2020 (10) TMI 152 - HC - VAT and Sales Tax

Attachment of property - creation of encumbrance in the property - case of petitioner is that he is a bona fide purchaser, who had purchased the property prior to the encumbrance being created and therefore is entitled to protection from the charge created over the subject property - Section 24-A of The Tamil Nadu General Sales Tax Act, 1959 - HELD THAT - Under Section 24 of the TNGST Act, the arrears of the tax will become immediately due on default of the outstanding taxes and consequently, a charge would be created on the properties of the person liable to pay the tax or the interest. Section 24-A of the TNGST Act provides that all charges or transfers made by the dealer during the pendency of any proceedings under the Act, shall be void. The intention to defraud the revenue requires to be derived from the manner in which the defaulter transfers the title of the property. When the transfer of title of the property is made within a reasonably short period from the knowledge of the tax arrears or whenever such a transfer of title is done among the family members of the defaulter, there can be a strong presumption that such transfer has been made to defraud the revenue. Since the defaulter had transferred the property in favour of his brother's wife, by appointing his own brother as the Power Agent to act on his behalf and such a sale has happened within six months from the date of which the demand of arrears of tax was made, it can be said there are no bona fides in such a transfer. Accordingly, in view of Section 24-A of the TNGST Act, the transfer itself is deemed to be void - the department may be entitled to recover the sales tax arrears of the later dealer, namely Thiru.T.C.Wilson, by enforcing the charge against the subject property in the manner provided under the Act. The respondents 1 and 2 are at liberty to enforce the charge over the subject property for recovery of the arrears of tax due from the assessee, namely Thiru.T.C.Wilson (late), proprietor of M/s.New Nelson Watch Company, in a manner known to law - Petition dismissed.

Summary

Issues:
1. Validity of attachment on the property.
2. Interpretation of Section 24-A of The Tamil Nadu General Sales Tax Act, 1959.
3. Determination of intention to defraud revenue in property transactions.
4. Liability of the petitioner for the arrears of sales tax.

Issue 1: Validity of attachment on the property
The petitioner challenged the attachment on her property, arguing that she purchased it before the encumbrance was created and should be protected. The Government Advocate contended that the transactions were made to defraud revenue, invoking Section 24-A of the TNGST Act, which deems transfers void if made with such intention. The court examined the timeline of events and the knowledge of tax arrears by the parties involved.

Issue 2: Interpretation of Section 24-A of The Tamil Nadu General Sales Tax Act, 1959
Section 24-A of the TNGST Act states that transfers made to defraud revenue are void, except under specific conditions. The court analyzed the provision, emphasizing that the intention to defraud the revenue is crucial in determining the validity of transfers. Exceptions exist when transfers are made for adequate consideration without notice of tax proceedings or with permission from the assessing authority.

Issue 3: Determination of intention to defraud revenue in property transactions
The court scrutinized the property transactions involving family members and the proximity of the sale to the knowledge of tax arrears. It highlighted that transfers among family members shortly after the knowledge of arrears raise strong presumptions of fraudulent intent. The court assessed the circumstances of the transfer and concluded that the transfer was made to defraud revenue, rendering it void under Section 24-A of the Act.

Issue 4: Liability of the petitioner for the arrears of sales tax
Given the findings, the court dismissed the Writ Petition, allowing the enforcement of the charge on the property for recovering the arrears from the original assessee. However, the petitioner was given an option to settle the entire liability to release her property from the charge. The court directed the petitioner to approach the department with the arrears, penalty, and interest within 30 days to avoid enforcement proceedings. The court provided this option considering the property's value exceeding the arrears owed.

In conclusion, the judgment upheld the attachment on the property, deemed the transfer void under Section 24-A, and allowed the petitioner to settle the arrears to release the property from the charge.