Bona fide purchaser protection defeated sales tax recovery where no actual or constructive notice of the vendor's liability existed.

A purchaser who acquired property for adequate consideration without actual or constructive notice of the vendor's sales tax liability was protected against recovery of the vendor's arrears. Applying the principles of actual and constructive notice under the Transfer of Property Act, the Madras HC noted that the business had closed before purchase, the encumbrance certificate showed no charge, and there was no material of collusion or intent to defeat revenue. The buyer was treated as a bona fide purchaser for value, so proceedings under the Revenue Recovery Act and Section 24-A of the Tamil Nadu General Sales Tax Act were unsustainable and the impugned notices and order were set aside.

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Issues: Whether a purchaser who bought the property for adequate consideration without actual or constructive notice of the sales tax charge could be proceeded against for the vendor's arrears under the Revenue Recovery Act and Section 24-A of the Tamil Nadu General Sales Tax Act, 1959.

Analysis: The property was purchased after the vendor's business had closed, the encumbrance certificate did not disclose any charge, and there was no material to show collusion or intention to defraud the revenue. A transferee is protected where the transfer is for adequate consideration and without notice of the pending proceedings or tax liability. The principles of actual and constructive notice under Section 3 of the Transfer of Property Act, 1882, were applied, and the absence of any disclosed encumbrance negatived constructive notice. On the facts, the purchaser was treated as a bona fide purchaser for value and the recovery proceedings against him were unsustainable.

Conclusion: The challenge to the recovery proceedings succeeded, and the impugned notices and order were liable to be set aside in favour of the assessee.

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