Madras High Court
Tvl.Kanagadhara Flat Promoters vs The Commercial Tax Officer on 14 July, 2021
W.P.No.50294 of 2006
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 14.07.2021
CORAM
THE HON'BLE Mr. JUSTICE S.M.SUBRAMANIAM
W.P.No.50294 of 2006
Tvl.Kanagadhara Flat Promoters,
No.38, Parangusapuram Street,
Viswanathapuram Main Road,
Kodambakkam, Chennai – 24. ...Petitioner
Vs
1.The Commercial Tax Officer,
Ashok Nagar Assessment Circle,
Chennai.
2.Tvl.Madras Oil Tech Engineers Pvt Ltd.,
Chennai.
3.Tvl.S.Gopalan ... Respondents
PRAYER : Writ Petition filed under Article 226 of the Constitution of
India praying to issue a Writ of Certiorarified Mandamus, calling for the
records of the first respondent relating to the impugned notice in RC
2181/89 A3 and Form 4 demand dated 20-12-2006 in respect of the
property bearing Door No.111, Lake View Road, West Mambalam,
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Chennai – 33 and quash the same as illegal, unlawful and
unconstitutional and forbear the respondent (first) from proceeding
against the said property for recovery of sales tax arrears from Madras
Oil Tech Engineering Pvt.Ltd., Chennai.
For Petitioner : Mr.R.Ganesh Kanna
For Respondents : Mr.V.Veluchamy
Government Advocate for R1
No appearance for R2 & R3
ORDER
The notice and form - 4 demand dated 20.12.2006 in respect of the
property bearing Door No.111, Lake View Road, West Mambalam,
Chennai – 33, is under challenge in the present writ petition.
2. The petitioner company is a flat promoter and they have no
arrears of sales tax due to the Government. However, the first respondent
issued a notice to the petitioner asking him to pay the sales tax arrears
amount of Rs.55,89,500/- accrued in the name of Madras Oil Tech
Engineers Pvt. Ltd., for the Assessment Year 1992 - 93 under the CST
Act, 1956. It is informed to the petitioners that they have purchased the
property from one of the Directors. The petitioner sent a reply stating that
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W.P.No.50294 of 2006
they are no way connected with the arrears of sales tax and even at the
time of their purchase of the said property, there was no such
encumbrance or attachment by the Commercial Tax Department and thus
any recovery of arrears of sales tax is to be made against the defaulter and
not against the petitioner. Instead of the reply narrating the facts and
circumstances, the first respondent issued the impugned notice informing
that the seller of the property Mr.S.Gopalan / third respondent was a
Director of the second respondent Company and as such he is responsible
to pay tax arrears accrued in the name of the second respondent
Company.
3. The learned counsel for the petitioner made a submission that
even as per the encumbrance certificate issued by the Registration
Department from 01.01.1997 to 17.02.2006, there is no encumbrance of
charge created by the first respondent / Commercial Tax Department.
Thus, the petitioner's are the bonafide purchasers of the property and
cannot be liable to attachment. This Court is of the considered opinion
that the arrears of sales tax was due in for year 1992 - 93 under the CST
Act, 1956.
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4. The second respondent was the defaulter. The third respondent
was the Ex-Director of the second respondent Company and the property
was sold jointly by many persons including the third respondent. Such
being the facts and circumstances, there is no reason to issue the
impugned notice after a prolonged period on 20.12.2006. The arrears of
sales tax is to be collected from the second respondent after a lapse of 14
years and meanwhile the property was sold by the third respondent who
was one of the Ex-Director of the second respondent Company and other
co-owners also there and they are not directors and not connected with
the second respondent.
5. This Court also elaborately considered the ambit, scope and
width of recovery that may be initiated by invoking powers under Section
24 (2) of the Act in order dated 18.10.2019 in W.P.No.5849 of 2014, the
relevant paragraphs are extracted hereunder:
“15. Section 24 which deals with payment and
recovery of tax provides that where tax is assessed and
becomes payable under the Act, it shall be paid within 21
days from date of service of a demand notice. In cases of
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default, then the entire outstanding shall become a charge
on the properties of the assessee or the person upon whom
the liability vests. Thus, to this extent, the argument of the
revenue that an automatic charge is created upon the
assets of the defaulting assessee is correct
16. However, they cannot rest content with this
entitlement in the light of the stipulation under Section
24(2), which goes on to say that recovery of such
outstanding amounts shall be in the manner stipulated
under the RR Act as land revenue. For this purpose, it
becomes necessary for us to go into the relevant provisions
of the RR Act that stipulates, in great detail, the procedure
to be adopted and followed by the authority for recovery of
outstanding dues. The procedure set out in Sections 26 and
27 thereof are in the following terms:
26. Procedure when defaulter neglects to pay.-
When the amount due shall not have been paid
pursuant to
the terms of the demand, and no arrangement for
securing
the same shall have been entered into to the
satisfaction of
the Collector, or other officer empowered by the
Collector in
that behalf, he shall proceed to recover the arrear by
the attachment and sale of the defaulter's land in the
following
manner.
27.Mode of attachment.-The attachment shall be
effected by affixing a notice thereof to some
conspicuous part of the land. The notice shall set
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forth that unless the arrear, with penalty and
expenses be paid within the date the therein
mentioned, the land will be brought to sale in due
course of law. The attachment shall be notified by
public proclamation on the land, and by publication of
the notice in the District Gazette.
17. Thus, the manner in which Section 24 of the Act is to
be construed is that while an automatic charge is provided
for under the provision, that by itself would not suffice to
protect the interests of the Department. The requirement
under Section 24(2) is specifically to bring to the notice of
the public the fact that such encumbrance has been
created upon a specific property, pursuant to statutory
dues outstanding either by public proclamation on the land
or by publication of such notice in the District Gazette.
18. In the present case, let us assume for a moment that
an automatic charge has been created by operation of
Section 24(1). Such charge, once created has remained
within the domain of knowledge of only the Assessing
Authority of the defaulter not having been conveyed to the
public at large or converted into a tangible and enforceable
charge by registration of an encumbrance with the Sub-
Registrar. The orders of assessment passed upon R2 in the
present case are dated 22.11.1999 for four periods of
assessment, 1994-95 to 1997-98. The first move that the
Commercial Taxes Department has made to consolidate
their so-called claim upon the property is by issuance of
letter to the office of the Sub-Registrar (SRO) on
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20.03.2013. On 08.05.2013, the SRO replies confirming
the creation of a charge on 24.04.2013 and enclosing an
encumbrance certificate. Thereafter on 08.11.2013, a
notice in Form 4 was issued to the defaulter. Thus, for the
period 31.12.1999 to 20.03.2013 the Commercial Taxes
has rested content with the charge stated to have been
created by operation of Section 24(1). This charge has no
value whatsoever unless it has been followed up by the
specific procedure set out under Sections 26 and 27 of the
RR Act.
19. This Court in Varuni Biomass Energy Products Private
Ltd. (supra), considers the auction of a property for
recovery of commercial tax arrears after considering the
procedure contemplated under the RR Act and states at
para 36 and 37, as follows:
36.On the basis of the rival submissions and
the legal precedents the following proposition
emerge:
(i) The procedure under the Revenue Recovery Act
for selling the property of the judgment-debtor
must be strictly followed.
(ii) The illegalities in procedure will vitiate the sale.
(iii) The land owner whose property illegally sold is
entitled to move this court notwithstanding the
remedy of the suit under section 59.
(iv) In an auction sale the properties of the company
can be brought to sale and not the properties of the
directors of the company.
(v) In case of sale of properties of third parties, they
are entitled for the notice.
37. In the present case, the procedure for
selling the properties by revenue recovery
proceedings, the legal procedure, was not followed.
No wide publicity was given. The time gap provided
under section 36 and 38 of the TNRR Act was not
followed. The right of the independent owners
including the petitioner in W.P.No. 5324 of 2008
was infringed as no notice was given to him and his
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brother who were no way connected with the
company.
(Though such a notice was given to them when
auction notice was issued during the year 2004).
20. The procedure set out under the RR Act, which is
applicable to auctions under the Commercial Tax Act, has
been enacted bearing in mind the interests of all parties.
The interests of the Commercial Taxes Department have
been protected under Section 24(1) by providing for the
creation of an automatic charge. It is further protected by
Section 24-A that envisages a situation where a defaulting
assessee may transfer its properties to a third party
merely to defraud the interests of the revenue. In such an
event, the provisions of Section 24-A would kick in and
render any such transfer, which has been effected merely
to defraud the revenue, void.
21. The proviso to section 24-A, however, protects an
assesee who has not been intimated about the pendency of
proceedings for assessment or any other proceeding
pursuant to which a demand has been made or who has
not been issued notice of a demand of tax or any other
sum payable by it, from the rigor of Section 24-A.
22. A holistic reading of both Section 24 and 24A of the
TNGST and Section 26 & 27 of the RR Act sets out a
scheme for recovery that takes into account, and protects
the interests of all concerned parties, the Commercial
Taxes Department, the assessee, and an innocent
purchaser. Having issued the orders of assessment as
early as in December 1999, the Commercial Tax
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Department has neglected to protect its interests by not
resorting to the procedure set out under 24(2). Had the
procedure only been complied with, as contemplated under
both the TNGST as well as the RR Acts, then the public
would have been put to notice of creation of encumbrance
and the interests of both the general public and the
commercial taxes Department would have been adequately
protected.
23. There is no allegation by the Department that the
purchase of the property in question by the father of the
petitioner from R2 was a collusive transaction. In any
event, the petitioner being the third in line of ownership to
the property, the question of collusion would not arise in
this case and neither is this the case of the Department.
The decision in the case of Meenakshi J.Ganesh Kumar
(supra) relied upon is distinguishable on facts, since in the
aforesaid order the learned Single Judge, holds at para 7,
that the transaction as between the petitioner in that case
and the defaulting assessee, was collusive in nature.
24. A Full Bench in the case of B.Suresh Chand Vs. State of
Tamil Nadu and another [(2006) 4 LW 409], considered the
case of a bonafide purchaser in a Letters Patent Appeal.
The Suit had been filed by plaintiffs claiming to be bonafide
purchasers of the suit property, who had not been put to
notice of a third party/statutory claim over the suit
property. The question referred to the Full Bench was as
follows:
'What is the extent a bonafide purchaser for value is bound by
the change for payment of arrears of sales Tax created under
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Section 24 of the TNGST Act, 1959.'
25. The Bench examined the provisions of Section 24(1)
and (2) of the Act holding that property purchased by a
bonafide purchaser without notice of the charge created
under Section 24(1) cannot be proceeded against for the
recovery of sales tax arrears. Thus, while Section 24(1)
creates a charge on the properties of a defaulter to the
extent of the dues, sub-section (2) of Section 24 states
that those dues would have priority over all other claims
against those properties except land revenue and claims of
the Land Development Bank in regard to the property
mortgaged to it.
26. The priority as above, would come into effect only in
the event the authority, in this case, the Commercial Tax
Department, had been vigilant enough to put into motion
the procedure set out under the RR Act and not otherwise.
The meaning of the term ' charge on the property' which is
also found in Section 100 of the Transfer of Property Act,
1882 (in short 'T.P.Act') is, a simple mortgage. Section 100
of the T.P. Act reads as follows:
' 100.Charges-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 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 any property in the hands of a
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person to whom such property has been transferred for
consideration and without notice of the charge).'
27. Section 100 provides that in the absence of a specific
provision in any law, 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 such charge.
28. In summation, Section 24(1) of the Act equates
commercial tax dues with a simple mortgage over the
properties of a defaulter. Section 24(2) elevates the
charge to the status of an enforceable priority over all
other claims against any property except claims for land
revenue and of the Land Development Bank subject to the
procedure for recovery of such dues as set out under the
RR Act, having been followed scrupulously by the
Commercial Taxes Department.”
6. In view of the facts and circumstances, the first respondent has
not collected the recovery of sales tax vigilantly from the defaulters. Thus,
the actions initiated after lapse of many years cannot be sustained.
Consequently, the impugned notice issued by the first respondent in
proceedings RC 2181/89 A3 dated 20.12.2006 is quashed.
7. Accordingly, the writ petition stands allowed. No costs.
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Pns
Internet:Yes
Index:Yes
Speaking Order
S.M.SUBRAMANIAM, J.
Pns
To
1.The Commissioner,
Corporation of Chennai,
Ripon Buildings,
Chennai – 600 003.
2.The Assistant Revenue Officer,
Corporation of Chennai,
Zone V, Mint,
Chennai – 600 001.
W.P.No.50294 of 2006
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