2026 (2) TMI 1211 - HC - VAT / Sales Tax

Attachment of third-party property invalid where transfer preceded attachment; sale may be registered without a tax NOC.

Whether a prohibitory attachment affecting a transferred property is sustainable: the court applied principles limiting attachment to property owned by ... Personal liability of directors on company tax dues - attachment of property of a third party - transfers made to defeat revenue and bona fide purchaser protection - statutory conditions for sustaining a prohibitory/attachment order - timing of crystallisation of tax liability for invoking anti-avoidance transfer provisions - HELD THAT:- Admittedly, the property originally belonged to Mr. Kittu @ Krishnan Pillai, Director of Tvl. Cape Engineering Private Limited. The property was settled in favour of his daughter under Document No.344/2018. Thereafter, it was sold to Mr. M. Dhanuskodiya Pillai on 20.02.2024. The attachment order was passed only on 21.01.2025. Under Section 37 of the VAT Act, the personal liability of Directors arises only if the Company is wound up and the tax dues cannot be recovered from the Company. In the present case, the Company is still in existence. Therefore, the question of joint and several liability of the Director does not arise at this stage. As regards Section 43 of the VAT Act and Section 82 of the GST Act, those provisions would apply where a dealer transfers property to defraud revenue after tax dues have become payable and crystallized. In the present case, as on the date of settlement and subsequent sale in favour of Mr. M. Dhanuskodiya Pillai (20.02.2024), there was no attachment order over the property. The attachment was made only on 21.01.2025, i.e., after the property had already been transferred. Therefore, on the date of attachment, the property was no longer owned by the Director or by the Company. In such circumstances, the attachment over the subject property cannot be sustained in law. Unless statutory conditions are strictly satisfied, the property of a third party cannot be attached. Thus, the impugned communication in Na.Ka.No.A3/1237/2015 dated 21.01.2025, passed by the State Tax Officer, Nagercoil Rural Assessment Circle, Nagercoil, Kanyakumari District, insofar as it relates to the subject property, is set aside. Accordingly, the writ petitions are allowed. Issues: (i) Whether the prohibitory/attachment communication dated 21.01.2025 and the Sub Registrar's check slip dated 25.02.2025 insofar as they affect the subject property are sustainable in law and whether the sale deed dated 25.02.2025 must be registered without a No Objection Certificate from the State Tax Officer.Analysis: The attachment was issued on 21.01.2025, after the property had been settled in favour of the vendor and subsequently sold to the purchaser by registered deed dated 20.02.2024 and thereafter conveyed leading to the sale deed presented on 25.02.2025. Under Section 37 of the VAT Act, personal liability of a director arises when the company is wound up and company assets are insufficient to meet tax dues; no winding up or crystallized inability of the company to satisfy tax dues is shown. Sections 43 of the VAT Act and 82 of the GST Act address transfers made to defeat revenue where tax liability has become payable and crystallized; those provisions do not support attachment of property that was not owned by the debtor at the time the attachment order was made. Statutory conditions for attaching property of a third party are not satisfied on the facts because the property had already been transferred prior to the attachment order.Conclusion: The prohibitory communication in Na.Ka.No.A3/1237/2015 dated 21.01.2025 insofar as it concerns the subject property is set aside; the Sub Registrar's check slip dated 25.02.2025 is quashed; the sale deed dated 25.02.2025 shall be re-presented and registered if otherwise in order without insisting on a No Objection Certificate from the State Tax Officer.