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TMI Blog2018 (3) TMI 1327X X X X Extracts X X X X X X X X Extracts X X X X ..... by M/s. Moolchand Exports Limited, (In Liquidation) - petition allowed - decided in favor of petitioner. X X X X Extracts X X X X X X X X Extracts X X X X ..... can be enforced against the property transferred in the hands of the petitioner. 8. Vide notice dated 05.01.2006, first respondent herein, instructed the petitioner to file reply to the show cause as to why Revenue Recovery proceedings should not be taken against the petitioner for the recovery of arrears of sales tax due by M/s.Moolchand Exports Limited, the defaulter under the Revenue Recovery Act. 9. It is the further case of the petitioner that, the first respondent herein, without waiting for any reply, initiated proceedings under Revenue Recovery Act and issued notice in Form 4 as per Section 25 of the Revenue Recovery Act and directed the petitioners to pay a sum of ₹ 3,85,99,770/-, within 7 days from the date of receipt of the said notice. Form 4, dated 05.01.2006 was served on the petitioner on 09.01.2006. Petitioner submitted a reply dated 17.01.2006, stating that the properties were purchased through Court auction and that they were not aware of the statutory liabilities of the defaulter company, and that without even waiting for the completion of 7 days, as given in Form 4 notice dated 05.01.2006, the Commercial Tax Officer, Alandur Assessment Circle, first resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of this Court in Rukmani Vs. Deputy Commercial Tax Officer I, Pattukottai I, Assessment Circle, Pattukottai, reported in [2013] 62 VST 369 (Mad), wherein one of us (S.Manikumar.J.,) held that right of the bonafide purchaser for the value has to be protected. 14. In response to the above submission of petitioner, Mr.M.Hariharan, learned Additional Government Pleader (Taxes), submitted that when the subject property was brought for auction by the Recovery Officer, fourth respondent herein, the fact of the sale arrears due and payable by M/s.Moolchand Exports Limited, the defaulter was brought to the notice of the Debts Recovery Tribunal-I, Chennai, and a weak submission has been made. 15. Learned Additional Government Pleader further submitted that as per Section 24(1) of the TNGST Act, for the arrears of tax, a charge is automatically created on the property and therefore recovery proceedings can be initiated against the property, which admittedly, is in the hands of the writ petitioner. 16. Heard the learned counsel for the parties and perused all the materials available on record. 17. Section 24 of the Tamil Nadu General Sales Tax Act, 1959, reads thus:- "24. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at where a dealer or person has preferred an appeal or revision against any order of assessment or revision of assessment under this Act, the interest payable under this sub-section, in respect of the amount in dispute in the appeal or revision, shall be postponed till the disposal of the appeal or revision, as the case may be, and shall be calculated on the amount that becomes due in accordance with the final order passed on the appeal or revision as if such amount had been specified in the order of assessment or revision of assessment, as the case may be. (3-A) Where a dealer submits the prescribed return within ten days after the expiry of the prescribed period, he shall also pay, in addition to the amount of tax due as per his return, interest at two per cent of the tax payable for every month or part thereof. (4) Where the tax paid under this Act is found to be in excess on final assessment or revision of assessment, or as a result of an order passed in appeal, revision or review, the excess amount shall be refunded to the dealer after adjustment of arrears of tax, if any, due from him. Where the excess amount is not refunded to the dealer within a period of ninety days f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, is supported by the auction notice issued by the Recovery Officer-II, Debt's Recovery Tribunal - I, Chennai, fourth respondent herein, bringing the subject property, for auction and the same is extracted hereunder:- "AUCTION SALE DEBTS RECOVERY TRIBUNAL I 6TH FLOOR, SPENCER TOWERS, 770-A, ANNA SALAI, CHENNAI 600 002. Fax.No.044-2854 8163 DRC.No.150/2002-R.O.-II Auction sale of Immovable Property, Mortgaged to Bank, Under Recovery of Debts, due to Banks and Financial Institutions Act, 1993. IN THE MATTER OF State Bank of India, Leather International Branch, MVJ Towers, Chennai 600 010 Vs. Moolchand Industries Ltd., Ramapuram, Chennai 89 and 11 others PLACE OF AUCTION: Debts Recovery Tribunal I, 6th Floor, Spencer Towers, Anna Salai, Chennai 600 002. DATE AND TIME OF AUCTION: On 17.04.2003 at 3.00 p.m. DESCRIPTION OF PROPERTY: 1. All that place and parcel of land together with superstructure thereon situated at Door No.2/4, MOUNT POONAMALLEE ROAD, RAMAPURAM, CHENNAI 600 089 comprised in Survey No.151/2 of No.102, RAMAPURAM VILLAGE, SAIDAPET TALUK, CHENGALPATTU MGR DISTRICT in patta No.184, measuring 50 cents and bounded on the north by poonamallee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a sum of ₹ 1,20,10,000/-(Rupees One Crore Twenty Lakhs Ten Thousand only) and has been declared the purcahser at a sale by public auction held on 17.04.2003 of the undermentioned immovable property in execution of Certificate No.150/2002 dated 27.08.2002 issued in O.A.No.1032/1998 by the Hon'ble Presiding Officer, Debts Recovery Tribunal, Chennai-600002 under Section 19(22) of the Recovery of Debts Due to Bank and Financial Institution Act, 1993 (Act 51 of 1993) for RECOVERY OF DEBTS DUE FROM 1. M/s.Moolchand Industries Ltd. 2. Mr.Pradeep Kothari No.151/1,Mount Poonamallee 3. Mr.Santhosh Kothari Road, Ramapuram, 4. M/s.Moolchand Export Ltd., Chennai 89. 5. Mr.Moolchand Kothari 6.Mrs.Kantha Bhattad 7.Mr.Om Prakash Kothari 8.Mr.Jayaprakash Kothari 9.Mrs.Rajkumar Bisani 10.Mrs.Saroj Kumari Rathi No.28, Ramaswamy Street 11.Mrs.Rekha Kabra T.Nagar, Chennai 17. And the said sale has been duly confirmed by the undersigned and becomes absolute. SPECIFICATION OF PROPERTY All that piece and parcel of land together with superstructure thereon bearing Door No.2/4, Mount Poonamalle Road, Chennai 89, as detailed below situated in 102, Ramapuram Village, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchasers for the sale of landed property admeasuring 50 cents under Survey No.151/1B & 151/2C of the company situated at Door No.2/4, Mount Poonamallee Road, Ramapuram, Chennai 89, excluding two buildings thereon which were sold already to another purchaser through the DRT, Chennai and the movables such as furniture and other articles on As is where is basis . The upset price for the landed property is ₹ 77,10,000/- (Rupees Seventy Seven Lakhs and Ten Thousand Only) and ₹ 50,000/- (Rupees Fifty Thousand Only) for furniture and other articles. In respect of subject landed property to title deeds are available with Official Liquidator and the property is in the custody of this Hon'ble Court upon liquidation of the subject company, pursuant to Section 456(2) of the Companies Act, 1956 and the Official Liquidator has taken possession of the said property under Section 456(1) of the said Act and a notice calling objection, if any, for the sale has been published on 30.7.2004 in this Newspaper but no objection was received by Official Liquidator in this regard till date. Details of Earnest Money Deposit to be paid with the tenders are available in the Terms and Condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 26.12.2005. ********* You take notice that the Commercial Tax Officer, Nandanam Assessment circle has informed that Tvl. Moolchand Exports Ltd., are in arrears of sales tax to the extent of ₹ 3,38,99,770/- for the years 1993-94 to 1996-97 and the defaulters were having a Land and Building at No.151/1, Mount Poonamallee Road, Ramapuram, Chennai-89. The arrears were accrued during the year 2000. 2) It is learnt that you have purchased the said land and building situated at No.151/1, Mount Poonamallee Road, Ramapuram, Chennai 89 by way of public auction in execution certificate No.150/2002 dated 27.08.2002 issued in O.A.No.1032/1998 by the Hon'ble Presiding Officer, Debt Recovery Tribunal, Chennai. 3) The defaulters sold the property without discharge his sales tax liability. As a result of section 24(1) of the TNGST Act 1959, a charge was created over the property for the sales tax amount due by the transferee even before the transfer was actually effected and the said charge can be enforced against the property transferred which are in the hands of the transferee. Thus even if transferer is not taken to be defaulter, the property in his hands can be proceeded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 032. Take notice that as you have not paid or shown sufficient cause for the non payment of ₹ 3,85,99,770/- (Rupees Three Crores Eighty Five Lakhs Ninety nine thousand sevan hundred and seventy only) TNGST/1990-94 to 1996-97 Although the said sum has been duly demanded in writing from you, the landed property belonging to you is hereby placed under attachment, and that unless the arrear due by you with interest and other charges be paid within SEVEN days the 23rd day of January, 2006, the landed property will be brought to sale in due course of lay. You will further take notice that from the date of this attachment notice until the date of sale of your land hereby attached. You are, and will be held liable for all kists thereon accruing and the said kists will be demanded of. Station: Chennai-600016. Dated : 16.01.2006. Commercial Tax Officer, Alandur Assessment Circle To Thiru.Dr.S.Gupta, Managing Partner, Tvl. Gupta and Company, No.8 & 11, Ekkattuthangal Road, Guindy, Chennai 600 032.)" 28. Vide proceedings in Rc.120/2006/A3, dated 16.01.2006, Commercial Tax Officer, Alandur Assessment Circle, has directed the petitioner to submit a reply as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out in pursuance to the rights exercised by the secured creditor having a mortgage of the property. This aspect is also covered by the introduction of Section 31B, as it includes "secured debts due and payable to them by sale of assets over which security interest is created". 7. We, thus, answer the aforesaid reference accordingly." 31. Thus, after reference, instant writ petition filed in the year 2006, is placed before us. In B.Suresh Chand Vs. State of Tamil Nadu, rep. by the Secretary, Revenue Department, Fort St. George, Madras-9 and another, reported in 2006 (4) CTC 805, a Full Bench of this Court, after considering a catena of judgment, at para 20 held as follows:- "20. Therefore we hold that in view of the Honourable Supreme Court's judgment approving the law laid down in Deputy Commercial Tax Officer, Thudiyalur Assessment Circle, Coimbatore and another v. R.K.Steels, 108 STC 161 (referred to above) by its decision in State of Karnataka and another v. Shreyas Papers (P) Ltd., and others, 2006 (1) CTC 290 : 2006 (1) SCC 615, the law down by the Division Benches of this Court in the decisions in Deputy Commercial Tax Officer v. Azha Kumari, 1985 WLR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y law other than this Act, but save as aforesaid, the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern." The non obstante clause shall not only prevail over the contract but also other laws.(See Priyar & Pareekanni Rubbers Ltd. v. State of Kerala)." In the light of the above discussions, the issue as to whether the right of the secured creditor over the subject property mortgaged will prevail over crown debt is no longer res integra. 32. On the aspect of protection of a bonafide purchaser, without notice, in Rukmani vs. Deputy Commercial Tax Officer I, Pattukottai I, Assessment Circle, Pattukottai, reported in (2013) 62 VST 369 (Mad), one of us (Mr.Justice S.Manikumar) considered a similar case, as to whether a bonafide purchaser, without notice is protected. After considering M/s.R.K.Steels, reported in 108 STC Page 161 (Madras), D.Senthilkumar's case reported in (1998) 108 STC 161, on the facts and circumstances of the case in Rukmani's case discussed this Court ordered, as hereunder:- "14.The issue to be considered is when a bona fide purchaser of a property would be prote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, for the liability of the firm, the partners also are made liable and therefore their properties cannot escape for the tax liability. When such a person has effected transfer of his property during the pendency of the proceedings under the Act or after the completion thereof, it cannot be stated that he did not intend to evade the tax and therefore if the sale was to defraud the Revenue, the sale will be ab initio void. But, at the same time, the Legislature has intended to protect an honest person who had purchased the property from such a seller, if he had not colluded with the seller and he had no notice of the liability of the vendor. Under the proviso (i) to section 24A of the Act, not only adequate consideration, but also the want of notice, are the two ingredients to safeguard the purchaser. ... 6. A reading of section 3 of the Transfer of Property Act, 1882, leads to the conclusion that, not only a wilful abstention from an enquiry which a person ought to have made, but the gross negligence to make enquiry also would amount to notice of a fact to him. When the prudence of a person requires to make enquiry, but due to his own negligence he failed to make enquiry, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (MD). No. 1277 of 2005, dated February 28, 2005 (R. Balasubramaniam v. Additional Deputy Commercial Tax Officer III, Thoothukudi). The appeal preferred by the subsequent purchaser in W.A. (MD). No. 130 of 2005, has been dismissed on February 7, 2008 (R. Balasubramaniam v. Additional Deputy Commercial Tax Officer). However, in D. SenthilKumar's case reported in [2006] 148 STC 204 (Mad), the First Bench of this court, presided over by the honourable Chief Justice, who was also a party to the unreported judgment in W.A. (MD). No. 130 of 2005, dated February 7, 2008 (R. Balasubramaniam v. Additional Deputy Commercial Tax Officer), has considered a similar issue, as to whether a purchaser of a property in execution of the recovery certificate issued by the Debts Recovery Tribunal and who was not aware of the arrears of sales tax dues under the Act, can claim exemption from the action for recovery of the said arrears and whether a charge can be enforced against the transferee, if he had no notice thereof and whether the requirement of such notice had been waived, if there is a bona fide purchase. 16. In W.A. (MD). No. 130 of 2005, dated February 7, 2008 (R. Balasubramaniam v. Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty. The expression 'charge' is not defined by the TNGST Act. However, this concept is well-known in law of transfer of property and has been defined by section 100 of the Transfer of Property Act, wherein the word 'charge' is defined as follows: 'Where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simply mortgage shall, so far as may be, apply to such charge. Nothing in this section applies to the charge of a trustee on the trust-property for expenses properly incurred in the execution of his trust, and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge.' (emphasis supplied). As the section itself indicates, a charge may not be enforced against a transferee if he/she has had no notice of the same, unless by la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same. It remains to be seen, therefore, if in the facts of the present case, the first respondent had notice-actual or constructive-of the charge. At the outset, in the advertisement/notice dated March 17, 1992, issued by the Corporation, mention is only made of the sale of the defaulting company's assets and there is no indication, whatsoever, of any sales tax arrears. Further, the bid offer made on behalf of the first respondent on June 5, 1992 specifically excludes any statutory liabilities, including sales tax. This offer was accepted by the Corporation on July 15, 1992. Even at that stage, there was no mention of any sales tax arrears. The sale of the assets took place pursuant to the agreement dated August 12, 1992 in which a specific clause was inserted that the first respondent would be liable to pay all property taxes, other taxes, electricity bills, water taxes and rents from the date of the agreement (i.e., August 12, 1992). For the first time, by letter dated January 8, 1993 of the second appellant to the Mandal Panchayat, Aloor Taluk, the issue of sales tax dues of the defaulting company was brought to the surface. This is further borne out by the correspondence be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issues considered by another Division Bench of this court in A. Senthilkumar v. Assistant Commissioner (CT), Koyembedu Assessment Circle reported in [2011] 1 CTC 828, was whether the arrears of sales tax would prevail upon the claim of the secured debtors, like a bank, on the basis of the charge over the property and if the purchaser establishes that he is a bona fide purchaser, without notice, in a valid sale, under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (for brevity, "the SARFAESI Act"), whether the property can still be brought for public auction, for recovery of sales tax arrears, due to the Government. In the above reported A. Senthilkumar's case [2011] 1 CTC 828, at paragraph No. 10, the honourable Division Bench has held as follows: ". . . The tax due would be a charge as per section 24(1) of the Act. Section 24(1) creates charge whereas section 24(2) gives preference/ priority to the tax arrears over other claims except the claim of the Land Development Bank over property mortgaged under section 28(2) of the Tamil Nadu Co-operative Land Development Bank Act, 1934. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here, i.e., the sale effected should be for adequate consideration and want of notice. Unless the charge is duly registered in the Registration Department, it would not be possible for any prospecting buyer to know whether there is any charge over the property, for any arrears of tax or any statutory dues to be paid to the Government or statutory body. That apart, there are no materials to indicate that the petitioner had any constructive notice of the charge. There is no pleading to the effect and rightly, no arguments have been advanced, and therefore, this court is of the view that the case on hand would squarely also fall within the ambit of the apex court in Ahmedabad Municipal Corporation's case reported in [1971] 1 SCC 757; AIR 1971 SC 1201 also. On the facts and circumstances of this case, this court is of the view that the legislative protection has to be extended to the petitioner." 33. Mr.V.Ramesh, learned counsel for the petitioner submitted that the decision in Rukmani's case, has not been challenged on appeal, by the Revenue. Said submission is not refuted by the revenue. Portion of the property has been sold by the Recovery Officer - II, Debts Recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X
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