2013 (4) TMI 74 - HC - VAT and Sales Tax

Invalid demand notice under Sales Tax Act protects bona fide purchaser.

Tata Consultancy Service, Versus Commercial Tax Officer Thiruvanmiyur

The High Court held that the demand notice issued under Section 26(ii) of the Tamilnadu General Sales Tax Act, 1959 was invalid as the petitioner ... Recovery of tax - purchase of property - recovery of tax arrears of seller from the purchaser - Tamilnadu General Sales Tax Act, 1959 - Held that:- From the available records it is seen that the petitioner had made the necessary enquiries from the Special Tahsildar, Land Acquisition, as to whether there were any land acquisition proceedings, in respect of the land in question. The petitioner had also paid the Employees Provident Fund arrears of the vendor of the property in question, at the time of the execution of the sale deed. Further, nothing has been shown on behalf of the respondents to substantiate the claim that the purchase of the property by the petitioner company was not bona fide in nature. The respondents have not been in a position to show that the petitioner company had knowledge of the arrears of sales tax, liable to be paid by the original assessee, who is the vendor of the property in question. In such circumstances, the proviso to Section 24-A of the Tamilnadu General Sales Tax Act, 1959, would come to the rescue of the petitioner company. As long as the transaction, between the original assessee and the petitioner company, is not shown to be fraudulent in nature it cannot be said that such transaction is void, as per Section 24-A of the Tamilnadu General Sales Tax Act, 1959. - Decided against the revenue. Issues Involved:1. Validity of the demand notice issued under Section 26(ii) of the Tamilnadu General Sales Tax Act, 1959.2. Bona fide nature of the purchase of the property by the petitioner.3. Applicability of Section 24-A of the Tamilnadu General Sales Tax Act, 1959, and Section 100 of the Transfer of Property Act, 1882.4. Jurisdiction of the High Court under Article 226 of the Constitution of India to decide disputed questions of fact.Detailed Analysis:1. Validity of the Demand Notice:The petitioner challenged the demand notice dated 26.5.2004 issued by the first respondent, which required the petitioner to pay Rs. 43,36,216/- as arrears of sales tax due from M/s. Gum (India) Limited. The notice was issued under Section 26(ii) of the Tamilnadu General Sales Tax Act, 1959, alleging that the petitioner was holding money for the assessee. The court found that the demand notice was issued without the authority of law because the petitioner had purchased the property for valid consideration and without notice of any charge or arrears of sales tax.2. Bona Fide Nature of the Purchase:The petitioner argued that they were a bona fide purchaser of the property for adequate consideration and without any notice of the sales tax arrears. They had conducted due diligence, including obtaining certificates from the Special Tahsildar and the Income Tax Department, confirming that there were no encumbrances or acquisition proceedings against the property. The court noted that the petitioner had made necessary inquiries and paid the Employees Provident Fund arrears of the vendor, indicating the bona fide nature of the purchase.3. Applicability of Section 24-A of the Tamilnadu General Sales Tax Act, 1959, and Section 100 of the Transfer of Property Act, 1882:The petitioner relied on Section 24-A of the Tamilnadu General Sales Tax Act, 1959, which protects bona fide purchasers for adequate consideration without notice of tax arrears. The court agreed that the proviso to Section 24-A applied, as the petitioner had no knowledge of the sales tax arrears. Additionally, Section 100 of the Transfer of Property Act, 1882, states that no charge shall be enforced against property transferred for consideration without notice of the charge. The court found that the petitioner was protected under these provisions.4. Jurisdiction of the High Court under Article 226 of the Constitution of India:The respondents argued that the writ petition was not maintainable under Article 226 of the Constitution of India, as the issue of whether the petitioner was a bona fide purchaser was a disputed question of fact that should be decided by a Civil forum. The court, however, held that it had the jurisdiction to decide the matter based on the available records and the submissions made. The court found that the respondents failed to show any evidence that the petitioner had knowledge of the sales tax arrears, and thus, the transaction could not be considered fraudulent.Conclusion:The court concluded that the impugned demand notice dated 26.5.2004 was invalid and set it aside. The court found that the petitioner had purchased the property in good faith, for valid consideration, and without notice of any sales tax arrears. Therefore, the writ petition was allowed.