2021 (3) TMI 278 - HC - VAT and Sales Tax

Recovery of arrears of tax due from M/s.Kairali Steels Traders for the period between 2009-10 to 2012- 13 - TNGST Act - It is submitted that the petitioner was unaware of the fact that the property purchased from the second respondent s father was offered as a security to the Commercial Tax Officer when second respondent obtained registration for M/s. Kairali Steels Traders under the provisions of the Tamil Nadu General Sales Tax Act, 1959 and thus, the arrears of tax of the said concern cannot be fastened on the petitioner. HELD THAT - The second respondent, the proprietor of M/s.Kairali Steels Traders was an assessee in default. While obtaining registration under the provisions of the Commercial Tax Department, the father of the second respondent Mr.K.P. Kesavan, the vendor who sold the property to the petitioner had offered the said property as a security for a sum of ₹ 50,000/- as is evident from a reading of Form XIX-B - Copy of Form XIX-B executed by the second respondent s father along with the second respondent on 23.02.2000 clearly states that the mortgage/charge for the specified schedule property was to secure the interest of the Commercial Tax Department for a sum of ₹ 50,000/- only under Section 21 of the aforesaid Act. The petitioner has not bought a property of the second respondent. Therefore, defence under Section 24-A of the Tamil Nadu General Sales Tax Act, 1959 that the purchase was for adequate consideration and without notice of arrears of tax is available to the petitioner. This writ petition is partly allowed by quashing the impugned order by directing the petitioner to pay a sum of ₹ 50,000/- to the first respondent being the value of the security offered by the petitioner s vendor/ second respondent s father in Form XIX-B. No cost.

Summary

Issues:
Challenge to recovery notice for arrears of tax due from a concern, property purchase, encumbrance certificate, liability of purchaser, conflicting views on legal decisions.

Analysis:
The petitioner challenged a recovery notice demanding payment for arrears of tax due from a concern under the Tamil Nadu General Sales Tax Act, 1959. The petitioner purchased a property from the father of the second respondent, who had defaulted in tax payments. The petitioner claimed to be a bona fide purchaser, unaware of the property's encumbrance. The petitioner argued that the demanded sum far exceeded the property's value, citing legal precedents to support their case (i, ii, iii, iv).

The Government Advocate contended that the property was offered as security to the Commercial Tax Department, creating a conflicting situation. The vendor had pledged the property for a specified sum, as required by law. The advocate highlighted pending appeals and conflicting court decisions, emphasizing the need for due diligence on the purchaser's part.

Upon considering the arguments, the court found that the property was indeed offered as security for a specific amount under Section 21 of the Act. The petitioner, not being the direct buyer from the concerned party, could avail the defense under Section 24-A for purchasing without notice of tax arrears. The court distinguished previous cases where the burden of proof was on the buyer to establish bona fide purchase, providing liberty to approach a Civil Court for remedy.

The court noted the availability of Form XIX-B, clarifying the transaction details. As the property was mortgaged for a specific sum, the court directed the petitioner to pay that amount to the Commercial Tax Department within thirty days. The petitioner was absolved of the tax arrears liability, with liberty granted for recovery from the vendor's estate and further proceedings against the concerned party. The writ petition was partly allowed, quashing the order and specifying the payment due to the tax department.