2018 (10) TMI 1457 - HC - VAT and Sales Tax

GVAT Act - recovery proceedings - SARFAESI Act - liability of purchaser of property in auction - Creation of charge on immovable property - Held that - The petitioner was a purchaser through auction held by lending bank for default of the borrower. Further the charge which is presently created was entered only after the auction was completed, sale price deposited and sale was completed. This charge is not for any assessed dues but is only for possible dues that may arise upon completion of pending assessments. Section 47 of the VAT Act provides that where a dealer after any tax has become due from him creates a charge on or parts with the possession by way of sale, mortgage, exchange or any other mode of transfer whatsoever of any of his property in favour of any other person with an intention of defrauding the Government revenue, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the dealer. This is not a case where property is transferred after any tax has become due from the dealer. In facts of the case, we are doubtful whether department can also sustain the allegation of such property having been transferred with an intention of defrauding the Government revenue. Sale of the property was a compulsory action initiated by the lending bank and was not an action of volition on part of the dealer. In the present case, admittedly, before the auction sale or even after that no provisional order of attachment was passed. The petitioner thus purchased the property in auction conducted by the lending bank since the borrowers had failed to repay the loan. At such time, the only outstanding dues of the dealer to the department were ₹ 18,913/. The action of the respondents in creating the charge over the property in question is found illegal - it is directed that that such charge shall be removed - petition allowed.

Summary

Issues:
1. Direction to withdraw charge on immovable property for possible dues of erstwhile owners.
2. Validity of charge entered by VAT department on property after auction.
3. Application of Section 47 and Section 45 of the VAT Act in the case.

Detailed Analysis:
1. The petitioner, a public limited company, sought direction to withdraw the charge on an immovable property for possible dues of the previous owners, M/s. Eco Green Paper Product Pvt. Ltd. The property was auctioned by a bank, and the petitioner successfully bid and paid the full amount to the bank.

2. The VAT department had initially entered a charge on the property for outstanding dues, but most of the amount was repaid by M/s. Eco Green Paper Product Pvt. Ltd. before the auction. Subsequently, the VAT department imposed a fresh charge on the property due to pending tax assessments and non-filing of returns for successive years. The court found that the charge was created after the auction was completed, and the petitioner had paid the remaining dues, making the charge unwarranted.

3. The court analyzed the applicability of Section 47 and Section 45 of the VAT Act. Section 47 deals with charges created by a dealer to defraud government revenue, but in this case, the property was auctioned by the bank, and there was no intention to defraud. The court doubted the department's claim of fraudulent transfer. Section 45 empowers the Commissioner to attach property to protect government revenue, but no provisional attachment was made in this case. The court concluded that the actions of the respondents in creating the charge were illegal and directed the removal of the charge from the property.

Overall, the court held that the charge imposed by the VAT department after the auction was unwarranted and ordered its removal, as the petitioner had lawfully acquired the property through a bank auction without any intention to defraud government revenue.