TaxTMI 
TaxTMI 
2023 (4) TMI 823
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....e register of encumbrances maintained by the 2nd respondent and on being satisfied that there was no encumbrance on the property, the petitioner purchased the same by availing the bank loan, which was also sanctioned after the due scrutiny of all relevant documents. The petitioner states that she is the bonafide purchaser of the property, purchased for a valuable consideration. She is residing in the property with her family. 3. The vendor of the petitioner Mr.Rangarajan had obtained the property by way of settlement deed dated 13.02.2008 executed by his son Mr.Gopalakrishnan under Document No.723 of 2008. The said Gopalakrishnan derived this property from his mother Kanthimathi by way of a settlement deed dated 07.05.2004 registered as Document No.1782 of 2004. The said Kanthimathi had purchased the property on 30.09.1996 from one Mr.Krishnaraj. 4. After purchase, the petitioner came to know that the Assistant Commissioner of Commercial Taxes, Gandhipuram Circle, Coimbatore was making enquiries about the property for recovery of the alleged sales tax arrears. The petitioner enquired with the 1st respondent and requested them to provide details. The petitioner is not a sales tax ....
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.... with the provisions of the Transfer of Property Act. Thus, the security bond executed is confined only to the extent of the personal undertaking by the said Kanthimathi and cannot be construed as a mortgage for the purpose of attaching the property or creating encumbrance through the 2nd respondent. Thus the actions taken by the respondents are in violations of the provisions of the TNGST Act and also in violation of the Transfer of Property Act. 8. The learned Senior Counsel appearing on behalf of the petitioner drew the attention of this Court that the petitioner had verified all the original documents and all such original documents were handed over to the petitioner by her vendors and she is in possession of the original documents. The petitioner is in occupation of the property and residing along with her family. She was no way connected with the sales tax arrears or otherwise. Even the 1st respondent has not intimated about signing of the security bond by her vendor Kanthimathi. When the petitioner is a bonafide purchaser and she was no way connected with the sales tax arrears and further, the property was mortgaged in accordance with the provisions of the Act and Rules, th....
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....re immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property' and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge. Nothing in this Section applies to the charge of a trustee on the trust property for expenses properly incurred in the execution of his trust, and save as otherwise expressly provided by any law for the time being in force, 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 the charge." The Supreme Court proceeded to say that the Municipal Corporation Act which created a charge does not provide that the charge is enforceable against the property in the hands of a transferee for consideration without notice of the charge. The Supreme Court, however, discussed the issue of constructive notice and came to the conclusion that the purchaser in that case could not be fixed with any constructive notice of the arrears of mu....
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....41 (1) of the Bombay Provincial Municipal Corporation Act. Therefore, the ratio of the decision of the Supreme Court in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai, AIR 1971 SC 1201 cannot be applied to the facts of the present case. We are inclined to follow the decision of the Division Bench of this Court in Deputy Commercial Deputy Commercial Tax Officer, v. Asha Kumari, 1985 WLR 240 and hold that the charge created for arrears of sales tax over the properties of the defaulter under Section 24(1) of the Act can be enforced in the hands of the transferee by invoking the provisions of the Revenue Recovery Act as provided in Section 24(2) of the Act." In our view, the above reasons given by the Division Bench to steer clear of the Apex Court Judgment does not appear to be justified. The emphasis laid down by the Supreme Court to avoid Section 100 of the Transfer of Property Act was to have an express provision, providing for the contrary. The mere enforcement of the charge by resorting to the Revenue Recovery Act as provided for in Section 24(2) of the Sales Tax Act is not an answer to Section 100 of the Transfer of Property Act. I....
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....his Court held as follows: "5. It appears that the property belonged to one S.K. Veerappa Chettiar & Company and others and since the said Company was in arrears of sales tax under the TNGST Act, by letter dated 25.06.2004, the Commercial Tax Officer, Erode, the first respondent herein, required the second respondent herein to create an encumbrance with regard to the property and an entry was made in the register in respect of the encumbrance of the first respondent. Immediately on coming to know about the encumbrance created, a legal notice had been sent on 04.04.2006 by the appellants to the first respondent, but however, no action was taken to rectify the mistake. Since the respondents were not willing to relent, the appellants moved Writ Petition No. 11900 of 2006 seeking to issue a writ of certiorarified mandamus to quash the proceedings of the first respondent in Na.KA. No. 1707/2000/A3 dated 25.06.2004 and to direct the respondents to remove the encumbrance of sales tax dues entered in respect of the appellants' property. The writ petition was dismissed in limine by the learned single Judge holding that the appellants will have to prove that they were bona fide purchas....
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....ce the liabilities of the defaulting company in this manner against the appellants. 14. In the circumstances, the appellants herein, as transferees of the property for valuable consideration without notice of the charge, are entitled for protection and consequently, the proceedings of the first respondent in Na.KA. No. 1707/2000/A3 dated 25.06.2004 are liable to be set aside and are accordingly set aside. The writ appeal is accordingly allowed. No costs. Consequently, W.A.M.P. No. 1 of 2006 is closed." (c) In the case of State of Karnataka and Another Vs. Shreyas Papers Private Limited and Others reported in [2006 (1) CTC 290], the Hon'ble Supreme Court of India ruled as follows: "20. As the section itself unambiguously indicates, a charge may not be enforced against a transferee if she/he has had no notice of the same, unless by law, the requirement of such notice has been waived. This position has long been accepted by this Court in Dattatreya Shanker Mote v. Anand Chintaman Datar [(1974) 2 SCC 799, 811 (para 18)] and in Ahmedabad Municipal Corpn. of the City of Ahmedabad v. Haji Abdulgafur Haji Hussenbhai [(1971) 1 SCC 757, 759-61 (paras 3 & 4) : AIR 1971 SC 1201, 1202-....
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....202-04(para 3)] which is also embodied in the proviso to Section 100 of the TP Act. Thus, the property in the hands of the first respondent was free of the charge and it is not open to the appellants to enforce the liabilities of the defaulting company in this manner against the first respondent." (d) In the case of State of Haryana and Others Vs. Narvir Singh and Another reported in [(2014) 1 SCC 105], the Apex Court observed as follows: "10. A mortgage by deposit of the title deeds is sanctioned by law under Section 58(f) of the Transfer of Property Act in specified towns, the same reads as follows: "58.'Mortgage', 'mortgagor', 'mortgagee', 'mortgage money' and 'mortgage deed' defined.-(a)-(e) (f) Mortgage by deposit of title deeds.-Where a person in any of the following towns, namely, the towns of Calcutta, Madras and Bombay and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title deeds." 11. A mortgage inter alia means trans....
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....gistration is not required. But in a case in which the memorandum recorded in writing creates rights, liabilities or extinguishes those, the same requires registration." (e) In the case of M/s.Sree Foundations Vs. The Tax Recovery Officer-I and Others reported in reported in [2015-5-L.W.244], the learned Single Judge of this Court considered the judgments and held as follows: "11. At this juncture, it is relevant to refer to the decision of the Honourable Supreme Court rendered in the case of Mysore Minerals Ltd. v. CIT (JUDGMENT 1999 (1) Supp. SCR 192), wherein it has been held that a person who had taken possession and made payment of the consideration was the owner though he had not obtained the deed of conveyance. In the case on hand, the Petitioner, having purchased the property in question, by paying the entire sale consideration, became the absolute owner of the property in question. 12. The Calcutta High Court in the case of Electro Zavod (India) Pvt. Ltd. v. Commissioner Of Income-Tax and ((2005) 199 CTR Cal 612 : 2005 278 ITR 187 Cal) has held that on the date of passing the order of attachment, the property in question did not belong to the assessee and on that date....
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....nds of a transferee only if the transferee had notice of the prior charge and was not a bona fide purchaser. In the instant case, the learned counsel for the respondent admitted that the sub-registrar concerned was not informed about the existence of the charge in favour of the respondent. It is also dear from the encumbrance certificate, which was obtained by the petitioner in December, 1998, that no charge was reflected in respect of the said property up to December, 1998. The allegation that the petitioner and the erstwhile owner colluded in effecting the sale is not based on actionable evidence and such an inference cannot be countenanced purely on the basis that the parties concerned reside in the same area or even because the original title deeds were missing as per the public notice. Therefore, it cannot be said that the petitioner had prior notice, either actual or constructive, of the existing charge. The honourable Supreme Court in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai reported in (1971) AIR 1971 SC 1201, held that a charge cannot be enforced against a bona fide purchaser without prior notfce unless the relevant statu....
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....eported in (1993) 3 MTCR 8 did not consider the judgment of the honourable Supreme Court Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai reported in (1971) AIR 1971 SC 1201 and that, therefore, the said decisions could not be followed. Subsequently, in a recent judgment of the Division Bench of this court in Gupta & Company v. Commercial Tax Officer, (2019) 67 GSTR 399 (Mad), W.P. No. 6267 of 2006, decided on March 9, 2018, the earlier Division Bench judgment in R.K. Steels case, (1998) 108 STC 161 (Mad) was followed. From the aforesaid discussion and the precedents adverted to above, the principles of law that can be gleaned in respect of the enforcement of charges, including statutory charges, are as under: (i) A mortgage is a transfer of interest in property and, therefore, attaches itself to and moves with the property. Accordingly, it would be enforceable in the hands of a transferee without notice, including the ultimate transferee in case of multiple transfers. (ii) By contrast, there is no transfer of interest in a charge and, therefore, as per section 100 of the TPA, notwithstanding the fact that a charge holder has the same....
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....ly purchased the said property in respect of the arrears of tax and penalty of Rs.2,99,525/- for the year 2001-2002. 13. At the time of the taking registration certificate, under the Tamil Nadu General Sales Tax Act, 1956, they have filed a security in Form XVII B in the form of one vacant site, situated at S.F.No.412/ Document No.6070 of 1996 site No.36 1122 Sq.ft Koundampalayam Village, Coimbatore District belonging to Smt.R.Kanthimathi, who was also one of the partners of the said business. 14. As the dealer did not pay the tax arrears of Rs.2,99,525/- action was initiated under the Revenue Recovery Act by initially addressing the Sub-Registrar, Vadavalli by creating encumbrance on the property belonging to the defaulter's wife, which was made as security at the time of registration. Subsequently, the Department came to know that the writ petitioner / Tmt.M.Karpagam had purchased the property under sale deed dated 07.03.2008. The security bond filed as security has been duly affixed by Court Fee Stamp, duly signed by the owner of the property and therefore, it is a legal document though it was not mortgaged in favour of the Government. The Government usually does not creat....
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.... authority; 18. Explanation-I to Section 24 (15-A) of the erstwhile Tamil Nadu General Sales Tax Rules, 1959, which reads as under: "Where the security is furnished in the form of immovable property, the person furnishing it may in any town to which sub-section (f) of the section 58 of the Transfer of Property Act 1882 Central Act IV of 1882 is applicable, mortgage such property to the Government by deposit of title deeds. In other cases, the security shall be by means of registered mortgage of the immovable property. The security bond shall be in Form XIX-B and shall be filed in duplicate the original of which should bear appropriate adhesive nonjudicial stamps or Court Fee stamps." 19. The explanation above reveals that, where the security furnished in the form of immovable property, the person furnishing it may in any town to which Sub-Section (f) of Section 58 of the Transfer of Property Act, 1882 Central Act IV of 1883 is applicable, mortgage such property to the Government by deposit of title deeds. Therefore, it is necessary to create a mortgage as contemplated under the Transfer of Property Act. In the absence of creating any such mortgage, mere personal undertaking can....