2019 (11) TMI 664 - HC - VAT and Sales Tax

Recovery of outstanding tax arrears - Dues related to the property which the petitioner has purchased - encumbrance on the property or not - whether the petitioner is liable to discharge the tax dues of the third respondent on account of having purchased the subject property which belonged to the third respondent, in the auction sale held by the second respondent bank? - HELD THAT - On the date when the impugned notice dated 18.7.2018 came to be issued directing the petitioner to pay a sum of ₹ 17,67,45,934/- with interest at the rate of 18% per annum, being the outstanding tax arrears of the third respondent, the petitioner should have been a debtor of the third respondent, namely that a sum of money should have been payable or would become payable by the petitioner in future to the third respondent by reason of an existing obligation - In the present case, it is not the case of the first respondent that the petitioner is a debtor of the third respondent. The first respondent seeks to recover the above amount from the petitioner as it has purchased the properties belonging to the third respondent in an auction sale held by the second respondent bank on as is where is and whatever is basis . On the date when the sale notice was issued, the assessment orders in the case of the third respondent, on the basis of which recovery is sought to be made from the petitioner, were not even passed. Therefore, the petitioner had purchased such property without any encumbrance. The petitioner being a bona fide purchaser who has purchased the subject property in sale proceedings under the Securitisation Act prior to any charge having been created in favour of the first respondent has no liability to discharge the debts of the third respondent. Therefore, it cannot be said that the petitioner was holding any amount on behalf of the third respondent on account of having purchased the subject property in the auction sale held by the second respondent under the provisions of the Securitisation Act - Since the petitioner herein does not owe any amount to the third respondent and does not hold any monies on account of the third respondent, the provisions of section 44 of the GVAT could not have been invoked against the petitioner. Under the circumstances, the State Tax Officer was not justified in issuing the impugned notice dated 18.7.2018 to the petitioner under section 44 of the GVAT Act. Service of notice - Garnishee proceedings - section 44 of the GVAT Act - HELD THAT - The third respondent in the affidavit-in-reply filed by it has not made reference to any such notice having been issued to it nor has any averment to that effect been made in the affidavit-in-reply filed on behalf of the first respondent. Therefore, the basic requirement for invoking the provisions of section 44 of the GVAT Act, viz. service of notice to the dealer under sub-section (1) thereof, has not been satisfied. Neither the impugned notice dated 18.7.2018 issued to the petitioner nor the impugned order dated 26.9.2018 issued to the second respondent bank by the State Tax Officer is sustainable in law - impugned notice dated 18.7.2018 as well as the impugned order dated 26.9.2018 (Annexure-A collectively to the petition) are hereby quashed and set aside - Petition allowed.

Summary

Issues Involved:
1. Liability of the petitioner to discharge tax dues of the third respondent.
2. Validity of the notice issued under Section 44 of the Gujarat Value Added Tax Act, 2003 (GVAT Act).
3. Compliance with procedural requirements under Section 44 of the GVAT Act.

Detailed Analysis:

1. Liability of the petitioner to discharge tax dues of the third respondent:

The petitioner challenged the order directing it to pay the outstanding tax arrears of the third respondent, arguing that it was a bona fide purchaser of the subject property in a public auction held under the Securitisation Act. The petitioner contended that at the time of purchase, there was no charge over the property and it was purchased without any encumbrance. The court noted that the assessment orders against the third respondent were passed after the petitioner had purchased the property. Therefore, the petitioner acquired the property without any existing tax liabilities of the third respondent. The court held that under Section 48 of the GVAT Act, the first charge is on the property of the dealer (third respondent) when the liability arises. Since the property ceased to belong to the third respondent before the assessment orders were passed, the petitioner could not be held liable for the tax dues.

2. Validity of the notice issued under Section 44 of the GVAT Act:

The court examined whether the notice issued to the petitioner under Section 44 of the GVAT Act was valid. Section 44 allows the Commissioner to require any person holding monies due to a dealer to pay the amount to the government. The court found that the petitioner did not owe any amount to the third respondent and was not holding any monies on its behalf. Therefore, the invocation of Section 44 against the petitioner was without authority of law. The court emphasized that the petitioner, being a bona fide purchaser, had no liability to discharge the debts of the third respondent.

3. Compliance with procedural requirements under Section 44 of the GVAT Act:

The court observed that the State Tax Officer failed to comply with the procedural requirements under Section 44(5) of the GVAT Act, which mandates an inquiry and a reasonable opportunity of hearing before making an order. The impugned order was issued without following this procedure. Additionally, the court noted that the basic requirement for invoking Section 44, which includes serving notice to the dealer (third respondent), was not satisfied. The court concluded that the impugned order directing the bank to deposit the amount was not in accordance with the law.

Conclusion:

The court held that the petitioner, as a bona fide purchaser, was not liable to discharge the tax dues of the third respondent. The notice and order issued under Section 44 of the GVAT Act were quashed for being procedurally flawed and lacking legal basis. The petition was allowed with costs, and the impugned actions of the State Tax Officer were strongly deprecated.