2022 (9) TMI 939 - HC - VAT and Sales Tax

Recovery of dues (commercial tax arrears) - Seeking registration of charge in respect of the property - purchase of property through public auction - Section 24-A of TNGST Act - HELD THAT;- Reliance upon the provisions of Section 24-A are misplaced in the facts and circumstances of this case. Section 24 of the Act sets the stage for the raising of a valid demand. To invoke the protection afforded by Section 24-A, the revenue must engage in some constructive act, such as identification of the properties of a defaulting assessee, communication with the assessee concerned in that regard, issuance of a notice of attachment in statutory form, communication of the attachment to the sub-registrar concerned for creation of charge and ensuring that the encumbrance certificate reflects such charge. The respondent officials, have not, in the present case, engaged in any of the acts as aforesaid or taken any precautions to secure the interests of the revenue. Mere reference to Section 24-A is insufficient to protect the interests of the Department and enforcement of the demands can be proceeded with only if the assets have been attached in the first place - In the present matter, as in so many others, there has been absolutely no move by the Commercial Taxes Department to secure its interest by actual attachment of the property. The attachment of the property is a pre- condition, without which, the provisions of Section 24-A are of no assistance to the revenue. The burden rests upon the revenue to establish that the consideration for the property is inadequate, that the vendor had due notice of the pendency of the sales tax proceedings and the transfer itself, was a measure to evade tax. In the present case, the parties, that is, the petitioner and the defaulting assessee are admittedly unrelated and the transaction of purchase is bonafide - Section 24A is also inapplicable in the present case, since the sale transaction was in the year 2010 and a mere demand without any action taken by the Commercial Taxes Department to secure the properties in question would not justify the present impugned action taken belatedly after nine years. Petition allowed.

Summary

Issues:
Challenge to communication instructing registration of charge on properties acquired through auction. Interpretation of Sections 24 and 24A of the Act.

Analysis:
1. Challenge to Communication: The petitioner contested a communication instructing the registration of a charge on properties acquired through auction in 2010. The petitioner argued that the purchase was subject to settling PF and ESI dues, which were duly cleared, and possession has been maintained since 2011. The petitioner claimed the communication was unjustified.

2. Interpretation of Sections 24 and 24A: The Government Pleader relied on Sections 24 and 24A of the Act regarding payment, recovery of tax, and transfers to defraud revenue. Section 24 mandates payment of tax and recovery from defaulting persons, making the amount due a charge on their properties. Section 24A declares transfers made to defraud revenue void during or after proceedings under the Act.

3. Evaluation of Section 24-A: The court deemed the reliance on Section 24-A misplaced in this case. To invoke protection under Section 24-A, the revenue must take constructive steps like identifying properties, issuing notices, and attaching assets. In this instance, no such actions were taken by the Commercial Taxes Department to secure revenue interests.

4. Lack of Attachment: The court emphasized that mere reference to Section 24-A is insufficient without actual attachment of the property. The Revenue Recovery Act procedures only apply after property attachment, necessitating diligent steps by department officers to secure assets of defaulting assesses.

5. Proactive Measures: The court highlighted the need for proactive initiatives by officers to secure revenue interests, which were absent in this case. The Department's knowledge of the properties in 2019, leading to the belated communication, rendered it unsustainable due to the lawful transfer of properties in 2010.

6. Misconception of Section 24A: The court clarified that Section 24A aims to protect bona fide purchases from tax evasion measures. In this case, the petitioner's purchase was legitimate, unrelated to the defaulting assessee, and made in good faith, rendering Section 24A inapplicable.

7. Conclusion: The court quashed the impugned communication dated 02.04.2019, ruling in favor of the petitioner. The judgment highlighted the necessity of concrete actions by revenue authorities to secure assets and the importance of lawful property transfers, ultimately allowing the writ petition and closing connected miscellaneous petitions without costs.