2023 (4) TMI 823 - HC - VAT and Sales Tax

Seeking recovery of arrears of tax - petitioner mainly contended that Form 19 B signed by the said Kanthimathi would reveal that it is a security bond given by her personally undertaking to pay the Tax Fee or other amount due that will occur against the said Kanthimathi - HELD THAT - As the dealer did not pay the tax arrears of Rs.2, 99, 525/- action was initiated under the Revenue Recovery Act by initially addressing the Sub-Registrar Vadavalli by creating encumbrance on the property belonging to the defaulter s wife which was made as security at the time of registration. Subsequently the Department came to know that the writ petitioner / Tmt.M.Karpagam had purchased the property under sale deed dated 07.03.2008 - The Government usually does not create mortgage at the time of registration. However such security bonds are executed with the property details and with a personal undertaking and therefore the said undertaking is binding in respect of the property schedule provided in the bond. Thus the contentions of the writ petitioner is to be rejected. The Explanation-I to Section 24 (15-A) of the erstwhile Tamil Nadu General Sales Tax Rules 1959 reveals that where the security furnished in the form of immovable property the person furnishing it may in any town to which Sub-Section (f) of Section 58 of the Transfer of Property Act 1882 Central Act IV of 1883 is applicable mortgage such property to the Government by deposit of title deeds. Therefore it is necessary to create a mortgage as contemplated under the Transfer of Property Act. In the absence of creating any such mortgage mere personal undertaking cannot be construed as a mortgage or charge created under Explanation I to Section 24 (15-A) of the erstwhile TNGST Act or under the Transfer of Property Act. The Form 19-B security bond signed by the vendor of the petitioner smt R.Kanthimathi is restricted only to the extent of her personal undertaking and there is no mortgage or charge created in respect of the property purchased by the petitioner from the said Kanthimathi. Thus the security bond executed by the vendor of the petitioner is not in consonance with the Form prescribed under the erstwhile TNGST Rules - When the subject property which has not been mortgaged or charge has been created in consonance with the provisions of the erstwhile TNGST Act and Rules. The contention of the respondent that they are entitled to create an encumbrance in the office of the Sub-Registrar is untenable and the encumbrance made without creating any mortgage or charge cannot be held as in consonance with the provisions of the erstwhile TNGST Act. This being the factum established the actions initiated against the petitioner is in violations of the provisions of the TNGST Act and more so the petitioner is not a sales tax assessee and she is the bonafide purchaser of the property from her vendor Smt.Kanthimathi. The order impugned and the consequential entry of encumbrance made by the 2nd respondent / Sub-Registrar of Assurances on the petitioner s property Door No.12/36 A Ramalakshmi Nagar Goundampalayam Road Idayarpalayam Coimbatore 641 044 are quashed - Writ Petition stands allowed.

Summary

Issues Involved:
1. Validity of the security bond executed by the vendor.
2. Whether the petitioner, a bona fide purchaser, is liable for the sales tax arrears.
3. Legality of the encumbrance created by the respondents on the property.

Summary:

1. Validity of the Security Bond Executed by the Vendor:
The petitioner argued that the Form 19 B signed by the vendor, Kanthimathi, was a personal undertaking and not a mortgage or charge on the property. The bond did not conform to the prescribed form under the Tamil Nadu General Sales Tax Rules, 1959, and thus, could not be construed as creating a mortgage or charge. The court agreed, noting that the security bond was not in the prescribed format and was limited to a personal undertaking.

2. Whether the Petitioner, a Bona Fide Purchaser, is Liable for the Sales Tax Arrears:
The petitioner, having purchased the property after verifying that there were no encumbrances, claimed to be a bona fide purchaser for valuable consideration. The court referenced multiple judgments, including the Supreme Court's ruling in Ahmedabad Municipal Corporation v. Haji Abdul Gafur Haji Hussenbhai, which protects bona fide purchasers without notice of prior charges. The court concluded that the petitioner, being a bona fide purchaser without notice of the sales tax arrears, could not be held liable.

3. Legality of the Encumbrance Created by the Respondents on the Property:
The respondents argued that the security bond created a statutory charge on the property, binding the petitioner. However, the court found that the bond did not create a mortgage or charge as required under the Transfer of Property Act and the Tamil Nadu General Sales Tax Rules. Consequently, the encumbrance created by the respondents was deemed illegal and not in consonance with the provisions of the TNGST Act.

Conclusion:
The court quashed the impugned order dated 26.08.2013 and the consequential encumbrance entry, allowing the writ petition. The petitioner, as a bona fide purchaser, was not liable for the sales tax arrears, and the security bond did not create a valid charge on the property.