9911796707
TMI Blog2001 (4) TMI 889X X X X Extracts X X X X X X X X Extracts X X X X ..... . 20,016 Penalty Rs. 9,61,964 1996-97 Entry tax Rs. 39,423 Penalty Rs. 78,846 1997-98 TNGST Rs. 4,15,193 Penalty Rs. 6,22,790 ---------------- Total Rs. 50,06,599 ---------------- He further informed that Mr. K. Venkatachalam (deceased) owned immovable property at Kalinjur village at Survey No. 241 and that property was attached and sold in auction by the petitioner-bank and as the arrears due to department being first charge in terms of section 24(2) of the TNGST Act, 1959, an extract of which was furnished, the petitioner was requested to give details of property sold in auction and purchased by the petitioner-bank in the auction, so as to take further action. Section 24(2) of the TNGST Act, 1959 reads as follows: "Section 24(2): Any tax assessed on or has become payable by, or any other amount due under this Act from a dealer or person and any fee due from him under this Act, shall, subject to the claim of the Government in respect of land revenue and the claim of the Land Development Bank in regard to the property mortgaged to it under section 28(2) of the Tamil Nadu Co-operative Land Development Banks Act, 1934 (Tamil Nadu Act X of 1934), have priority over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2000, the respondent sent a letter on November 3, 2000 informing, among others, that as early as in the year 1996 itself, a B6 notice was issued in Rc. No. A2/5647/96 dated September 6, 1996, which was served on the bank on September 13, 1996, stating that the B6 notice issued would be valid until the arrears are cleared. In reply to the notice, the bank also sent a letter on November 6, 1996 stating that the dealers, namely, M/s. Classic Motor Sales were not maintaining any credit balance with the bank. Again, a letter was sent by the respondent on September 29, 1997 to transfer any credit standing in the name of the defaulter, namely, M/s. Classic Motor Sales to the department. In reply to this letter also, the bank on October 6, 1997 stated that the party was not having any deposit account with the bank. Therefore, the assessing authority held that the sale confirmation on September 2, 1999 was only after the bank had valid notice of the arrears. Therefore, the bank was advised to transfer the bid amount of Rs. 45,10,000, which was the valuation of the property towards the sales tax arrears. A personal opportunity was also given on November 16, 2000 to the bank to represent furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is protected as bona fide purchaser, as contemplated in section 24-A of the TNGST Act, 1959. The property was purchased in auction without notice about the arrears to the extent of Rs. 50,06,599 from M/s. Classic Motor Sales, as contended by the Sales Tax Department. The arrears were not brought to the notice of the Bank before the sale took place on auction. In fact, on February 28, 1994, the Sales Tax Department sent a B6 notice for Rs. 93,000, which was due from M/s. Classic Motor Sales and thereafter, on payment of the arrears by the defaulter, this B6 notice was withdrawn by the department on March 3, 1994. Again on September 29, 1997, a communication was received from the Sales Tax Department, wherein it was stated that a sum of Rs. 68,018 was due from M/s. Classic Motor Sales. The letter dated September 29, 1997, referred to an earlier reference dated September 6, 1996, and the letter further stated that a notice in form B6, referring to the above claim, had been issued demanding a sum of Rs. 68,018. A reply was sent to the respondent stating clearly that no deposit account of the said firm was with the bank and further, the respondent was informed that the cash credit ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to defraud the Revenue. This section is similar to section 24-A of the TNGST Act, 1959. The Supreme Court categorically held that "if the department desires to have the transaction of transfer declared void under section 281, the department being in the position of a creditor, will have to file a suit for a declaration that the transaction of transfer is void under section 281 of the Income-tax Act. Thus, in the present case, if the department chooses to take action, then, a suit has to be filed in the civil court to declare that the transaction transferring title of the property is void. Without doing so, the property purchased by the petitioner in public auction for adequate consideration without notice of arrears to the extent of Rs. 50,06,599, cannot be attached. 6.. Referring to the decision of this Special Tribunal in the case of N. Padma Coffee Works v. Commercial Tax Officer, Rockfort Assessment Circle, Trichy reported in [1999] 114 STC 494, it was contended that this Special Tribunal has also made the following observation in connection with bona fide purchase, as contemplated in section 24-A of the TNGST Act, 1959: "The necessity of the purchase, the intention of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court categorically held that the charge of the Sales Tax Department is the first charge on the property and it has priority over all other charges on the property including a mortgage. The Supreme Court categorically stated that the charge operates on the entire property of the dealer including the interest of the mortgagee therein. Referring to "Dattatreya Shanker Mote's case reported in (1974) 2 SCC 799, the Supreme Court held that: ".........a charge is a wider term than a mortgage. It would cover within its ambit a mortgage also. Therefore, when a first charge is created by operation of law over any property, that charge will have precedence over an existing mortgage." 10.. This decision of the Supreme Court has been followed by the Madras High Court in the case of Central Bank of India v. State of Tamil Nadu reported in [1999] 113 STC 145. The Madras High Court categorically held that: "Sections 24(2) and 26(6) of the Tamil Nadu General Sales Tax Act, 1959 as amended by Tamil Nadu Act 78 of 1986, sufficiently safeguard and also enable the State to enforce the recovery of the taxes and other dues under the Tamil Nadu General Sales Tax Act, 1959, as the first statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier in all cases, notices have been issued by the Sales Tax Department and the petitioners/purchasers pleaded that they are bona fide transferees, which fact was not accepted by the Sales Tax Department, as they have the right to decide. No doubt, this assumption is not binding on the purchasers and they are entitled to initiate civil suits to establish their right to the property. But without doing that, they are not entitled to initiate these proceedings under article 226 of the Constitution of India to accept their claim of bona fide purchase for value without notice. " 12.. The reliance placed on the decision reported in Tax Recovery Officer v. Gangadhar Viswanath Ranade (decd.) [1998] 234 ITR 188 (SC), is not relevant to the present case, which has to be considered in the light of the priority of charge of the State Government over the equitable mortgage of the petitioner-bank. In the decision reported in [1998] 234 ITR 188 (Tax Recovery Officer v. Gangadhar Viswanath Ranade), the Supreme Court considered the question whether in a proceeding under rule 11 of the Second Schedule to the Income-tax Act, the Tax Recovery Officer can declare a transfer as void under section 281 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dency of proceedings against him under the Incometax Act, on the ground that the transfer was with the intention to defraud the Revenue and was void as against the department under section 281 of the Income-tax Act, as it then stood. Against the order of the High Court only, the question of law was raised before the Supreme Court and this was considered by the Supreme Court in Tax Recovery Officer v. Gangadhar Viswanath Ranade (decd.) [1998] 234 ITR 188. The relevant section considered in that case by the Supreme Court reads as follows: "Section 281: Where, during the pendency of any proceeding under this Act, any assessee creates a charge on or parts with the possession by way of sale, mortgage, exchange or any other mode of transfer whatsoever, of any of his assets in favour of any other person with the intention to defraud the Revenue, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of the said proceedings: Provided that such charge or transfer shall not be void if made for valuable consideration and without notice of the pendency of the proceeding under this Act." Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner-bank, the purchaser of the property, to initiate civil suit to establish the right to the property. 14.. There is no merit in the plea that the individual property of a partner cannot be proceeded against for the arrears due from a firm. According to section 19(1) of the TNGST Act, 1959, when a firm is liable to pay any tax or other amount under the Act, the firm and each of the partners of the firm shall be jointly and severally liable for such payment of tax. Therefore, the individual property of the assessee is also liable to tax and the charge created under section 24(2) of the Act covers individual property of the partners of a firm also. Therefore, even without any separate demand notice served on the partner of the firm concerned, the property is liable to be charged under section 24(2) of the TNGST Act, 1959. 15.. It is pertinent to mention that in deciding this original petition, only the arrears of taxes relating to sales tax have been considered by excluding the entry tax. Sales tax arrears alone in this case amount to Rs. 48,17,763. In such circumstances, the petitioner has got statutory right to prefer revision petition before the Deputy Commissioner of Commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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