2022 (4) TMI 198 - HC - VAT and Sales Tax

Creation of charge over the property versus Attachment of property - Right of Government to recover tax dues - Validity of assessment order - stay on recovery of the charge which has been created over the property owned by the writ applicant - HELD THAT - The words by operation of law are more extensive than the words by law and a charge created by operation of law includes a charge directly created by the provisions of an Act (like Section 48 of the GVAT Act) as well as other charges created indirectly as a legal consequence of certain conditions. The expression operation of law only means working of the law - A charge, is a right to receive a certain sum of money. If a dealer registered under the GVAT Act incurs any liability towards payment of tax, then the State has a right to receive a certain sum of money as crystallized in the form of liability. This recovery of the money from the property can be by attaching the assets of the defaulting dealer, and thereafter, putting those to auction. This type of recovery would be governed by the provisions of Section 46 of the GVAT Act. In the case on hand, it could be said that the day the assessment order came to be passed determining the liability of the writ applicant under the provisions of the GVAT Act, a charge over the immovable assets of the writ applicant could be said to have been created in favour of the State by operation of law, as envisaged under Section 48 of the GVAT Act - What could be said to have been done as on date is just to make one and all aware that by operation of law, as envisaged under Section 48 of the GVAT Act, there is a charge of the State Government over the immovable properties owned by the writ applicant, as described above. How would all come to know about the same. It is for this reason that an entry is ordinarily made in the revenue records. There is a fine distinction between attachment of property and a charge over the property by operation of law - Application dismissed.

Summary

Issues:
Challenge to assessment order under GVAT Act, 2003; Release of charge on property due to stay on recovery proceedings; Interpretation of Section 48 of GVAT Act; Distinction between attachment and charge on property.

Analysis:
The writ applicant challenged a liability of ?1,68,10,098 under the GVAT Act due to an assessment order. The first appellate authority stayed recovery proceedings on a condition of pre-deposit of ?7 Lakh, prompting the applicant to seek release of the charge on their property. The applicant argued that the action amounted to an impermissible attachment, contending that Section 48 of the GVAT Act only allows for a charge, not attachment, post-assessment order.

The court clarified that Section 48 of the GVAT Act establishes a charge by law, making any amount payable by a dealer a first charge on their property. The State Tax Officer's communication indicated the creation of a charge on the applicant's property for recovery purposes. The court emphasized that the charge did not equate to an attachment, as the former is a security for payment, not a lien on specific property. The court referenced legal precedents to distinguish between attachment and charge, highlighting that a charge is a right to receive money, not a title on property.

The court explained that charges could arise by act of parties or operation of law, with Section 48 of the GVAT Act creating a charge by law. The court noted that the charge did not prevent the applicant from dealing with their property but served as a security for the State's recovery rights. The court rejected the applicant's argument that the charge was an impermissible attachment, emphasizing the distinction between the two legal concepts.

In conclusion, the court dismissed the writ application, affirming the validity of the charge created by law under Section 48 of the GVAT Act. The court clarified that the charge did not amount to an attachment and upheld the State's right to recover the due amount from the applicant's property in the future, despite the current stay on recovery proceedings.