2022 (11) TMI 594 - HC - VAT and Sales Tax

Attachment of property - recovery of sales tax arrears - non-suiting the appellants without considering the fact that the appellants are bonafide purchaser for consideration without notice - transfer in favour of the appellants was hit by Sec.24A of the Sales Tax Act or not - Whether the courts below are correct in law in nonsuiting the appellants when Sec.100 of Transfer of Property Act prohibits that no charge shall be enforced against any property in the hands of a transferee for consideration with the notice of charge? HELD THAT - Knowingfully well about the pendency of the said surcharge proceedings, the said K.Muthusami executed a gift deed in favour of his 2nd daughter clearly denotes that to defraud the claim of defendant, such document was executed. So, neither Muthusami nor plaintiffs entitled to get any protection under Sec. 24-A (i) of the Act and the same was rightly appreciated by the courts below, which needs no interference. Furthermore, the 1st plaintiff has no title over the property for the reason that the alleged gift deed stands in the name of 2nd daughter of K.Muthusami itself void under law. Hence, based upon the void document, the 2nd and 3rd plaintiffs are not entitled to get any better title. Apart from that, the 2nd and 3rd plaintiffs also contended that they are bonafide purchasers and they are entitled to get benefits under Sec.24-A (i) of the Act. Admittedly, they have purchased the property in the year of 2004 and they were not aware of the proceedings initiated by the defendant - the alleged gift deed executed by K.Muthusami in favour of his 2nd daughter is void under law and subsequently, she sold the property in favour of 1st plaintiff and though the plaintiffs 2 and 3 have purchased the property from the 1st plaintiff in the year of 2004, till 2010, they have not taken any steps to transfer the names in the revenue records. Furthermore, before they purchased the property, they ought to have made enquiry about the ownership of the property, but no evidence placed before this court that they have made valid enquiry. Hence, the courts below have rightly appreciated this aspects, which needs no interference. Though the attachment was effected only in the year of 2009, but the tax due from the year of 1993 was under challenge by the Kaveri Agencies before the Tax Appellate Tribunal and the same was negatived by this court in the appeal proceedings. Thereafter, the defendant took steps to attach the property, which is valid under law and the same cannot be questioned by the plaintiffs, as they have no locus standi and the alleged document stands in their name also void and non-est in law. Appeal dismissed.

Issues involved:
1. Suit for declaration and permanent injunction against sale of property.
2. Validity of settlement deed and subsequent property transactions.
3. Claim of protection under Sec.24-A of Tamil Nadu General Sales Tax Act.
4. Dismissal of suit by trial court and lower appellate judge.
5. Second Appeal challenging concurrent findings.

Issue 1: Suit for declaration and permanent injunction against sale of property
The appellants filed a suit seeking a declaration and injunction against the defendant from selling the suit property. They claimed to be co-owners of the property, purchased through a series of transactions. The defendant, however, contended that the property was attached for sales tax arrears owed by the original owner. The trial court dismissed the suit, stating that the plaintiffs were not bonafide purchasers. The lower appellate judge upheld this decision.

Issue 2: Validity of settlement deed and subsequent property transactions
The defendant argued that the settlement deed and subsequent property transactions were void under Sec.24-A of the TNGST Act, as they were intended to defraud revenue. The courts found that the original owner was aware of tax arrears and executed the gift deed to his daughter to avoid the attachment of the property. The plaintiffs' claims of being bonafide purchasers were rejected due to their lack of action to transfer ownership and failure to inquire about the property's status.

Issue 3: Claim of protection under Sec.24-A of Tamil Nadu General Sales Tax Act
The plaintiffs contended that they were entitled to protection under Sec.24-A(i) of the Act as bonafide purchasers without notice of the tax arrears. However, the defendant argued that the original owner's actions to avoid attachment invalidated the subsequent transactions. The courts found that the plaintiffs were not entitled to protection under the Act due to the void nature of the gift deed and lack of due diligence in transferring ownership.

Issue 4: Dismissal of suit by trial court and lower appellate judge
Both the trial court and the lower appellate judge dismissed the suit, concluding that the plaintiffs were not bonafide purchasers and the transactions were void under the law. The lower appellate judge affirmed the trial court's decision based on the evidence presented regarding the original owner's awareness of tax arrears and fraudulent actions to transfer the property.

Issue 5: Second Appeal challenging concurrent findings
The plaintiffs filed a Second Appeal challenging the concurrent findings of the trial court and lower appellate judge. They argued that they were unaware of the tax arrears and entitled to protection under Sec.24-A of the Act. However, the court upheld the previous decisions, stating that the plaintiffs failed to establish bonafide purchase status and were not entitled to protection under the Act. The Second Appeal was dismissed, confirming the decisions of the lower courts.

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