2024 (9) TMI 765 - HC - VAT / Sales Tax

Validity of the proceedings under Section 17-A of the Andhra Pradesh General Sales Tax Act, 1957 - Time limitation of the order declaring the sale void after seven years - HELD THAT - The provisions of Section 17-A, provide the commercial tax department with a provision to safeguard recovery of revenue by permitting an authority under the Act to declare any transaction which takes away an asset out of the reach of the department. Needless to say, this provision would be available only where it is shown that such property had been alienated for adequate consideration and the purchaser was unaware of the liability of the vendor in alienating such property. This provision came to be considered by a Division Bench of the erstwhile High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh in the case of DAMERA RAMAKRISHNA AND OTHERS VERSUS COMMERCIAL TAX OFFICER (FAC), VIJAYAWADA AND OTHERS 2004 (10) TMI 556 - ANDHRA PRADESH HIGH COURT . In this case, a Private Limited Company had fallen in sales tax arrears to the tune of Rs. 35,98,030/-. The said assessee, while steps were being taken to recover the tax dues, had sold away immovable property belonging it and orders under Section 17-A were passed - In the present case, the facts are different. The petitioner is no other than the son-in-law of the 5th respondent and the assertion of the petitioner that he was unaware of the tax dues of the 6th respondent, which was essentially a family concern of the 5th respondent, cannot be taken on face value. In the present case, though the company is admitted to be in liquidation, no steps have been taken against the 5th respondent by issuance of a notice calling upon him to pay the tax dues of the 6th respondent Private Limited Company nor was the 5th respondent given an opportunity of hearing to demonstrate that there was no liability to pay such taxes. In the absence of such an opportunity being given to the 5th respondent, tax liability cannot be fastened upon the 5th respondent. This Court is of the view that the proceedings of the 1st respondent dated 14.09.2007 would have to be set aside, subject to the condition that such proceedings can again be issued, provided steps are taken to fix liability of payment of tax dues of the 6th respondent on the 5th respondent and thereafter steps are taken for recovery of such tax dues. This Writ Petition is allowed by setting aside the order passed by the 1st respondent in RcB2 191/2007, dated 14.09.2007 under Section 17-A of APGST Act, 1957. However, it shall be open to the 1st respondent or any other competent authority under the APGST Act or the successor Acts, provided such authority is vested in any authority, under the Successor Act, to take steps to ascertain whether the 5th respondent would be liable to clear the dues of the 6th respondent and whether such tax dues can be recovered from the 5th respondent, if it is found that he would be liable to pay the tax dues of the 6th respondent. Petition allowed.

Summary

Issues:
1. Validity of the proceedings under Section 17-A of the Andhra Pradesh General Sales Tax Act, 1957.
2. Timeliness of the order declaring the sale void after seven years.
3. Interpretation of Section 17-A in cases involving private limited companies in liquidation.
4. Application of the proviso of Section 17-A regarding adequate consideration and notice.
5. Jurisdiction of the assessing authority to pass orders under Section 17-A.

Analysis:
1. The petitioner purchased a property from the 5th respondent, who was a director of a private limited company in liquidation. The 1st respondent declared the purchase void under Section 17-A of the APGST Act, alleging tax evasion. The petitioner challenged this on grounds of jurisdiction, delay, and lack of evidence of fraud to evade revenue. The court considered the purpose of Section 17-A to prevent asset alienation for tax evasion, emphasizing the need for adequate consideration and purchaser's ignorance of vendor's liabilities.

2. The petitioner argued that the seven-year delay in passing the order rendered it invalid. The court noted that while no limitation period is prescribed, undue delay without fixing tax liability on the vendor is unreasonable. The court highlighted the importance of establishing tax liability before invoking Section 17-A.

3. The court examined the application of Section 16-B, holding directors of private limited companies in liquidation liable for tax dues unless proven non-negligent. In this case, no notice or opportunity was given to the 5th respondent to demonstrate lack of liability. The court emphasized the necessity of following due process before imposing tax liability on directors.

4. The proviso of Section 17-A regarding adequate consideration and notice was crucial. The petitioner claimed ignorance of the 6th respondent's tax arrears and argued that the consideration paid was adequate. The court stressed the need for genuine transactions without knowledge of pending dues to avail protection under the proviso.

5. The jurisdiction of the assessing authority to pass orders under Section 17-A was contested. The government pleader argued that the 1st respondent had the authority as a superior officer. The court clarified that such powers must be exercised by competent authorities and emphasized the need for proper assessment and liability fixation before invoking Section 17-A.

In conclusion, the court set aside the 1st respondent's order but allowed for reissuance upon proper assessment of the 5th respondent's liability. The court highlighted the importance of due process, liability fixation, and evidence of tax evasion before invoking Section 17-A.