and Sales TaxRecovery of any alleged Sales Tax dues - discharge certificate - sale of property - The SARFAESI Act - The SARFAESI Act is an Act which enables regulation of securitisation and reconstruction of financial assets and enforcement of security interest or matters incidental thereto - Held that - the Petitioners, having no knowledge (either actual or constructive) of the dues of the Sales Tax Authorities before they purchased the said property, the Sale Tax Authorities cannot recover their dues from the Petitioners by enforcing their charge against the said property. The Sales Tax Authorities cannot recover the dues of the Defaulter Company from the Petitioners (save and except to the extent of ₹ 18,38,709/-) by enforcing their charge under Section 38C of the BST Act on the said property. However, it is clarified that our order and direction does not mean that the Sales Tax Authorities cannot proceed against the Defaulter Company - Equally, we must clarify that we have not entered into any controversy regarding the priority the Sales Tax Authorities may have on the sale proceeds received from the sale of the said property to the Petitioners. The priority, if any, of the Sales Tax Authorities is not in issue before us, and therefore, we should not be understood to have rendered any finding in that regard. The issue of priorities between the Sales Tax Authorities and Respondent Nos.1 and 2 shall be decided in appropriate proceedings before the appropriate forum and in accordance with law. Petition disposed off - decided in favor of petitioner.
Issues Involved:
1. Whether the Sales Tax Authorities can enforce their charge on the property purchased by the Petitioners for the recovery of Sales Tax dues of the Defaulter Company. 2. Whether the Petitioners had notice or knowledge of the alleged Sales Tax dues at the time of purchasing the property. 3. The applicability of Section 38C of the Bombay Sales Tax Act, 1969 in the context of the SARFAESI Act. 4. The priority of claims between the Sales Tax Authorities and the secured creditors under the SARFAESI Act. Detailed Analysis: 1. Enforceability of Sales Tax Charge on the Purchased Property: The Petitioners sought a writ of mandamus to direct the Sales Tax Authorities to refrain from asserting any charge on the property they purchased from the Nationalized Banks under the SARFAESI Act. The Petitioners argued that the alleged Sales Tax dues of approximately ?28 Crores were not disclosed to them at the time of purchase. The court noted that the Petitioners purchased the property without notice of these dues, and the Sales Tax Authorities cannot enforce their charge under Section 38C of the BST Act against the said property. 2. Notice or Knowledge of Sales Tax Dues: The court found that the Petitioners had no notice or knowledge of the alleged Sales Tax dues of ?28 Crores at the time of purchase. The Petitioners were informed only about the dues of ?18,38,709/-, which they were willing to pay. The court emphasized that the Petitioners legitimately purchased the property without any notice of the additional dues, and therefore, the Sales Tax Authorities cannot enforce their charge against the property purchased by the Petitioners. 3. Applicability of Section 38C of the BST Act: The court analyzed Section 38C of the BST Act, which creates a charge on the properties of the dealer for unpaid sales tax dues. However, the court held that this charge cannot be enforced against a bona fide purchaser without notice of such dues. The court relied on the Supreme Court's decision in State of Karnataka & Anr Vs. Shreyas Papers Pvt. Ltd., which held that a charge cannot be enforced against a transferee without notice of the charge. 4. Priority of Claims: The court noted that the issue of priority between the Sales Tax Authorities and the secured creditors (Nationalized Banks) was not before it. The court clarified that it was not rendering any findings on the priority of claims and that this issue should be decided in appropriate proceedings before the appropriate forum. Conclusion: The court held that the Sales Tax Authorities cannot recover the dues of the Defaulter Company from the Petitioners (except for ?18,38,709/-) by enforcing their charge on the purchased property. The court made it clear that the Sales Tax Authorities could still proceed against the Defaulter Company for the recovery of dues. The rule was made absolute, and parties were directed to bear their own costs.
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