Madras High Court
M.Sundaram vs The Assistant Commissioner on 22 June, 2022
W.P.No.3441 of 2013
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 22.06.2022
CORAM
THE HONOURABLE MR. JUSTICE N. ANAND VENKATESH
W.P.No.3441 of 2013
M.Sundaram ... Petitioner
Vs.
1.The Assistant Commissioner,
Commercial Tax,
Erode Rural,
Erode.
2.M/s.Agilandeeswari Engineering Works,
Rep. by its Proprietor,
Perundurai,
Erode District. ... Respondents
Prayer : Writ Petition is filed under Article 226 of the Constitution of India
for issuance of a Writ of Certiorarified Mandamus, calling for the records
relating to the order dated 01.02.2013 made in Na.Ka.No.595/1998/A3
passed by the 1st respondent herein, quash the same.
For Petitioner : Mr.H.Shrish for
M/s.N.Manokaran
For Respondents : Mr.L.M.Venkateswaran
Special Government Pleader for R1
Mr.A.Sundaravadhanam for R2
1/20
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W.P.No.3441 of 2013
ORDER
The subject matter of challenge in the present writ petition pertains to
the impugned Auction Notice issued by the 1st respondent, dated
01.02.2013, wherein the subject property was sought to be brought for sale
for recovering the sales tax arrears from the 2nd respondent proprietorship
concern.
2.The case of the petitioner is that he purchased the subject property
from one R.Kuppusamy for a valid consideration through a registered Sale
Deed dated 07.02.1996. The further case of the petitioner is that he was in
possession and enjoyment of the subject property and infact he had also
raised a loan by depositing the title deeds of the subject property with
Canara Bank in the year 2005 and the letter evidencing the deposit of title
deeds was also registered before the concerned Sub Registrar office. It is
further stated that the Chitta, “A” Register and other revenue documents
stand in the name of the petitioner and there has been no encumbrance on
the subject property prior to the purchase of the property in the year 1996.
3.The grievance of the petitioner is that after nearly 13 years, a
Auction Sale Notice came to be issued by the 1 st respondent on 01.02.2013
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allegedly for recovering the sales tax arrears payable by the 2nd respondent.
The petitioner has taken a very clear stand that he never had any knowledge
of the arrears of sales tax to the 1st respondent, till he received the
impugned Auction Sale notice. Aggrieved by the same, the present writ
petition has been filed before this Court challenging the impugned Auction
Sale Notice dated 01.02.2013.
4.The 1st respondent has filed a counter affidavit. It is seen from the
counter affidavit that the 2nd respondent was originally a partnership firm run
by three partners and one of the partner Palanisamy executed a Security
Bond in the year 1986, wherein, he had given an extent of 1.64 acres as a
security. This partnership firm was dissolved and subsequently in the year
1990, a fresh Partnership Deed was executed. One R.Kuppusamy, who is the
vendor of the petitioner and who is the husband of Muthulakshmi, the
proprietrix of the 2nd respondent, executed a Security Bond and gave his
landed property to an extent of 1.03 acres as security. A further stand has
been taken in the counter affidavit to the effect that, the 2 nd respondent left
behind huge sales tax liabilities and the property that was given as a security
was sold to the petitioner in the year 1996, even without informing the
assessment authority. The sale came to the knowledge of the 1st respondent
much later and immediately on coming to know of the same, proceedings
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under the Revenue Recovery Act was initiated which ultimately ended in the
impugned Auction Notice dated 01.02.2013, which was issued for bringing
the property for sale and for recovering the sales tax liabilities.
5.The 1st respondent has taken a specific stand that the transfer of the
assets is not binding on the 1st respondent in view of Section 24 A of the
Tamil Nadu General Sales Tax Act (TNGST) and it is void, since a charge was
already created over the subject property. In view of the same, the 1 st
respondent has sought for the dismissal of this writ petition as devoid of
merits.
6.Heard M/s.H.Shrish, learned counsel appearing on behalf of the
petitioner, Mr.L.M.Venkateswaran, learned Special Government Pleader
appearing on behalf of the 1st respondent and Mr.A.Sundaravadhanam,
learned counsel appearing on behalf of the 2nd respondent.
7.The facts of the present case revolves around the effect of Section
24 A of TNGST Act and for proper appreciation, the provision is extracted
hereunder:
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24A. Transfers to defraud revenue void.--Where, during
the pendency of any proceedings under this Act or after the
completion thereof, any dealer creates, a charge on, or parts
with the possession (by way of sale, mortgage, gift, 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
dealer as a result of the completion of the said proceeding or
otherwise:
Provided that, such charge or transfer shall not be
void, if it is made,--
i. for adequate consideration and without notice
of the pendency of such proceeding under this
Act or, as the case may be, without notice of
such tax or other sum payable by the dealer;
or
ii. with the previous permission of the assessing
authority.
8.The crux of the issue that is involved in this writ petition pertains to
a charge that was created over the subject property and whether the charge
that was created over the subject property by the 1st respondent is
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W.P.No.3441 of 2013
enforceable against the petitioner who claims to be a bonafide purchaser for
value.
9.The charge is dealt with under Section 100 of the Transfer of
Property Act, 1882. The provision itself makes it clear that the charge cannot
be enforced against a transferee of the property if he had no prior notice of
the said charge, unless by law, the requirement of such notice has been
waived. This in legal parlance is understood as a constructive notice. There
cannot be any presumption as to the transferee having a constructive notice
of the charge against the property and there must be some material to show
that there was infact sufficient indication for the transferee to take note of
the charge created over an immovable property.
10.In the present case, the subject property was purchased by the
petitioner on 07.02.1996 through a registered Sale Deed. It is seen from the
Sale Deed that the petitioner had paid a total sale consideration of
Rs.1,36,000/- to the vendor and had purchased an extent of 1.08 ½ acres.
There is no material to show that the petitioner was even aware about the
charge over the property and that is evident from the fact that the petitioner
had raised a loan by deposit of title deeds of the subject property before
Canara bank in the year 2005. The petitioner became aware about the
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charge over the property, only when he received the impugned Auction Sale
Notice after nearly 12 years from the date of purchase.
11.The 1st respondent has relied upon Section 24 A of the Tamil Nadu
General Sales Tax Act which speaks about certain transfers being rendered
void if such transfer had taken place, after a charge has been created over
the property. While dealing with the said provision, it is appropriate to take
note of the first proviso to Section 24 A of the Act. This proviso acts as an
exception to the main provision and it specifically provides that such a
transfer shall not be void, if it was made for adequate consideration and
without notice of the pendency of any proceedings under the Act. Once the
transfer of property falls within the first proviso to Section 24 A of the Act,
the transfer cannot be rendered to be void if the petitioner is able to satisfy
that the transfer took place for an adequate consideration and without
notice.
12.The counter affidavit filed by the 1st respondent shows that the
husband of Muthulakshmi had sold the subject property to the petitioner.
Neither the petitioner was aware about the security given to the 1st
respondent nor was the Department aware about the transfer of the
property in favour of the petitioner. Immediately on coming to know of the
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W.P.No.3441 of 2013
transfer of the property in favour of the petitioner, the 1st respondent
proceeded to issue the impugned Auction Notice on 13.02.2013 for the
purpose of bringing the property for sale and for recovering the sales tax
arrears.
13.This Court had an occasion to deal with the scope of Section 24 A of
TNGST Act in Rukmani vs. Deputy Commercial Tax Officer I reported in
MANU/TN/2674/2012. The relevant portions in the judgment are
extracted hereunder:
13. The issue to be considered is when a bona fide
purchaser of a property would be protected from the
proceedings under Revenue Recovery Act, under Section 24-A of
the Act. In N.Padma Coffee Work's case, cited supra, the Tamil
Nadu Special Taxation Tribunal, Chennai, considered a claim
made by a subsequent purchaser, for protection under Section
24-A of the Act. After considering Section 24-A of the Act,
Section 3 of the Transfer of Property Act, 1882, Section 101 of
the Indian Evidence Act, 1872, the earlier decisions of this Court,
as well as the decision of the Hon'ble Supreme Court in
Ahmedabad Municipal Corporation of the City of Ahemedabad Vs.
Haji Abdul Gafur Haji Hussebhai reported in AIR 1972 SC 1201;
Chogmal Bhandari Vs.Deputy Commercial Tax Officer, reported
in (1977) 40 SCC 207 and Deputy Commercial Tax Officer Vs.
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R.K.Steels reported in (1998) 108 STC 161 (Mad); the Tamil
Nadu Special Taxation Tribunal, Chennai, at Paragraph Nos.2,4
and 6 held as follows:-
2. It is no doubt true that an honest and a bona fide
purchaser who had no knowledge about the encumbrance
of the tax liability of the original owner is protected under
the proviso (i) to Section 24-A of the Act, which reads as
follows:-
24-A. Transfers to defraud revenue void.- Where,
during the pendency of any proceedings under this
Act or after the completion thereof, any dealer
creates a charge on, or parts with the possession (by
way of sale, mortgage, gift, 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 dealer as a result of
the completion of the said proceeding or otherwise"
Provided that, such charge or transfer shall not
be void, if it is made,
(i) for adequate consideration and without
notice of the pendency of such proceeding
under the Act or, as the case may be, without
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notice of such tax or other sum payable by the
dealer; or
(ii) with the previous permission of the
assessing authority."
...
4. Under Section 19 of the Tamil Nadu General Sales
Tax Act, 1959, [hereinafter referred to as "the Act"], when
the firm is liable to pay tax under the Act, the firm, and
each of the partners of the firm shall be jointly and
severally liable for such tax. Under this Section, 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 24-A 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
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Act, 1882, leads to the conclusion that, not only a wilful
absention 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 falls in
the category of a person, with notice. A purchaser of the
property when claims the transaction to be bona fide
without notice, the yardstick to be applied for the "notice"
is given in Section 3 of the Transfer of Property Act, 1882
and only by the application of this provision, a purchaser
who seeks protection under Section 24-A of the Tamil
Nadu General Sales Tax Act, is to be identified, whether he
is a purchaser for value without notice. The necessity of
the purchase, the intention of the transfer, the relationship
between the vendee and vendor are all vital factors to find
out the reasonableness of the person in purchasing the
property. Sometimes unexplained secrecy or the haste in
the transactions may also throw some light as to the bona
fide or mala fide. To decide whether a transaction was
genuine or bona fide or mala fide, all facts relating to the
conduct of the parties to the transaction have to be
weighed as a whole. Such enquiry on disputed facts is not
possible in the proceedings under Article 226 of the
Constitution of India, because the enquiry under these
proceedings will be on admitted facts or on the question of
law. The controversies as to the facts can be proved only
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W.P.No.3441 of 2013
by evidence. For the mere assertions in the affidavit of
these petitioners that they are bona fide purchasers, the
Court of Tribunal cannot simply nod its head to give the
relief as prayed for. The petitioners in these proceedings
have not disputed the liability of their vendors to pay the
sales tax, even at the time of the sales, but claim
protection under the exception clause, for which the
parameters of Section 3 of the Transfer of Property Act,
1882, have to applied. This can be done only in a regular
suit where there is scope for the evidence to prove the
conduct of the parties in making the enquiries with
prudence, or utter negligence and the real intention in
their mind. Every purchaser from the assessee is naturally
interested to protect the property and will claim to be a
bona fide purchaser. For the sake of their claim, the Court
cannot approve the transaction as a bona fide sale."
14. N.Padma Coffee Works' case, 114 STC 494, cited
supra, has been relied on by a Hon'ble Judge of this Court, while
dismissing a Writ Petition (MD).No.1277 of 2005, dated
28.02.2005 [R.Balasubramaniam Vs.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 07.02.2008. However, in D.Senthil Kumar's
case, reported in (2006) 148 STC 204 (Mad), cited supra, the
First Bench of this Court, presided over by the Hon'ble The Chief
Justice, who was also a party to the unreported Judgment in
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W.A.(MD).No.130 of 2005, dated 07.02.2008, 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.
.
.
.
27. Even in N.Padma Coffee Works's case (cited supra) the
Special Tribunal has clearly observed that the legislative intent in
engrafting proviso to section 24-A of the Act, is to protect a
honest person, who had purchased the property from a seller
and further observed that there should not be any collusion with
the seller, but the necessary ingredients of Section 24-A of the
Act should be there, i.e., the sale effected should be for
adequate consideration and want of notice. Taking note of
Section 3 of the Transfer of Property Act, the Special Tribunal in
N.Padma Coffee Works' case has also observed that if there was
any wilful absentism or gross negligence in making any enquiry,
that would tantamount to notice of fact, by the purchaser of the
property, upon which a charge is created by operation of law. As
per the version of the petitioner, she had purchased the property
from a subsequent purchaser in the year 2004 and it was not a
direct purchase from the defaulter. There is nothing on record
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to indicate that action has been taken against the vendor of the
purchaser. There are no averments to suggest collusion of the
petitioner with the defaulting dealer. On the contra, there are
clear averments made by the petitioner to the effect that she
had verified the encumbrance details from the Registration
Department, in the year 2004, when she had purchased the
property. When the subsequent sale has been effected after six
years from the first sale, it is incumbent on the respondent to
prove collusion, with the defaulting dealer. There can be a
presumption of collusion with the defaulting dealer, if the
transactions are in quick succession. But, if there is a long gap
of six years between the first sale and the subsequent sale,
without there being any action by the Revenue to realise the
arrears of tax from the defaulter or against the immediate
subsequent purchaser on the facts of this case, this Court is of
the view that even collusion cannot be presumed. In the absence
of any rebuttal to the bona fides of the purchase, absentism or
negligence, in making due enquiry with the Registration
Department, prior to purchase, the conduct of the subsequent
purchaser cannot be doubted by making any allegation of fraud,
being played on the revenue.
14.It will also be relevant to take note of the Judgment of this Court in
W.P.No.17136 of 2003, dated 27.07.2017 and the relevant portions in the
Judgment are extracted hereunder:
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W.P.No.3441 of 2013
4..........The stand taken by the petitioner is clearly
supported by the decision of the Hon'ble Division Bench of this
Court in the case of D.Senthil Kumar and 2 others Vs.
Commercial Tax Officer, Brough Road, Erode & another, reported
in 2006-3-L.W.627, wherein the Hon'ble Division Bench after
following the decision of the Hon'ble Supreme Court in the case
of State of Karnataka Vs. Shreyas Papers (P) Ltd., reported in
2006-3-L.W.269, set aside the order of attachment. At this
juncture, it would be worthwhile to refer to the operative portion
of the judgment of the the Division Bench of this Court (supra)
as follows:
“11.In Shreyas Paper's case, the Supreme
court also referred to the decision of a Division
Bench of this Court in C.T.O. Vs. R.K.Steels, (1998)
108 S.T.C.161 (Madras), where this very question
arose under Section 24 of the TNGST Act. In that
case, the assessee firm was in arrears of tax from
the Assessment Years 1976-77 to 1979-80. The
assessee firm was closed on 19.10.1979. Thereafter,
the land belonging to the firm was sold by one of the
partners of the firm on 30.12.1981. The purchaser
had no notice of the charge over the property by
virtue of sales tax dues. The purchaser challenged
the Form -7 notice issued under the Tamil Nadu
Revenue Recovery Tax on the ground that he is a
bona fide purchaser without notice of charge under
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the TNGST Act. The Division Bench held that no
provision is made in the TNGST Act contrary to
Section 100 of the Transfer of Property Act and
therefore, a bona fide purchaser for consideration
without notice is protected.
12. In the instant case, the property was sold
by public auction on 10.03.2003. The sale was
conducted in execution of the Recovery Certificates
issued by the Debts Recovery Tribunal for recovery
of dues to the City Union Bank. The appellants had
paid the entire amount due on 25.03.2003 and the
sale was confirmed in their favour on 23.04.2003.
There is no indication of any sales tax arrears in the
advertisement for auction sale and there was no
application from any statutory or public authority
seeking to set aside the sale. For the first time, by
letter dated 25.06.2004 the Commercial Officer
required the second respondent to create an
encumbrance with regard to the property and
consequently an entry was made in the register in
respect of encumbrance of the first respondent.
Thus, it is evident that the appellants had no actual
notice of the charge prior to the transfer. There is
also no material to show that the appellants had
constructive notice of the charge and no submissions
were made by the learned Special Government
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Pleader on this issue. In the circumstances, we are
of the view that the appellants were the purchasers
for value without notice for the sales tax arrears of
the company or the consequent charge on the
property. Thus, the property in the hands of the
appellants was free of the charge and it is not open
to the first respondent to enforce the liabilities of the
defaulting company in this manner against the
appellants.
5.In the light of the above discussion and applying the law
laid down by the Hon'ble Division Bench of this Court in
D.Senthil Kumar and 2 others Vs. Commercial Tax Officer,
Brough Road, Erode & another (supra), the impugned
attachment has to be held to be bad in law.
15.It is clear from the above judgments that a bonafide purchaser for
value cannot be mulcted with any tax liability and such a transfer cannot be
rendered to be non-est on the ground of fraud if the subsequent purchaser
never had any notice or knowledge about the charge created in favour of the
Department.
16.The first proviso to Section 24 of the TNGST Act is akin to the
language used under Section 100 of the Transfer of Property Act, 1882 and
the bonafide purchaser for consideration without notice is protected and such
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transfers are not rendered to be vitiated by fraud.
17.In the instant case, there is absolutely no material to show that the
petitioner was aware about the security created over the property in favour
of the 1st respondent. The fact that there was no indication to show that a
charge was created over the property, is evident when the very same
property was taken as a security by a Nationalized Bank when loans were
raised by the petitioner, after purchasing the property. It only shows that the
petitioner was always under the bonafide belief that the property in question
was free from encumbrance and he had dealt with property freely even
subsequent to the purchase of the property and all the revenue records also
stood transferred in the name of the petitioner. The petitioner has also filed
the Encumbrance Certificates for the period from 1970 to 2005 and it is clear
from the Encumbrance Certificates that there is absolutely no indication
about the charge created in favour of the 1st respondent.
18.The above discussion, leads to the only conclusion that the
petitioner is a bonafide purchaser for value without notice and hence, he will
fall under the first proviso to Section 24 A of the TNGST Act. In the light of
the said finding, this Court has absolutely no hesitation to interfere with the
impugned Action Sale Notice dated 01.02.2013 and the same is accordingly
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quashed.
19.In the result, this writ petition stands allowed. No Costs.
22.06.2022
Internet : Yes
Index : Yes
Speaking Order / Non Speaking Order
ssr
To
The Assistant Commissioner,
Commercial Tax,
Erode Rural,
Erode.
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W.P.No.3441 of 2013
N. ANAND VENKATESH, J.
ssr
W.P.No.3441 of 2013
22.06.2022
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