2015 (10) TMI 2856 - HC - VAT and Sales Tax

Seeking cancellation of charge of Sales tax department on the land together with the construction thereon - direction to respondent authorities to enter name of the petitioner in the revenue record - seeking to set aside all the impugned entries in respect of charge and attachment in respect of alleged dues of Government of Gujarat - cancellation of charge of the sales Tax Department over the land. Whether the assessment of the Sales Tax dues is calculated and what steps have they taken against the Ornet Ceramic Ltd.? HELD THAT - The answer is not produced on record. This shows approach of the authority trying to recover the dues which were provisionally assessed by the authorities before 2010 i.e. before the property was put to an auction. It is true that the Sales Tax Department had written to the Bank that they have charge over the property, and therefore, the property should not be permitted to be auctioned. On these counts, the State authorities have not answered. On this pivotal issue, the entire petition and the fate would lie. It is yet open for the State authorities to claim the money from Ornet Ceramic as it has been rightly pointed out by Revenue that the charge was on the land, therefore, authorities felt that they were secured, yet, they have been writing letter to the Bank that even after auctioning the said property, there was a surplus amount of Rs. 77 lacs. Pursuant to that, the Sales Tax officers have did nothing. The present petition requires to be allowed with a rider that the Sales Tax Department would be at liberty to claim the amount from the Ornet Ceramic Ltd. as the assessment which is now produced on record by way of affidavit was done after 8 months of the auction. If they are entitled, they may recover from Ornet Ceramic Ltd, the original company, which is liable to pay the sales tax dues and the petitioner cannot be saddled with the liabilities even as per the sale deed executed with the Bank, at page 193-194 of this petition, which is executed between the present petitioner and State Bank of India. Further, there is also an averments that every thing will be borne free from all encumbrances,and therefore also, the stand taken by the Bank and the sales Tax Department cannot be sustained. Whether can it be said that the charge was on the property and the petitioner purchased the property with open eye, as contended by the State. The answer would be no. The documentary evidence go to show that though the Sales Tax Department was aware that the property was put to auction, but they did nothing - The order of Mamlatdar, Morbi is nothing else but perverse, and therefore, name of the petitioner has to be mutated in the revenue entry as they have purchased the property free from all encumbrances. The charge of Sales Tax Department cannot be mutated, which is contrary to the decision of this Court in the case of Baroda City Cooperative Bank Ltd. v. State of Gujarat 2010 (5) TMI 774 - GUJARAT HIGH COURT . This petition under Article 226of the Constitution has to be accepted and it is held that the orders are bad in eye of law. The mutation entry is totally unauthorised. Thus, no entry can be posted or no mutation can be effected in respect of charge. In view of the statutory provisions, the mutation entries regarding charge of the alleged tax dues of the State could not have been posted and the action of posting such entry is without authority, powers and jurisdiction., and therefore, mutation entry posted and certified in respect of attachment by Assistant Commissioner, Commercial Tax, is unauthorised, and Assistant Commissioner Commercial Tax has no authority to attach the property under Gujarat Sales Tax Act, Central Sales Tax Act and Value Added Tax. Even no procedure under the Land Revenue Code is followed for the attachment of the questioned land and the Sales Tax Commissioner could not have legally attached the property for recovery of the dues from the previous owner. Petition allowed.

Summary

Issues Involved:
1. Validity of the charge created by the Sales Tax Department on the auctioned property.
2. Priority of the Sales Tax Department's dues over the secured creditor's dues.
3. Legality of the mutation entries regarding the charge of the Sales Tax Department.
4. Petitioner's liability for the sales tax dues of the previous owner.
5. Compliance with statutory provisions under the Gujarat Land Revenue Code and the SARFAESI Act.

Detailed Analysis:

1. Validity of the Charge Created by the Sales Tax Department:
The petitioner challenged the charge created by the Sales Tax Department on the land purchased in an auction under the SARFAESI Act. The petitioner contended that the charge was invalid as the property was sold free from all encumbrances as per the sale certificate issued by the State Bank of India. The court noted that the Sales Tax Department had not calculated the dues at the time of the auction and had not objected to the auction process. The court held that the charge created by the Sales Tax Department was unauthorized and invalid.

2. Priority of the Sales Tax Department's Dues:
The Sales Tax Department argued that under Section 48 of the Gujarat Value Added Tax Act, the state's dues have the first charge over the dues of secured creditors. However, the court referred to the Full Bench decision in Baroda City Cooperative Bank Ltd. vs. State of Gujarat, which held that the state's dues do not have priority over the secured creditor's dues. The court reiterated that the secured creditor's rights under the SARFAESI Act have overriding effect, and thus, the Sales Tax Department's dues do not take precedence over the secured creditor's dues.

3. Legality of the Mutation Entries:
The petitioner argued that the mutation entries regarding the charge of the Sales Tax Department were unauthorized as per Section 135(c) of the Gujarat Land Revenue Code, which does not allow for the posting of entries regarding charges not amounting to a mortgage. The court agreed, stating that the mutation entries were made without authority, powers, and jurisdiction. The court declared the impugned entries null and void.

4. Petitioner's Liability for Sales Tax Dues:
The petitioner contended that they should not be liable for the sales tax dues of the previous owner, Ornate Ceramic Ltd., as the property was purchased free from all encumbrances. The court upheld this contention, noting that the sale certificate issued by the State Bank of India clearly stated that the property was sold free from all encumbrances. The court concluded that the petitioner, as a bona fide purchaser, could not be saddled with the liability to pay the sales tax dues.

5. Compliance with Statutory Provisions:
The court examined the compliance with statutory provisions under the Gujarat Land Revenue Code and the SARFAESI Act. It was found that the Sales Tax Department had not followed the proper procedure for attaching the property under the relevant tax acts and the Land Revenue Code. The court emphasized that the mutation entries regarding the charge were unauthorized and that the petitioner's name should be entered in the revenue records as the rightful owner of the property.

Conclusion:
The court allowed the petition, directing that the charge of the Sales Tax Department on the auctioned property be canceled and the petitioner's name be entered in the revenue records. The Sales Tax Department was given the liberty to recover its dues from Ornate Ceramic Ltd. or its other properties. The court emphasized that the petitioner, as a bona fide purchaser, should not be held liable for the previous owner's sales tax dues. The court's decision was based on the overriding effect of the SARFAESI Act and the statutory provisions under the Gujarat Land Revenue Code.