2023 (8) TMI 466 - HC - VAT and Sales Tax

Default in payment of Tax under the Gujarat Value Added Tax Act, 2003 - Charge levied on personal properties of Directors (for default of company) - entry is mutated in the City Survey records recording Charge on the properties owned by the petitioners - Time limitation - HELD THAT - What is evident from the chain of events is that only after the petitioners made an application for mutation of their names in the Revenue Records did the authorities, both, the Revenue and the Tax authorities swung into action and by exchange of communications and relying on some communication dated 27.04.2018, which is not on record did instructions go forward by the Tax Authorities to the Revenue Authorities to record a charge on the property which was already sold by the Director. Apart from it being a personal property, nothing has come on record to satisfy this Court as to what proceedings were undertaken by the authorities to attach the properties in question, when they were still in correspondence seeking details thereof. It was incumbent upon the Revenue Authorities in exercise of powers under Section 135 C of the Bombay Land Revenue Code to record the entries. There is no obligation, as rightly submitted by the learned counsel for the petitioner, to even apply for entering the names in the revenue records. When a registered document is produced, the authorities are bound to record the same in the revenue records. As held in the case of Jhaverbhai Savjibhai Patel 2005 (5) TMI 693 - GUJARAT HIGH COURT when a registered document is produced the authority must prima-facie post an entry in the record of rights leaving it for the competent Court or Authorities to adjudicate on the dispute. In accordance with the provisions of the Bombay Land Revenue Code therefore once a registered document is produced before the revenue authority, he is bound to record a revenue entry based on such a document. The contention of the learned Assistant Government Pleader that in accordance with the provisions of Section 48 of the GVAT, 2003 the authorities are empowered to enter a charge as the sale could be a bogus one and a shield to overcome attachment of a property is also misconceived. On the date on which the petitioners had purchased the property, neither any attachment proceeding was pending nor finalised. No proceedings to record a charge were also in progress or a decision so taken. The default in question had already culminated into the attachment of the showroom and the workshop of Eagle Motors Private Limited by an order dated 09.01.2015 and akin thereto there were no proceedings vis-a-vis the property in question which was even the personal property of the Director. Even otherwise for assessment proceedings which were initiated for the years 2012 to 2014 whether attachment proceedings could be issued is an issue which begs a question, however not considered as even otherwise, it is held that the property in question was of the personal ownership of the Director and therefore could not have been attached. The personal liability of the Director in the facts of this case when related to the personal property of the Director cannot be a matter of attachment or creation of a charge as is sought to be done in the facts of the present case. What therefore is culled out from the facts of the case is that apart from the fact that the attachment of the properties is beyond the reach of the taxation authorities in light of being the personal properties of the Director and the fact that they have been sold by a registered sale deed prior to the exercise of undertaking any proceedings of attachment or creation of a charge, the only option open, if the authorities were of the opinion that the sale was with a view to defraud the government, is to file a civil suit - the prayers made by the petitioners are answered in their favor. The communication dated 03.08.2019 passed by the City Survey Superintendent of Rajkot is quashed and set aside. The communications and directions/orders dated 17.06.2019 mutating the entry no. 8056 and 8057 recording the charge of the Tax authorities is also quashed and set aside. Application allowed.

Summary

Issues Involved:

1. Legality of the mutation entries and charge creation on the petitioner's property.
2. Jurisdiction and authority of the revenue and tax authorities in recording charges.
3. Attachment of personal properties of directors for company dues.

Issue-wise Comprehensive Details:

1. Legality of the Mutation Entries and Charge Creation:

The petitioners challenged the orders dated 17.06.2019, mutating Entry No. 8056 and 8057, which recorded a charge on their properties due to tax defaults by Eagle Motors Pvt. Ltd., where the seller was a director. The petitioners argued that they were bona fide purchasers, and the sale deed was executed before any charge was registered. They contended that the entries were made three months after the sale deed and beyond the limitation period under Section 34 of the GVAT Act. The court held that the petitioners were bona fide purchasers and that the property was a personal asset of the director, not liable for the company's tax dues.

2. Jurisdiction and Authority of Revenue and Tax Authorities:

The petitioners argued that under Section 135C of the Bombay Land Revenue Code, revenue authorities are obligated to record entries based on registered sale deeds without requiring an application. The court concurred, stating that the authorities should have recorded the petitioners' names in the revenue records. The court noted that the tax authorities' actions to create a charge were based on communications that were not on record and lacked proper proceedings, making the charge creation unwarranted.

3. Attachment of Personal Properties of Directors for Company Dues:

The court examined whether personal properties of directors could be attached for company dues under the GVAT Act. Citing precedents, the court reiterated that personal properties of directors cannot be attached for company liabilities. The court referenced several judgments, including Chokshi Texlen Private Limited and Nipun A Bhagat, which established that directors' personal properties are not liable for company dues unless explicitly provided by law. The court emphasized that any claim of fraudulent transfer must be pursued through civil suits, not administrative actions.

Judgment:

The court quashed the communication dated 03.08.2019, the mutation entries dated 17.06.2019, and the order dated 11.06.2019. It directed the authorities to mutate the petitioners' names in the City Survey records within four weeks, reaffirming that personal properties of directors cannot be attached for company dues.