2019 (2) TMI 69 - HC - VAT and Sales Tax

Creation of encumbrance on the subject matter properties - no attachment was made on those properties at any point of time and that the purchases made by the petitioner were prior to the date of assessment order dated 29.07.2008 - present writ petition is filed by contending that the impugned proceedings cannot be sustained against the petitioners properties as the same were purchased much earlier to the order fastening the tax liability on the said dealer - Held that - There is no dispute to the fact that the present impugned communication was issued by the first respondent to the second respondent to create encumbrance in respect of the subject matter properties only for the purpose of realising the tax dues from the said dealer viz., M/s.Ashok Spinners, Udumalpet. It is also not in dispute that the petitioner is nothing to do with the said dealer and on the other hand, he purchased the subject matter properties by way of two sale deeds dated 25.11.2004 and 03.04.2006. Therefore, it is apparent that those properties were purchased much earlier to the order of assessment dated 29.07.2008. In any event, as these properties were purchased by the petitioner much earlier to the order of assessment and in view of the admitted fact that at the time of purchase, those properties were free from encumbrance much less an attachment by the Revenue - impugned order do not sustain. Petition allowed - decided in favor of petitioner.

Summary

Issues:
1. Validity of proceedings directing encumbrance on properties for tax arrears.
2. Rights of a purchaser in relation to tax liabilities of the seller.

Analysis:

Issue 1: Validity of proceedings directing encumbrance on properties for tax arrears
The petitioner challenged the proceedings of the first respondent dated 29.08.2018, directing the second respondent to create encumbrance on certain properties to recover tax arrears from a dealer, M/s.Ashok Spinners. The petitioner, not connected to the dealer, had purchased the properties much earlier to the tax assessment order. The petitioner argued that creating encumbrance after a significant period from the assessment order was illegal, especially when the properties were never attached before. The court noted that the properties were indeed purchased before the assessment order and were free from encumbrance at the time of purchase. The court found the proceedings unsustainable in law due to lack of attachment and the petitioner's bona fide purchase.

Issue 2: Rights of a purchaser in relation to tax liabilities of the seller
The court referred to past decisions where similarly situated purchasers were protected from encumbrances related to the tax liabilities of the sellers. Citing cases like Deputy Commercial Tax Officer Vs. R.K.Streels and Raghuvar (India) Limited Vs. Deputy Commissioner (Appeals) I, the court emphasized the protection granted to bona fide purchasers without notice of charges. The court highlighted that in cases where there was no charge on the property and the purchaser acted in good faith, the tax department could not enforce the seller's liability on the purchaser. The court, based on the precedent, allowed the writ petition, setting aside the impugned order, and safeguarded the petitioner's rights as a purchaser. The court clarified that the decision did not hinder the department's right to pursue the tax dues from the original dealer through legal means.

In conclusion, the court ruled in favor of the petitioner, emphasizing the protection granted to purchasers in such cases and setting aside the proceedings directing encumbrance on the properties. The judgment highlighted the importance of protecting the rights of bona fide purchasers and ensuring that tax recovery actions are lawful and just.