2018 (2) TMI 123 - HC - VAT and Sales Tax

Validity of SCN - recovery of VAT dues of the seller of the flat from the purchaser of the flat in the housing society - case of petitioner is that the impugned notice issued by the respondent authority to the housing society is wholly without jurisdiction, bad and illegal as the petitioner is a bonafide purchaser of property for valuable consideration - Held that - it is evident that the petitioner had issued public notices dt.1.2.2016 in two newspapers inviting any claim on the property. The respondent authorities did not respond to the same. The petitioner was never informed about the VAT dues either by the sellers or by the Respondents. Therefore, in our opinion the respondents can be said to be negligent in not being attentive to the notice issued by the petitioner, hence, the petitioner cannot be fixed with any constructive notice of the VAT dues. The core component which emanates from a bare reading of the aforesaid section is that the charge or transfer of the property shall be void if it is made with an intention of defrauding the government revenue . Thus, the transfer of property can be declared void provided there is intention to defraud the government revenue. The Act does not lay down any mechanism to declare the transfer as void. In our considered opinion, the only remedy available to the respondent authorities is to approach the Civil Court for a declaration to treat the transfer as void by adducing evidence of an intention to defraud . In the present case no tax was due on the petitioner and no charge is created on the property in question in respect of the alleged dues of the erstwhile owner which is an essential requirement of the section. Hence, the applicability of the provisions of section 47 in the case of the petitioner itself is an argumentative issue. In such circumstances, the only recourse available for the VAT authorities is to approach the Civil Court to annul the transfer on the ground that it was made with an intention to defraud the government. A conspectus of the aforenoted sections of the Act, will postulate that the authorities are not conferred with any powers to issue any communication/notice to the Society instructing it not to issue a No due certificate in relation to the property. In our opinion, such notice will circumvent the provisions of the Act as they do not intend to empower or authorize the department to issue directions/instructions directing the Society to refuse No due certificate of the property on which charge is established. By issuing the impunged notice debarring the Society from issuing the No due certificate, the authorities have conferred upon themselves with the power which is lacking in the provisions of the Act, hence, the same can be said to be extralegal and unwarranted. Thus, the impugned notice merits to be set aside as the same travels beyond the scope of the provisions of the GVAT Act. However, the department may, if so desire, take appropriate proceedings in accordance with law for having the transfer to be declared as void under section 47 of the GVAT Act. Petition allowed.

Issues Involved:
1. Validity of the impugned notice issued by the respondent authority.
2. Jurisdiction of the VAT authorities under the Gujarat Value Added Tax Act, 2003.
3. Constructive notice and the petitioner's liability for VAT dues.
4. Applicability of Section 47 of the Gujarat Value Added Tax Act, 2003.
5. Authority of the respondent to issue directions to the housing society.

Detailed Analysis:

1. Validity of the Impugned Notice:
The petitioner challenged the notice dated 22.07.2016, which instructed the housing society not to issue a "No Objection Certificate" for the property purchased by the petitioner. The court found that the petitioner had given public notice regarding the intended purchase and had completed the sale deed before the notice was issued. The VAT authorities did not respond to the public notice or raise any objections before the sale. Thus, the court held that the impugned notice was issued without jurisdiction, was bad, and illegal.

2. Jurisdiction of VAT Authorities:
The petitioner argued that the VAT authorities did not have jurisdiction under the Gujarat Value Added Tax Act, 2003, to issue the impugned notice after the property had already been transferred. The court agreed, noting that the VAT authorities should have approached the civil court if they intended to stake any claim over the property for the alleged VAT dues. The court referenced previous judgments, including Jayesh Vadilal Parekh Vs. Commercial Tax Officer and Tax Recovery Officer Vs. Gangadhar Vishwanath Ranade, to support this position.

3. Constructive Notice and Petitioner's Liability:
The court examined whether the petitioner could be fixed with constructive notice of the VAT dues. It was found that the petitioner had issued public notices in newspapers, to which the VAT authorities did not respond. The court held that the petitioner could not be fixed with any constructive notice of the VAT dues, as the authorities were negligent in not raising any objections or providing information in response to the public notice.

4. Applicability of Section 47 of the Gujarat Value Added Tax Act, 2003:
Section 47 of the Act states that any transfer of property made with the intention of defrauding government revenue is void. The court noted that the provision requires an intention to defraud, which must be proven in a civil court. The VAT authorities did not have the power to declare the transfer void without a civil court's declaration. The court emphasized that the only remedy available to the VAT authorities was to approach the civil court to annul the transfer by adducing evidence of an intention to defraud.

5. Authority to Issue Directions to the Housing Society:
The court examined the respondent authority's power to issue directions to the housing society not to issue a "No Objection Certificate." It was found that the Act did not confer any such power on the authorities. The court held that the notice circumvented the provisions of the Act and was extralegal and unwarranted. The impugned notice was set aside, and the respondent no.3 was directed to issue the "No Objection Certificate" to the petitioner.

Conclusion:
The court quashed and set aside the impugned notice dated 22.07.2016, directed the housing society to issue the "No Objection Certificate" to the petitioner, and allowed the petition. The judgment emphasized the importance of jurisdiction, the need for proper legal procedures, and the limitations of the VAT authorities' powers under the Gujarat Value Added Tax Act, 2003.

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