2017 (11) TMI 1090 - HC - VAT and Sales Tax

Arrears of sales tax - whether the petitioner can be proceeded against for the tax arrears payable to M/s.Karpaga Electronics (P) Ltd? - Held that - there is no charge on the property and there is no doubt about the bonafide of the purchase made by the petitioner, because it is TIIC who brought the property for sale - reliance placed in the case of Rukmani Versus The Deputy Commercial Tax Officer I 2013 (3) TMI 205 - MADRAS HIGH COURT , where it was held that there is no material placed before them to prove that steps have been taken under the provisions of the Revenue Recovery Act against the delinquent or the subsequent first purchaser, and therefore the petitioner therein cannot be penalized - petition allowed - decided in favor of petitioner.

Summary

Issues:
Challenge to a demand for arrears of Sales Tax based on property purchase from a defaulting dealer.

Analysis:
The petitioner contested a demand for Sales Tax arrears linked to a property purchased from a defaulting dealer, M/s.Karpaga Electronics (P) Ltd. The petitioner acquired the property from Tamilnadu Industrial Investment Corporation Ltd. (TIIC) through a public auction, where TIIC had the absolute right to sell the property without any charge for the alleged Sales Tax arrears. The Industries Department confirmed the sale to the petitioner in 2005. Despite the absence of a charge on the property, the Sales Tax Department notified TIIC in 2006 about the arrears, to which TIIC clarified the property's sale to the petitioner. The petitioner, a bona fide purchaser, argued against liability for the defaulting dealer's arrears under the Tamil Nadu General Sales Tax Act, citing precedents like Deputy Commercial Tax Officer, Thudiyalur Assessment Circle, Coimbatore and another Vs. R.K.Streels, Raghuvar (India) Limited Vs. Deputy Commissioner (Appeals) I, Commercial Taxes, Jaipur, and D.Senthil Kumar and others Vs. Commercial Tax Officer, Erode. These cases established that purchasers without notice of charge are not liable for the defaulter's debts. The Court concurred, noting the lack of charge on the property and the petitioner's unawareness of the arrears. Consequently, the Court deemed the demand notice unsustainable in law.

The judgment allowed the writ petition, setting aside the impugned notice dated 23.01.2006. Notably, this ruling did not hinder the Sales Tax Department's pursuit of M/s.Karpaga Electronics (P) Ltd. for the arrears. The decision aligned with established legal principles safeguarding innocent purchasers from liability in such scenarios. The outcome clarified the petitioner's non-liability for the Sales Tax arrears associated with the property purchase, emphasizing the importance of due diligence and legal protections for purchasers in commercial transactions.