2020 (2) TMI 531 - HC - VAT and Sales Tax

Recovery of tax arrears under CST Act - charge was created in favour of the respondent Commercial Tax Department against the property of the petitioner's vendor - HELD THAT - Section 24 of the TNGST Act, 1959 is applicable to the recovery of tax under CST Act, 1956. If an assessee is in default of tax liability, automatically charge is created in respect of the property dealer. Under Section 24-A of the TNGST Act, 1959, a purchaser can claim the defence stating that the purchase was for adequate consideration and without notice of such tax or arrears. In this case, the respondent Commercial Tax Department had not taken the trouble of registering the charge as was required under law. Therefore, the partner of the defaulting dealer took undue advantage and sold the assets unapologetically in a flagrant violation of the law. The petitioner purchased the property from the said person - Impugned notice calls upon the petitioner to pay for the arrears after a lapse almost four years from the date of purchase of the property shows negligence on the part of the Department in as much as the dealer was in arrears of tax from 2010 onwards. Whether the petitioner had indeed paid ₹ 40 lakhs to the vendor without notice of the charge which was created by operation of law or whether the sale was made to defeat the interest of the respondent or bonafide cannot be decided in a writ court as it would require a detailed trial on facts. The petitioner has to satisfy that the requirement of proviso to Section 24-A of the TNGST Act, 1959 has been met to perfect his title to the property - The burden of proof as is required under the aforesaid provision can be established only in a civil court by filing a suit for a declaration and this would require a trial. As the courts exercising jurisdiction under Article 226 of the Constitution of India are not Civil Courts for the purpose of such determination, I am of the view that the present writ petition is liable to be dismissed. Petition dismissed - decided against petitioner.

Summary

Issues:
Challenge to impugned notice for tax payment based on property purchase without notice of charge under TNGST Act, 1959.

Analysis:
The petitioner challenged a notice demanding payment of tax arrears of ?1,24,93,648 within 15 days, related to a property purchased from a partner of a defaulting dealer. The petitioner claimed to be a bona fide purchaser without notice of the charge created in favor of the Commercial Tax Officer. The respondent argued that the petitioner had an alternate remedy to challenge the notice and that the charge against the property was created under the TNGST Act, 1959. The court noted that Section 24-A of the Act allows a purchaser to defend by proving the purchase was for adequate consideration and without notice of the tax arrears.

The court highlighted that the Commercial Tax Department failed to register the charge as required by law, allowing the partner of the defaulting dealer to sell the property to the petitioner. The petitioner asserted that the purchase was made after thorough verification, free from encumbrances, for ?40 lakhs. The court criticized the Department's negligence in issuing the notice almost four years after the property purchase when the dealer was in arrears since 2010.

It was emphasized that the determination of whether the purchase was made in good faith or to defeat the respondent's interest required a detailed trial in a civil court. The court clarified that the burden of proof under Section 24-A could only be established in a civil court through a suit for declaration. Consequently, the court dismissed the writ petition, granting the petitioner liberty to approach a civil court within 30 days to perfect their title. The respondent was restrained from proceeding with distraint or revenue recovery for six months if the petitioner filed a suit within the prescribed period.

The court directed the respondent to file a caveat in the jurisdictional court to contest the suit promptly and instructed the petitioner to include their vendor in the proceedings. The petitioner could apply for an extension of the protection granted by the court, subject to the trial court's decision. Failure to file a suit within the specified period would allow the Commercial Tax Department to proceed with the revenue recovery proceedings. The writ petition was disposed of with no costs, and the connected Miscellaneous Petition was closed.