2021 (7) TMI 1055 - HC - VAT and Sales Tax

Arrears of sales tax - actual defaulter - collection of arrears after lapse of 14 years - case of petitioner is that recovery of arrears of sales tax is to be made against the defaulter and not against the petitioner - HELD THAT - The petitioner's are the bonafide purchasers of the property and cannot be liable to attachment. This Court is of the considered opinion that the arrears of sales tax was due in for year 1992 - 93 under the CST Act, 1956 - The arrears of sales tax is to be collected from the second respondent after a lapse of 14 years and meanwhile the property was sold by the third respondent who was one of the Ex-Director of the second respondent Company and other co-owners also there and they are not directors and not connected with the second respondent. The first respondent has not collected the recovery of sales tax vigilantly from the defaulters. Thus, the actions initiated after lapse of many years cannot be sustained. Petition allowed.

Summary

Issues:
Challenge to notice and form-4 demand for sales tax arrears on a property; Liability of petitioner company for sales tax arrears; Validity of notice issued after a prolonged period; Interpretation of Section 24 of the Act; Compliance with RR Act for recovery proceedings; Protection of interests of all parties in recovery process; Extent of liability of a bonafide purchaser; Priority of sales tax arrears over other claims on property.

Analysis:
The petitioner, a flat promoter, challenged a notice demanding sales tax arrears for a property purchased from a director of a company with arrears. The petitioner contended no encumbrance existed during their purchase. The court noted the arrears were from 1992-93 under the CST Act. The defaulter was the second respondent, not the petitioner. The notice issued in 2006 was questioned due to the delay and lack of connection between the petitioner and the arrears.

The court analyzed Section 24 of the Act, emphasizing the need for recovery procedures under the RR Act. It highlighted the importance of public notice for encumbrances on properties and criticized the lack of proper procedure in this case. The judgment referred to previous cases emphasizing strict adherence to legal procedures for property auctions in revenue recovery proceedings.

Regarding the liability of a bonafide purchaser, the court cited a Full Bench decision stating that a purchaser without notice of charges cannot be held liable for sales tax arrears. It discussed the priority of sales tax arrears over other claims on the property, subject to following the recovery procedures diligently.

The judgment concluded that the first respondent failed to collect sales tax arrears diligently, rendering the actions taken after a long period unsustainable. Consequently, the notice demanding arrears was quashed, and the writ petition was allowed without costs. The judgment highlighted the need for proper procedure, protection of all parties' interests, and the limited liability of bonafide purchasers in such cases.