2015 (10) TMI 2458 - HC - VAT and Sales Tax

Challenge to legality and validity of attachment order - Attached property purchased in auction without any notice of the alleged charge of the Sale Tax Authorities - Held that - Petitioners attended the hearing in the Office of Respondent No.3 on 15th July, 2014 and submitted their written submissions inter alia stating that the notice issued was completely illegal and unsustainable in law. It was submitted that the purported new charge of ₹ 2,77,72,073/- was recorded in the 7/12 extract of the secured property only after 22nd May 2013, while the Petitioners had bonafide purchased the same by paying the full consideration to Respondent No.2 on 21st March 2013, without any knowledge of the alleged encumbrance of the Sales Tax Authorities. At that time, the only encumbrance recorded in the 7/12 extract was a sum of ₹ 4,34,601/- due to District Industries Centre, Raigad. It is important to note that in the written submissions filed by the Petitioners, they also intimated the Sales Tax Authorities that the said defaulter M/s Iccon Oil was already functioning at another address duly registered under the Maharashtra Value Added Tax Act, 2002. Even after the purchase of the secured property, the Petitioners once again obtained a 7/12 extract of the secured property dated 12th April, 2013. Even in this 7/12 extract, the charge of the Sales Tax Authorities (in the sum of ₹ 2,77,73,073/-) was not reflected. It is only for the first time on 7th January, 2014 that the charge of the Sales Tax Authorities was reflected in the 7/12 extract of the secured property. This was much after the sale of the secured property was confirmed in favour of the Petitioners. In these circumstances, we find that Mr Joshi is fully justified in contending that the Petitioners had no knowledge or notice of the charge of the Sales Tax Authorities before they purchased the secured property from Respondent No.2 and therefore, the Sales Tax Authorities cannot enforce their charge against the secured property. Iccon Oil was wound up by and under the orders of this Court and this Court by its order dated 18th March 2015, passed in Company Application (L) No.603 of 2014, has given liberty to the Sales Tax Authorities to file their claim before the Official Liquidator. We are informed that the claim of the Sales Tax Authorities has also been filed thereafter with the Official Liquidator of this Court and we are of the view that the Sales Tax Department is free to pursue its claim against Iccon Oil. - Appeal disposed of.

Issues Involved:
1. Legality and validity of the attachment order dated 29th April, 2013.
2. Notice of the alleged charge of the Sales Tax Authorities.
3. Bona fide purchase of the secured property by the Petitioners.
4. Actions and diligence of the Sales Tax Authorities.
5. Enforceability of the charge against the secured property.
6. Priority of the Sales Tax Authorities on the sale proceeds.
7. Registration of the sale certificate.

Detailed Analysis:

1. Legality and Validity of the Attachment Order:
The Petitioners challenged the attachment order dated 29th April, 2013, signed on 2nd May, 2013, passed by the Sales Tax Authorities, arguing that it was arbitrary, illegal, and without jurisdiction. The attachment was levied on an immovable property purchased by the Petitioners in an auction conducted under the SARFAESI Act.

2. Notice of the Alleged Charge of the Sales Tax Authorities:
The Petitioners contended that when they purchased the secured property, they had no notice of the alleged charge of the Sales Tax Authorities amounting to Rs. 2,77,72,073/-. They conducted due diligence and obtained a 7/12 extract dated 15th May, 2012, which did not reflect any charge by the Sales Tax Authorities. Even after the sale was confirmed, a 7/12 extract dated 12th April, 2013, did not show the purported charge.

3. Bona Fide Purchase of the Secured Property:
The Petitioners argued that they were bona fide purchasers of the secured property for valuable consideration and without any notice of the charge/dues of the Sales Tax Authorities. They participated in a public auction and made full payment of Rs. 2,65,00,000/-. The sale was confirmed in their favor on 1st April, 2013.

4. Actions and Diligence of the Sales Tax Authorities:
The Petitioners claimed that the Sales Tax Authorities were complacent and negligent in pursuing their claim against Iccon Oil. Despite having their claim crystallized as far back as 2006 and 2008, the Sales Tax Authorities did not ensure that their charge was reflected in the 7/12 extract of the secured property. The Sales Tax Authorities only recorded their charge in the 7/12 extract on 9th January, 2014, long after the Petitioners purchased the property.

5. Enforceability of the Charge Against the Secured Property:
The court referred to the Supreme Court decision in State of Karnataka & Anr. Vs. Shreyas Papers P. Ltd., which held that a charge may not be enforced against a transferee if they had no notice of the same. The court found that the Petitioners had no knowledge of the charge of the Sales Tax Authorities before purchasing the secured property, and thus, the charge could not be enforced against them.

6. Priority of the Sales Tax Authorities on the Sale Proceeds:
The court did not enter into the controversy regarding the priority of the Sales Tax Authorities on the sale proceeds received from the sale of the secured property to the Petitioners. This issue was left to be decided in appropriate proceedings before the appropriate forum.

7. Registration of the Sale Certificate:
The Petitioners could not register the sale certificate due to the excessive stamp duty demanded by the registering authority, which included the arrears of Sales Tax dues of Iccon Oil. The court found no substance in the argument that the title to the property did not pass to the Petitioners due to the unregistered sale certificate.

Conclusion:
The court held that the Petitioners, having no knowledge of the charge of the Sales Tax Authorities before purchasing the secured property, could not have the charge enforced against them. The impugned attachment order was set aside. The Sales Tax Authorities were directed to pursue their claim against Iccon Oil through the Official Liquidator. The court made the rule absolute and granted the Writ Petition in terms of the specified prayer clauses, leaving the parties to bear their own costs.

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