2022 (9) TMI 849 - SC - VAT and Sales Tax

Initiation of Recovery proceedings - transfer of goods, plant, and machinery (immoveable property) - bonafide purchaser - Section 34 of the U.P. Trade Tax Act - HELD THAT - Section 34 of the Act shall be applicable only in a case where there is a transfer of immovable property belonging to the original assesee, during the pendency of any proceedings under the Act with the intention of defrauding any such tax or other dues. As per proviso to Section 34, nothing in Section 34 shall impair the rights of a transferee in good faith and for consideration. Thus, the power of Section 34 can be exercised only in a case where the transfer of immoveable property belonging to the original assessee is made during the pendency of any proceedings under the Act and such transfer is found to be with the intention to defraud any such tax and other dues. In the present case, the transfer of goods, plant, and machinery (may be treated as immoveable property) had taken place on 12.12.1985 and 01.01.1986 for a sale consideration of Rs. 12,12,000/. On that day, no assessment proceedings and/or any proceedings under the Act and/or recovery proceedings were pending. As observed hereinabove, the assessment proceedings were concluded in the year 1984 and the same was reopened in the year 1988. The recovery certificate was issued against the original assessee on 15.04.1990. Thus, at the time of transfer of immoveable property of the assessee which was for value/consideration, no proceedings under the Act were pending, Section 34 of the Act shall not be applicable. No error has been committed by the High Court in dismissing the revision applications confirming the orders passed by the Trade Tax Tribunal setting aside the endorsement of recovery certificate issued in favour of original assessee against the purchaser - Appeal dismissed.

Summary

Issues:
1. Dismissal of revision applications by High Court regarding recovery certificate endorsement against the purchaser.
2. Interpretation of Section 34 of the U.P. Trade Tax Act in relation to the transfer of property with the intention to defraud tax dues.

Issue 1:
The High Court dismissed revision applications challenging the endorsement of a recovery certificate against the purchaser, originally issued in the name of the assessee. The Tribunal had set aside the endorsement, stating that the transfer of property to the purchaser was not with the intention to defraud tax dues. The High Court upheld this decision, leading to the Revenue's appeals before the Supreme Court.

Issue 2:
The Supreme Court analyzed Section 34 of the U.P. Trade Tax Act, which deals with transfers made during pending tax proceedings with the intent to defraud dues. The provision allows for recovery from transferees if the transfer was made with fraudulent intent. However, it also protects bona fide transferees. In this case, the transfer of property to the purchaser occurred before the initiation of reassessment proceedings, and the recovery certificate was issued against the original assessee after the transfer. As no proceedings were pending at the time of transfer, Section 34 did not apply, and the endorsement against the purchaser was rightly set aside by the Tribunal.

In conclusion, the Supreme Court found no error in the High Court's decision to dismiss the revision applications, confirming the Tribunal's ruling on the recovery certificate endorsement. Both appeals were dismissed, emphasizing that Section 34 of the Act did not apply in this scenario.