TaxTMI 
TaxTMI 
2006 (9) TMI 495
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....reported in [1998] 108 STC 161; [1998] 1 CTC 124, to contend that the appellant is a bona fide purchaser without notice of charge under section 24(1) of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the Act") and therefore the property purchased by him under a registered sale deed dated September 25, 1977 from the vendors who were tax defaulters under the Act cannot be proceeded against for the recovery of sales tax arrears. 2. However, the Revenue relied upon the decision of this court rendered by two division Benches in the case of Coramandel Indag Products India Ltd. v. Commercial Tax Officer reported in [1993] 3 MTCR 8 and in the case of Dy. Commercial Tax Officer v. Azha Kumari reported in [1985] WLR 240. Having regard to the submissions made by the learned counsel on either side, the division Bench reasoned as hereunder and requested the honourable Chief Justice to constitute a larger Bench. The reasons given by the division Bench in making the reference are extracted as hereunder: "All these cases dealt with the question as to whether the charge created under the Sales Tax Act is binding on the bona fide purchaser for value. While in the....
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....nd the facts are as follows: For the sake of convenience, the parties are referred to as per their ranking in the suit. The case of the plaintiffs is as follows: (i) The plaintiffs purchased the suit property on September 25, 1977 and are in possession of the same as absolute owners. The second defendant, the Deputy Commercial Tax Officer, Thirupathur, alleging that one T. P. Narayanasamy and his son T.N. Subash are defaulters in the payment of sales tax, issued a notice on October 28, 1977 to the plaintiffs calling upon them to pay tax arrears of a sum of Rs. 1,01,879.67. The plaintiffs filed a claim application before the second defendant denying their liability. The second defendant issued an order to the plaintiffs on September 11, 1978 stating that the sale by the defaulters is not binding on the department and negativing the claim of the plaintiffs. The plaintiffs are bona fide purchasers for value without notice on any manner of claim by anyone against the same. The plaintiffs have discharged the earlier debts of the transferors which were prior in point of time over the claim of the Department. The claim of the department can only be against the defaulters....
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....r service of demand notice on the defaulters as required under the Act. The demand notice in form I dated July 30, 1977 has been served on the defaulter T.N. Subash on August 4, 1977. After the receipt of the demand notice the defaulters have executed a sale deed in respect of the said properties in favour of the plaintiffs in order to defraud the defendants. The sale is not binding on the defendants. A copy of the notice dated July 22, 1978 was sent to the plaintiffs. The plaintiffs are not personally liable but the property purchased by them is subject to charge and is liable for the said arrears. S.V. Traders has been assessed to sales tax of Rs. 5,793 for 1976-77. The order of assessment was served on April 7, 1978. The said T.N. Subash on behalf of S.V. Traders in his letter dated September 22, 1977 addressed to the Secretary, Revenue Department, Government of Tamil Nadu had admitted the arrears of sales tax and requested to pay the amount in instalments. The plaintiffs filed the claim petition on September 11, 1978 before the second defendant, who had in his reply intimated about the charge over the suit property and the arrears of sales tax by the transferors. The plaintiffs....
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....learned counsel appearing for the appellant and Mr. Srikanth, Special Government Pleader appearing for the first respondent and Mr. R. Subbiah, learned counsel appearing for the second respondent. 10. Mr. V. Raghavachary, learned counsel for the appellant, submitted that the learned single Judge without properly considering the oral and documentary evidence adduced in the case and without considering the reasoning of the Trial Court has erroneously held that S.V. Traders is a partnership firm. The learned counsel submitted that in exhibit A-46 the department itself has referred to S.V. Traders as only a proprietory concern and therefore the finding of the learned single Judge based on the representation of T.N. Subash to the Board of Revenue that S.V. Traders is a partnership firm is erroneous. The learned counsel further submitted that the assessment of the concern in the books of the sales tax authorities is the determinative factor and not the character of the representation made by T.N. Subash to the Board of Revenue. The learned counsel further submitted that T.P. Narayanasamy has nothing to do with S.V. Traders which is a proprietory concern of his son T.N. Subash and the ....
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....hibits B-14 and B-26, has observed that the signatures differ, but the same have not been considered by the learned single Judge. 12. The learned counsel further submitted that the plaintiffs being bona fide purchasers without notice are not liable to pay the sales tax arrears of their vendors and the property cannot be attached and sold for the sales tax arrears of either S.V. Traders, Kancheepuram or Kasthuri and Company. According to the learned counsel, the learned single Judge has not considered the issue whether the plaintiffs are bona fide purchasers without notice in the light of the law laid down by the division Bench of this court reported in Deputy Commercial Tax Officer v. R.K. Steels [1998] 108 STC 161; [1998] 1 CTC 124. 13. Per contra Mr. R. Subbiah, learned counsel for the second respondent submitted that the Trial Court has placed too much importance on trivialities and has not properly considered exhibits A-46, B-15, B-24, B-25, B-26, B-27 and B-36, whereas the learned single Judge has considered the said documents elaborately and has come to the right conclusion that S.V. Traders, Kancheepuram, was not a proprietory concern as claimed by the plaintiffs, but ....
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....d plea. According to the learned counsel, the plaintiffs have not discharged their burden and whereas the department by overwhelming documentary evidence has proved that the plaintiffs had knowledge about the sales tax arrears of their vendors. The learned counsel further submitted that in exhibit A-46 which is an order dated November 17, 1975, passed by the Commissioner for Land Revenue and Commercial Taxes in a batch of revision petitions filed by the vendors of the plaintiffs, the Commissioner rejected the revision petitions filed by the plaintiffs' vendors challenging the assessment orders passed for the assessment year 1974-75 and when exhibit A-46 had been produced by the plaintiffs before the Trial Court, it is evident that they had knowledge about the sales tax arrears of M/s. S.V. Traders, Kancheepuram and therefore submitted that the plaintiffs cannot be construed to be bona fide purchasers without notice. 15. By placing reliance on the following decisions, the learned counsel for the second respondent submitted that the defence of purchase without notice is one which ought to be specifically pleaded and proved by one who pleads so: (i) Murat....
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.... v. Azha Kumari [1985] WLR 240, the division Bench has laid down as follows: "If the tax assessed remained unpaid for a period of 21 days after the notice of demand had been served, that charge can be enforced by invoking the provisions of the Revenue Recovery Act, under section 24(2) of the Tamil Nadu General Sales Tax Act. Since the learned Judge has not considered the scope of section 24(1) but proceeded only on the basis of section 24(2), we are not inclined to agree with the view expressed by the learned Judge that arrears of sales tax cannot be recovered from the properties sold by the assessee after a charge has fastened itself on the properties of the defaulter, on his default in paying the arrears of sales tax within the time stipulated by section 24(1) . . . " (ii) In Coramandel Indag Products India Ltd. v. Commercial Tax Officer [1993] 3 MTCR 8, the division Bench after referring to the decision reported in Dy. Commercial Tax Officer v. Azha Kumari [1985] WLR 240 has observed as follows: ". . . The division Bench held that as a result of section 24(1) of the Act, a charge was created over the properties for the sales tax amount due by the trans....
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....t notice of the charge is protected. This proposition of law is too very clear and so categorically emphasised by the Supreme Court that we are inclined to follow the rule decidendi of the Supreme Court in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai AIR 1971 SC 1201. We therefore with respect differ from the views expressed by the two division Bench judgments referred to above and propose to follow the judgment of the Supreme Court." and ultimately held as follows: ". . . following the Supreme Court judgment in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai AIR 1971 SC 1201 that the respondent is a bona fide purchaser without notice of the charge under section 24(2) of the Sales Tax Act and therefore, his property cannot be proceeded against for the recovery of sales tax arrears." (iv) In State of Karnataka v. Shreyas Papers P. Ltd. [2006] 144 STC 331 (SC); [2006] 1 SCC 615, the apex court while considering the enforceability of the charge created under section 13(2)(i) of the Karnataka Sales Tax Act, 1957 observed as follows: "(1)19. While the expressi....
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.... was that where the local law provided for the creation of a charge against a property for which municipal taxes were due, transferees of such properties were imputed with constructive knowledge of any charge created against the properties that they had purchased. This argument was, however, rejected. This court held that while constructive notice was sufficient to satisfy the requirement of notice (1)Para 16 in [2006] 144 STC 331 (SC) (2)Para 17 in [2006] 144 STC 331 (SC). in the proviso to section 100 of the TP Act, whether the transferee had constructive notice of the charge had to be determined on the facts and circumstances of the case. In other words, this court held that there could be no fixed presumption as to the transferee having constructive notice of the charge against the property. In fact, the principle laid down in Ahmedabad Municipal Corpn. AIR 1971 SC 1201 has been correctly applied in a sales tax case similar to the present case(1)." After laying down the law as aforesaid the apex court in the light of the facts of that case held as follows: "23. In these circumstances, we are of the view that the first respondent was a purchaser for value witho....
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.... of retirement, though unassessed. 24.. Payment and recovery of tax.-(1) Save as otherwise provided for in sub-section (2) of section 13, the tax assessed or has become payable under this Act from a dealer or person and any other amount due from him under this Act shall be paid in such manner and in such instalments, if any and within such time as may be specified in the notice of assessment, not being less than twenty-one days from the date of service of the notice. The tax under sub-section (2) of section 13 shall be paid without any notice of demand. In default of such payment the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or interest under this Act. (2) Any tax assessed on or has become payable by, or any other amount due under this Act from a dealer or person and any fee due from him under this Act, shall, subject to the claim of the Government in respect of land revenue and the claim of the Land Development Bank in regard to the property mortgaged to it under section 28(2) of the Tamil Nadu Co-operative Land Development Banks Act, 1....
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....er of his property after the assessment proceedings under the Act are completed it cannot be stated that he did not intend to evade the tax and as such the sale will not be binding on the department. But, at the same time, the Legislature has intended to protect the honest person who had purchased the property from such a seller, if he had not colluded with the seller and he had no notice of the liability of the vendor. While sub-section (1) of section 24 creates a "charge" on the properties of a defaulter to the extent of his dues, sub-section (2) states that the dues will have priority over all other claims against those properties, except land revenue and claims of Land Development Bank in regard to property mortgaged to it. 24. The meaning of the term "charge on the property" is to be found in section 100 of the Transfer of Property Act, in which it has been equated to a "simple mortgage", and it has also been laid down therein that, in the absence of a specific provision in any law, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of a charge. Thus, while section ....
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....the sale transaction was completed. 28. In this context it will be useful to refer to Order 6 , Rule 2 of the C.P.C., which reads as follows: "Order 6, rule 2. Pleading to state material facts and not evidence.-Every pleading shall contain only a statement in a concise form of the material facts on which the party pleading relies for his claim or defence, as the case may be, but not the evidence by which they are to be proved." 29. A reading of the above provisions shows that the party must plead all material facts on which he means to rely at the trial. If any one of the material facts is omitted, the statement of claim is bad and it would mean no pleading and no cause of auction for the suit. If the material facts are not pleaded, a court cannot permit evidence to be led. In Udhav Singh v. Madhav Rao Scindia [1977] 1 SCC 511; AIR 1976 SC 744, the Supreme Court has defined the expression "material facts" in the following words: "All the primary facts which must be proved at the trial by a party to establish the existence of a cause of action or his defence, are 'material facts'." 30. The distinction between "material facts " and "particulars" can....
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....suit property in favour of the plaintiffs, in order to defraud the defendants and the sale deed is not binding on the defendants. (iii) The plaintiffs are not bona fide purchasers for value without notice of the defects in title. The plaintiffs were aware of the said arrears of sales tax. The said Kundanlal Baffna is a close friend to the said defaulters. The sale deed has been created collusively between the plaintiffs and the said defaulters to defraud the defendants and to defeat and delay the realisation of sales tax arrears. But the plaintiffs have not chosen to deny the said pleadings in the written statement by filing a reply statement. 33. At this juncture we should point out that neither in exhibit A-3 reply notice sent by the plaintiffs through their counsel nor in exhibit A-7-legal notice issued under section 80 of the C.P.C., the plaintiffs have stated that S.V. Traders, Kancheepuram is a proprietory concern and not a partnership firm or the plaintiffs made necessary enquiries to ascertain about the sales tax dues of their vendors and in spite of their enquiries they were unable to ascertain the sales tax liability of their vendors. 34. Lord Denman, C.....
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....ed with material particulars that the plaintiffs were bona fide purchasers without notice and he further submitted that as per section 101 of the Evidence Act, burden of proving the same is on the plaintiffs but they have not discharged that burden. The said submissions of the learned counsel merit acceptance and as pointed out already by us, the plaint does not contain the primary facts which must be proved at the trial by the plaintiffs to establish their case that they are bona fide purchasers for value without notice. In the absence of specific pleadings in the plaint the plaintiffs are precluded from letting in any oral evidence on this aspect. 36. Now we have to consider the submissions made by the learned counsel for the appellant on the basis of the following decisions: (i) In the decision reported in Adinarayana v. Jagannadha Rao 62 Law Weekly 377, while considering the question of bona fides of a subsequent purchaser in a suit for specific performance, it is observed as follows: "On the question whether the fifth defendant is a bona fide purchaser for value without notice, the courts below have differed the lower appellate court holding that he was no....
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....hout notice of the original contract. Very little evidence on the part of the defendants of want of knowledge of the plaintiff's contract would have discharged this onus and shifted the onus on the plaintiff but in this case defendant 2 who gave his evidence does not even say on oath that he was not aware of the plaintiff's contract." (iv) In Rameshwar Singh v. Hari Narayan Singh AIR 1984 Patna 277, it is observed as follows: "In a suit for specific performance of a contract if the plaintiff proves his prior contract, the burden of proving a subsequent bona fide transfer for value without notice lies on the party alleging it. This is the settled law but it is also well-settled that very little evidence, and in certain circumstances a mere denial, regarding want of knowledge of the plaintiff's contract would discharge this onus and shift the onus upon the plaintiff." (v) The decision reported in Ram Lakhan v. Ram Govind AIR 1977 All 328, deals with the scope of section 19(b), of the Specific Relief Act and section 41 of the Transfer of Property Act, which in our considered view has no relevance to the facts of this case. 37. In our considere....
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....onsidering the conduct of the parties with reference to the prudence or negligence makes the following observation: "Now the circumstances which by a deeming fiction impute notice to a party are based on his wilful abstention to enquire or search, which a person ought to make or, on his gross negligence. This presumption of notice is commonly known as constructive notice. Though originating in equity this presumption of notice is now a part of our statute and we have to interpret it as such. Wilful abstention suggests conscious or deliberate abstention and gross negligence is indicative of a higher degree of neglect. Negligence is ordinarily understood as an omission to take such reasonable care as under the circumstances it is the duty of a person of ordinary prudence to take. In other words, it is an omission to do something which a reasonable man guided by considerations which normally regulate the conduct of human affairs would do or doing something which normally a prudent and reasonable man would not do. The question of wilful abstention or gross negligence and, therefore, of constructive notice considered from this point of view is generally a ques....
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....hand P.W. 1 in his cross examination has categorically admitted that he did not enquire T. P. Narayanasamy about the sales tax arrears. Therefore, the omission on the part of the plaintiffs to enquire with their vendors regarding their sales tax arrears amounts to negligence on their part and also it will amount to wilful abstention. In this case the plaintiffs had the means of obtaining the necessary information and the plaintiffs with prudent caution might have obtained knowledge of the charge and therefore the failure on their part to make necessary enquiries with their vendors will amount to wilful abstention or gross negligence and therefore it could be held that the plaintiffs have constructive notice. 40. We have to point out that the fact that the plaintiffs marked exhibit A-46 through D.W. 7 will itself show that they had knowledge about the sales tax arrears of their vendors. It is not the case of the plaintiffs anywhere that exhibit A-46 was obtained by them from their vendors or from some other source after filing of the suit. Therefore, we have to hold that the plaintiffs are not bona fide purchasers without notice. 41. Now the issue whether S.V. Traders, Kanchee....