2019 (9) TMI 216 - HC - VAT and Sales Tax

Recovery of tax dues - Deletion/withdrawal of charge and attachment on property - right of the purchaser of the property - it was alleged that seller has sold the property during the pendency of assessment proceedings to defraud the revenue - section 47 and section 48 of the VAT Act - HELD THAT - Any transfer attempted or made to defeat/defraud Revenue s interest is deemed void in the Statute. Section 47 of the Act is concerned with a dealer who creates a charge on or parts with the possession by way of sale, mortgage, exchange or any other mode of transfer, after any tax becomes due from him, and when he so does in favour of any other person with the intention of defrauding the government revenue, this provision states that such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the dealer - Section 48 of the Act creates first charge on the property of the dealer or any other person from whom tax is due. It is required to be noted at this juncture that section 47 of the GVAT Act is similarly worded to section 281 of the Income Tax Act, 1961. It is true that there is no explicit provision made under the GVAT Act as is provided under the Second Schedule of the Income Tax Act, however, it is a well settled law that in the event of any dispute in relation to the title of any property, it is the Civil Court which shall have a jurisdiction. This has also been emphatically held and observed by the Apex Court in TAX RECOVERY OFFICER VERSUS GANGADHAR VISWANATH RANADE (DECD.) 1998 (9) TMI 1 - SUPREME COURT and followed by this Court in the case of KARSANBHAI GANDABHAI PATEL SHOP NO. 7 3 VERSUS TAX RECOVERY OFFICER 2014 (4) TMI 411 - GUJARAT HIGH COURT and therefore, there is no reason why the same would have no applicability in the instant case. This Court in the case of Karsanbhai Gandabhai Patel had an occasion to deal with section 281 of the Income Tax Act and relying on the judgement of the Apex Court in the case of Gangadhar Viswanath Ranade, struck down the order of attachment. Thus, it can be seen that even if the transactions creating a charge or parting of possession has been entered into by the assessee during the pendency of any proceedings under the Act or after completion thereof, the eventuality of such charge or transfer being declared void can be avoided provided one of the two conditions contained in the proviso is satisfied. Under such circumstances, the transferee can demonstrate that the transaction had taken place with the previous permission of the Assessing Officer or that the same was entered into for adequate consideration and without notice of pendency of such proceedings or without notice of such tax or other sum payable by the assessee - This element of the transaction being with adequate consideration and without notice would equally apply to the assessee as well as the transferee. In a given case, it may even be open for the assessee to establish that the transaction was for adequate consideration without notice. In a given case, even if the assessee had notice of the pendency or the outstanding tax or sum payable, the transferee can still take shelter of the transactions having been entered into by him for adequate consideration and without notice. The impugned order creating charge over the property of the petitioner does not warrant any interference and the petition is required to be dismissed - Petition dismissed.

Issues Involved:
1. Legality of the charge and attachment on the petitioner’s property.
2. Validity of the transfer of property in light of tax dues.
3. Jurisdiction and authority of the Commercial Tax Officer under the VAT Act.
4. Requirement of civil court declaration for property sale by tax authorities.

Issue-wise Detailed Analysis:

1. Legality of the charge and attachment on the petitioner’s property:
The petitioner argued that the charge and attachment on the property were imposed by the Commercial Tax Officer for dues related to a proprietorship firm, M/s. Swapnil Plastic, previously owned by the petitioner’s mother. The petitioner contended that he had purchased the property after verifying its title, issuing public notices, and obtaining a Title Clearance Certificate. Despite these steps, the tax authorities proceeded to enter the charge and attachment on the property, which the petitioner claimed was done without any dues being payable by him.

2. Validity of the transfer of property in light of tax dues:
The respondent’s counsel contended that the property was transferred by the petitioner’s mother to evade tax payments. The mother, being a partner in the firm with outstanding tax dues, transferred the property fraudulently to avoid payment of taxes. The respondent authorities exercised powers under Section 47 of the Gujarat Sales Tax Act, 1969, which allows for such transfers to be deemed void if made with the intent to defraud the revenue. The petitioner’s counsel argued that the property had changed hands multiple times before the petitioner’s purchase and cited previous judgments to support the claim that the tax officer does not have the power to declare such transfers void without a civil suit.

3. Jurisdiction and authority of the Commercial Tax Officer under the VAT Act:
The court examined Sections 47 and 48 of the VAT Act, which deal with transfers intended to defraud revenue and the first charge on property for tax dues, respectively. The court referenced the Supreme Court's decision in Tax Recovery Officer vs. Gangadhar Vishwanath Ranade, which held that tax authorities do not have the power to declare transfers void and must seek a declaration from a civil court. The court noted that similar principles apply under the VAT Act, and the tax authorities cannot unilaterally declare a transfer void without judicial intervention.

4. Requirement of civil court declaration for property sale by tax authorities:
The court emphasized that the tax authorities must obtain a declaration from a competent civil court to establish that a property transfer was intended to defraud the state revenue before selling or disposing of the property. This requirement ensures that the rights of the property owner are protected, and any disputes regarding the title or validity of the transfer are adjudicated by a judicial body. The court restrained the respondent authorities from selling or disposing of the petitioner’s property without such a declaration.

Conclusion:
The petition was dismissed, but the court restrained the respondent authorities from selling or disposing of the petitioner’s property without obtaining a declaration from a competent civil court that the transfer was intended to defraud the state revenue. The attachment and charge on the property will continue until such a declaration is obtained.

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