2016 (7) TMI 625 - HC - VAT and Sales Tax

Improper Notice Invalidates Property Sale for Tax Arrears

JAIN IRRIGATION SYSTEM PVT. LTD. Versus THE DY. COMMERCIAL TAX OFFICER, AND 3 OTHERS

The court found the action of putting the property up for sale for sales tax arrears recovery to be illegal due to improper notice. The auction purchaser ... Challenge to the Auction process of the attached property - recovery of arrears under the A.P.General Sales Tax Act, 1957 (APGST) of a partnership firm in which her husband was a partner - Held that:- As it is not in dispute that the two firms, in which the petitioner’s husband was a partner, had defaulted in payment of tax arrears and the subject property, which was sought to be put to auction, belonged to the deceased, we see no reason to direct the attachment order to be lifted notwithstanding failure to issue a notice prior thereto. It would suffice if the notice in Form Nos.7 and 7A, and its publication in the Gazette, are alone set aside. The order of attachment shall continue to remain in force and shall be lifted in case the petitioner in W.P.No.17118 of 2006 pays the amounts due within one month from today. In case the petitioner fails to do so, it would then be open to the respondents to thereafter initiate proceedings afresh to put the subject property to sale by way of auction in accordance with the procedure prescribed under the Act. - Decided partly in favor of petitioner / owener. M/s. Jain Irrigation System Pvt. Ltd. (the petitioner in W.P.No.42433 of 2015) deposited the sale consideration pursuant to the auction conducted by the respondents earlier. The amount, so deposited, shall be refunded to them forthwith. It is open to M/s. Jain Irrigation System Pvt. Ltd. (the petitioner in W.P.No.42433 of 2015) to initiate appropriate legal proceedings for recovery of the interest, which they are entitled to receive for the sale consideration deposited by them pursuant to the auction held by the respondents. Issues:1. Validity of the action of putting the property to sale for recovery of sales tax arrears.2. Declaration of the action of not registering the property auctioned as illegal.3. Challenge to the auction process and notices issued.4. Appropriation of the deposited amount towards principal or interest.5. Reduction of the rate of interest on application.6. Refund of the sale consideration to the successful bidder.Analysis:1. The petitioner challenged the action of putting the property to sale for recovery of sales tax arrears. The petitioner's husband, a partner in two firms, was in arrears for which proceedings were initiated under the A.P. Revenue Recovery Act. The Court found that proper notice as required under the Act was not served, rendering subsequent proceedings, including auction, illegal.2. The auction purchaser filed a petition to declare the action of not registering the auctioned property as illegal. The highest bidder had paid a percentage of the bid amount but due to legal proceedings initiated by the petitioner, the full amount was not paid within the stipulated time. The Court allowed the petitioner's application, and the auction purchaser was refunded the deposited amount.3. The auction process and notices issued were challenged by the petitioners. The notices were found to be defective as they were not served on the petitioner as required by law. The Court set aside the auction notices but maintained the attachment order, giving the petitioner one month to pay the due amounts.4. The issue of appropriation of the deposited amount towards principal or interest was addressed. The Court clarified that the manner of appropriation is at the discretion of the creditor, in this case, the Revenue authorities. The petitioner was granted liberty to apply for a reduction in the interest rate, which would be considered by the authorities.5. The petitioner was given the option to seek a reduction in the rate of interest by making an application to the authorities. The Court emphasized that the decision on the rate of interest lies with the respondent-authorities as per the law.6. The successful bidder was entitled to a refund of the sale consideration deposited by them. The Court directed the immediate refund of the amount and allowed the bidder to initiate legal proceedings for the recovery of interest they were entitled to receive.This judgment addresses various legal aspects concerning the recovery of sales tax arrears through property auction, the validity of notices issued, appropriation of funds, and the rights of the parties involved in the auction process.