2019 (11) TMI 665 - HC - VAT and Sales Tax

Withdrawal of charge and attachment on property - alleged dues of the erstwhile owners of the property - Gujarat VAT Act - HELD THAT - In this case no charge was created prior to the subject property being transferred in favour of the petitioners. Section 48 of the GVAT Act bears the heading Tax to be first charge on property and which lays down that notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case may be, such person, would not come into play. Thus, the section envisages a first charge on the property of the dealer on account of tax, interest or penalty which he is liable to pay to the Government. In the present case, the petitioners are not liable to pay any tax, interest or penalty to the Government and therefore, would not fall within the ambit of the expression any other person as contemplated in section 48 of the GVAT Act. The subject property was transferred in favour of the petitioner, prior to the order of attachment and creation of a charge thereon. Therefore, as on the date when the subject property came to be attached and a charge came to be created thereon, it did not belong to the dealer viz. Varun Filaments Pvt. Ltd. The provisions of section 48 of the GVAT Act, therefore, would clearly not be attracted in the facts of the present case. Apart from the fact that the impugned order dated 9.9.2011 is invalid as it has been passed in respect of property in which the defaulter had no right, title or interest; as noticed earlier, the assessment order, which formed the basis for passing the impugned order came to be set aside by the Tribunal and the matter was remanded. Therefore, the very substratum of the order dated 9.9.2011 was lost and hence, such order was rendered ineffective. The impugned order of attachment dated 9.9.2011, made by the second respondent cannot be sustained. However, the right of the department to have the transfer declared as void under section 47 of the GVAT Act is not thereby taken away - Petition allowed.

Issues Involved:
1. Legality of the charge and attachment on the property for alleged dues of the erstwhile owner under the Gujarat Value Added Tax Act, 2003 (GVAT Act).
2. Jurisdiction and authority of the respondents to impose such a charge and attachment.
3. Validity of the transfer of property to the petitioners.
4. Applicability of Section 47 and Section 48 of the GVAT Act.
5. The procedural requirement for declaring a transfer void under Section 47 of the GVAT Act.

Issue-wise Detailed Analysis:

1. Legality of the Charge and Attachment:
The petitioners purchased the subject property by a registered sale deed dated 13.7.2011. They later discovered that the respondent authorities had created a charge and attached the property on 9.9.2011 for alleged dues of the erstwhile owner, Varun Filaments Private Limited, under the GVAT Act. The petitioners contended that the charge and attachment were registered after they had already purchased the property, making the action by the respondents illegal and without jurisdiction. The court noted that the attachment was based on an assessment order that was later set aside, rendering the attachment order ineffective.

2. Jurisdiction and Authority of the Respondents:
The respondents argued that the dues of Varun Filaments Private Limited warranted the attachment of the property. However, the court found that no charge was created before the property was transferred to the petitioners. The attachment order dated 9.9.2011 was invalid as it was passed after the property was transferred and the assessment order, which formed the basis for the attachment, was set aside by the Tribunal.

3. Validity of the Transfer of Property:
The court emphasized that the petitioners had obtained a title clearance certificate showing no encumbrance on the property before purchasing it. Since the charge and attachment were made after the transfer, the petitioners were bona fide purchasers for consideration. The court held that the provisions of Section 48 of the GVAT Act, which provide that tax dues shall be a first charge on the property of the dealer, did not apply to the petitioners as they were not liable to pay any tax, interest, or penalty to the Government.

4. Applicability of Section 47 and Section 48 of the GVAT Act:
The respondents relied on Section 47 of the GVAT Act, which states that any transfer made with the intention of defrauding the government revenue is void. The court referred to the Supreme Court's decision in Tax Recovery Officer II v. Gangadhar Vishwanath Ranade, which held that the Tax Recovery Officer cannot declare a transfer void under Section 281 of the Income Tax Act (similar to Section 47 of the GVAT Act). The court concluded that if the department believed the transfer was made to defraud the revenue, they must file a suit in a civil court for a declaration that the transfer is void.

5. Procedural Requirement for Declaring a Transfer Void:
The court reiterated that the respondents must approach the civil court to have the transfer declared void under Section 47 of the GVAT Act. The court also referred to its previous decision in Chetna Vijay Shah v. State of Gujarat, which held that the only recourse available to the VAT authority under Section 47 is to annul the transfer through civil court proceedings.

Conclusion:
The court allowed the petition, directing the respondents to withdraw the charge and attachment on the property located at Plot No.4/C, Block No.211, Survey No.133/2, Village Karanj, Taluka Mandvi, District Surat, in respect of alleged dues of Varun Filaments Private Limited under the GVAT Act. The court clarified that the respondents' right to seek a declaration that the transfer is void under Section 47 of the GVAT Act is not taken away, and they may approach the civil court for appropriate proceedings.

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