2015 (11) TMI 97 - HC - VAT and Sales Tax

Court Invalidates Sales Tax Attachment, Rules in Favor of Petitioners

The Court quashed the attachment order dated 24th December, 2013, finding it illegal and invalid. It held that the Petitioners were not liable for the ... Challenge to order of attachment - recovery from the buyer of the immovable property - Default in payment of sales tax by the seller of the property - power under BST Act - Held that:- A harmonious reading of the judgments in Macson and SICOM would tend us to conclude that it is only in those cases where the buyer had purchased the entire unit i.e. the entire business itself, that he would be responsible to discharge the liability of Central Excise as well. Otherwise, the subsequent purchaser cannot be fastened with the liability relating to the dues of the Government unless there is a specific provision in the Statute, claiming 'first charge for the purchaser'. Jurisdiction under Article 226 of the Constitution of India is not to be exercised so as to permit a party so as to wriggle out binding contract and obligation thereunder, if incurred voluntarily. However, in the present case, we do not find how the general stipulation in the agreement and sale certificate would enable the authorities to levy attachment and on the properties, which are no longer belonging to the dealer. The Petitioners are not the defaulters nor they are successor in interest. In these circumstances, the attempt to foist the liability of the defaulting dealer on the Petitioners and proceed against their properties is in issue before us. The legality and validity of the attachment order dated 24th December, 2013 is the question before us. That cannot be answered by relying on a general stipulation or clause in a contract or sale deed. It is a pure legal question and that is how even the Sales Tax Authorities approach it. As a result of the above discussion, this Writ Petition succeeds. Rule is made absolute in terms of prarer clauses (a) and (b) of the Writ Petition. The attachment order impugned in this Writ Petition is quashed and aside. - Decided in favour of appellant. Issues Involved:1. Legality of the attachment order dated 24th December, 2013.2. Liability of the Petitioners for the Sales Tax dues of the erstwhile owner (Respondent No. 4).3. Applicability of Section 19(4) and Section 38C of the Bombay Sales Tax Act (BST Act).4. Validity of the claim that the Petitioners are successors in interest of Respondent No. 4.5. The impact of the SARFAESI Act on the attachment proceedings.Issue-wise Detailed Analysis:1. Legality of the Attachment Order:The Petitioners challenged the attachment order dated 24th December, 2013 under Article 226 of the Constitution of India, seeking its annulment. The attachment was levied on the immovable properties purchased by the Petitioners from Respondent No. 3, which had taken over these properties under the SARFAESI Act. The attachment was imposed by the Sales Tax Department to recover dues from Respondent No. 4 for the period 1996-97 to 2001-02. The Court found that the attachment order was issued without considering that the properties had already been transferred to the Petitioners in 2011. The Court held that the attachment was ex-facie bad in law and deserved to be set aside.2. Liability of the Petitioners for Sales Tax Dues:The Petitioners argued that they could not be held liable for the Sales Tax dues of the erstwhile owner (Respondent No. 4) as they were not successors in interest. The Court noted that the sale certificates issued to the Petitioners mentioned that the properties were sold on an 'as is where is' and 'as is what is' basis, with all known and unknown encumbrances, but did not explicitly state that the Petitioners would be liable for the Sales Tax dues of Respondent No. 4. The Court concluded that the Petitioners could not be held liable for these dues as they had not taken over the business of Respondent No. 4.3. Applicability of Section 19(4) and Section 38C of the BST Act:Section 19(4) of the BST Act states that if a dealer transfers or disposes of his business, the dealer and the person succeeding shall be jointly and severally liable to pay the tax due. The Court found that there was no transfer or disposal of the business of Respondent No. 4 to the Petitioners, and thus, Section 19(4) was not applicable. Section 38C of the BST Act provides that any amount of tax payable by a dealer shall be the first charge on the property of the dealer. The Court held that this provision did not apply to the Petitioners as they were not dealers and had no knowledge of the statutory charge on the property.4. Validity of the Claim that the Petitioners are Successors in Interest:The Petitioners contended that they were not successors in interest of Respondent No. 4 as they had only purchased the immovable properties and not the business. The Court agreed with this contention, noting that the Petitioners had not taken over the business of Respondent No. 4 and were not liable for the Sales Tax dues. The Court emphasized that the Petitioners could not be termed as successors in interest under Section 19(4) of the BST Act.5. Impact of the SARFAESI Act on the Attachment Proceedings:The Court considered the provisions of the SARFAESI Act, which allows secured creditors to enforce security interests and take possession of secured assets. The Court noted that Respondent No. 3 had taken over the properties of Respondent No. 4 under the SARFAESI Act and sold them to the Petitioners. The Court held that the sale was valid and the Petitioners had become the owners of the properties. The Court concluded that the Sales Tax Department could not levy attachment on the properties as they no longer belonged to Respondent No. 4.Conclusion:The Court quashed the attachment order dated 24th December, 2013, holding it to be illegal and invalid. The Court clarified that Respondent Nos. 1 and 2 could proceed against Respondent No. 4 to recover the outstanding dues but could not attach the properties of the Petitioners. The Court also refused to stay its order, allowing the Petitioners to retain possession of the properties.