2018 (3) TMI 159 - HC - VAT and Sales Tax

Bona fide purchaser protected under Section 24(A) of Sales Tax Act wins appeal

The appellant, a bona fide purchaser, was found to have no notice of tax arrears and was protected under Section 24(A) of the Tamil Nadu General Sales Tax ... Recovery of tax dues - Whether the writ petitioner is a bona fide purchaser of the property and would be protected from the proceedings under the Revenue Recovery Act, and under Section 24 (A) of the Tamil Nadu General Sales Tax Act, 1959? Held that: - the encumbrance certificate does not reveal the charge created over the property and there is nothing to infer that the appellant / writ petitioner and his vendor with an intention to defraud the tax payable to the first respondent colluded with each other and effected transfer of the property. The business conducted by the vendor of the writ petitioner was actually closed on 01.04.2002 and the property had been purchased by the writ petitioner only in the year 2004. Therefore, it cannot be said that he had actual or constructive notice of the charge created over the property for payment of arrears of sales tax in respect of the business conducted by his vendor. Even though a charge is created on the properties on the finalisation of the assessment of tax and a demand is raised, the same would not preclude the bona fide purchaser from seeking protection under Section 24 (A) of the Act. It cannot be said that there was willful abstention or gross negligence in making any enquiry that would tantamount to a notice under Section 3 of the Transfer of Property Act, and the appellant / writ petitioner is a bona fide purchaser for value. Petition allowed - decided in favor of petitioner. Issues Involved:1. Validity of the charge created over the property for tax arrears.2. Bona fide purchaser status of the appellant.3. Applicability of Section 24(A) of the Tamil Nadu General Sales Tax Act, 1959.4. Compliance with the Revenue Recovery Act.Detailed Analysis:1. Validity of the charge created over the property for tax arrears:The appellant was served with a notice by the Commercial Tax Officer directing him to pay tax arrears of Rs. 8,53,373/- owed by his vendor. The appellant contended that he was a bona fide purchaser and had verified the encumbrance certificate, which showed no encumbrance on the property. Despite his objections, the first respondent proceeded with demand notices and planned a public auction to recover the tax arrears.2. Bona fide purchaser status of the appellant:The appellant purchased the property in 2004 and claimed to have verified the encumbrance certificate, which did not reveal any charge. The court noted that the appellant had no actual or constructive notice of the tax arrears. The business of the vendor had closed in 2002, and the property was purchased two years later. The court emphasized that a bona fide purchaser takes the property free of all charges of which he has no notice, either actual or constructive.3. Applicability of Section 24(A) of the Tamil Nadu General Sales Tax Act, 1959:The court examined Section 24(A) of the Act, which states that a charge or transfer shall not be void if made for adequate consideration and without notice of the tax arrears. The court referred to previous judgments, including Deputy Commercial Tax Officer Vs. R.K. Steels and D. Senthilkumar Vs. Commercial Tax Officer, which held that a bona fide purchaser without notice of the charge is protected under Section 24(A). The appellant was found to be a bona fide purchaser as he had no notice of the tax arrears and had verified the encumbrance certificate.4. Compliance with the Revenue Recovery Act:The first respondent's actions under the Revenue Recovery Act were challenged. The court found that the appellant had made sincere efforts to verify the encumbrance and found no charge. The court noted that the first respondent had not provided evidence of any steps taken against the defaulter (vendor) under the Revenue Recovery Act. The court concluded that the appellant was a bona fide purchaser and protected under Section 24(A) of the Act.Conclusion:The court held that the appellant was a bona fide purchaser without notice of the tax arrears and therefore protected under Section 24(A) of the Tamil Nadu General Sales Tax Act, 1959. The proceedings against the appellant, including the charge created over the property and the order of the learned Single Judge, were set aside. Both the writ appeal and the writ petition were allowed, and no costs were imposed.