TaxTMI 
TaxTMI 
2023 (8) TMI 1679
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....erty belongs to M/s Sri Lakshmi Srinivas Jute Mills Limited ( for short "SLSJM Ltd") and the petitioner purchased the said property of 12000 Sq. Yds under a registered sale deed dated 31.07.2020. (b) 2nd respondent issued Form 5 notice of attachment date 27.11.2020 U/s 27 of AP Value Added Tax Act, 2005 (for short "AP VAT Act") r/w the Andhra Pradesh Revenue Recovery Act, 1864 (for short "APRR Act") and attached the property of SLSJM Ltd to an extent of 32,331.2 Sq. Yds. towards tax dues which includes the subject property of 12000 Sq. Yds owned by the petitioner. (c) Respondent No.3 issued endorsement dated 31.12.2020 rejecting the request of SLSJM Ltd to pay the tax dues in instalments and confirmed the attachments. Aggrieved, the SLSJM Ltd filed WP No.974/2021 before the High Court of Andhra Pradesh and by order dated 10.02.2021 this Court permitted the assessee to pay dues in instalments. Pursuant to the said order, the 2nd respondent addressed letter dated 16.03.2021 to 5th respondent to release the attachment in respect of entire property owned by SLSJM Ltd. (d) After raising of such attachment, the petitioner purchased 10000 Sq. Yds in T.S No.170 o....
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....The revenue has to make a claim for recovery of its dues before the resolution professional appointed by the NCL Tribunal. Added to above since the petitioner does not owe any dues to respondent Nos.2 to 4 they cannot approach against the subject property. The impugned notice is wholly arbitrary and without jurisdiction. 2. Respondent No.2 filed counter opposing the writ petition inter alia contending thus: (a) SLSJM Ltd is an assessee on the rolls of Commercial Tax Officer, Rajam doing business in Jute twine and Gunnies having manufacturing unit originally at Rajam. It was granted deferment scheme for the period from 17.11.1995 to 16.11.2009. (b) During the year 2009 SLSJM Ltd took over the company M/s Hoogly Mills Projects Ltd., Vizianagaram District which was already under deferment scheme with its three manufacturing units i.e., (1) V.T. Agraharam, Vizianagaram (Town) (2) Cantonment, Vizianagaram and (3) Bobbili, Vizianagaram District. The Company defaulted in repayment of deferment tax of Rs.18,70,62,371/- under APGST, CST and AP VAT Act for the period 2001-02 to 2006-07 repayable from 2016-17 to 2020-21. Since the company failed to repay the amount their ....
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....for demand payment of deferred sales tax dated 14.07.2009 with the department has, agreed that the company shall not alienate/dispose/encumbered/lease out the fixed assets until the Government loan is fully repaid. The Company further agreed that in case of default of repayment the amount can be recovered under APRR Act. In spite of the said background, the Company sold the properties to the petitioner by making a mention in the sale deeds as if the properties were free from all encumbrances. Thus it is clear that the transactions were made to defraud the revenue. (g) It is further contended that filing of insolvency petition before National Company Law Tribunal will not absolve the defaulter-dealer from payment of arrears of deferred sales tax which was collected from customers at the time of sale of goods. There are no merits in the writ petition and hence the same may be dismissed. 3. Heard arguments of Sri S.Ravi, Senior Counsel representing Sri M.Naga Deepak, learned counsel for petitioner, and learned Government Pleader for Commercial Tax representing the respondents. 4. ARGUMENTS OF PETITIONER: Learned counsel for the petitioner would mainly argue that the ....
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....n, M/s SLSJM Ltd has given undertaking that it will not alienate its fixed assets until the Government loan is fully repaid. However, the said company failed to repay the sales tax which was deemed as Government loan as per its undertaking and therefore, recovery proceedings were initiated by the tax department from 2015 onwards. Pending the proceedings, the SLSJM Ltd sold the subject property to the petitioner under a sale deed dated 31.07.2020 fraudulently mentioning therein that the property was free from alienations, court litigations and statutory charges which is palpably false. The petitioner and SLSJM Ltd colluded together and entered into the sale transaction. When the petitioner claims to have purchased property for a huge consideration, it is expected that he shall make all relevant enquiries with M/s Hugly Mills Projects Limited who is the vendor of SLSJM Ltd regarding its ownership and encumbrances etc. Then the petitioner could have known about the tax deferment agreements entered firstly by M/s Hugly Mills Projects Limited and later by the SLSJM Ltd with the Tax Department. Learned G.P argued that without making such enquiries the petitioner cannot simply claim that ....
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....mmerce (IP) Department, dated 20.11.1995 whereunder the amount of sales tax deferred shall be treated as Government loan extended to the assessee which shall be payable to the Government by the assessee after the completion of deferral period i.e., deferral month to corresponding month without any interest along with the sales tax payable for the current year. M/s Hugli Mills Projects Ltd., has availed the sales tax deferment facility for its three units upto the year 2009 and still some unavailed portion of deferral of sales tax was left over. 10. At that stage, during 2009, M/s SLSJM Ltd has acquired the aforesaid three units from M/s Hugli Mills Projects Ltd. After such acquisition, M/s SLSJM Ltd approached the Government of Andhra Pradesh represented by Deputy Commissioner of Commercial Taxes to extend the deferred sales tax facility to it for the left over portion unavailed by M/s Hugli Mills Project Ltd in respect of the three units acquired by M/s SLSJM Ltd. 11. It should be noted that the request of M/s SLSJM Ltd was considered by the Government and thereafter a deed styled as "Deed of Agreement for Demand Payment of Deferred Sales Tax Deemed Reloaning and Recovery of....
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....ut of 32331 Sq. Yds covered by S.No.98/1 and 170 of Cantonment Ward in Vizianagaram Municipality which is a part of three units purchased by it from M/s Hugli Projects Pvt Ltd in favour of the petitioner under a registered sale deed dated 31.07.2020 for Rs.15 Crores. In the sale deed it is mentioned that the said property was free from all kinds of mortgages, charges, agreements to sell, court litigations or any other statutory charges which is palpably false, inasmuch as the said property and other properties were covered by tax deferred agreement dated 14.07.2009 entered into by M/s SLSJM Ltd with the Government and in the said agreement M/s SLSJM Ltd has given an undertaking that it shall not alienate / dispose /encumber / lease out its fixed assets until Government loan is fully repaid and that the loan receivable shall have prior charge as per Clause 16 C of the APGST Act. Therefore, it is clear that contrary to the undertaking given in the agreement dated 14.07.2009, M/s SLSJM Ltd sold a part of its property in favour of the present writ petitioner. We will discuss about the validity of the said sale transaction a little while later i.e., after briefly discussing the turn of ....
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....t to alienate / transfer / register the aforesaid properties by way of sale and other alienations. While describing the particulars of attached properties, it is stated by the respondents that inadvertently, the two properties purchased by the petitioner under registered Sale Deeds dated 31.07.2020 and 31.03.2021 were excepted. In view of the said mistake, the Deputy Assistant Commissioner addressed another letter dated 06.07.2022 to the Joint Sub-Registrars, West, Vizianagaram and Dasannapeta, Vizianagaram stating that excepting of the aforesaid properties in the letter dated 18.08.2021 was a clerical mistake and therefore, the entire property as mentioned in Form 5 dated 18.08.2021 shall not be dispossessed / alienated until clearance of Sales Tax of the government arrears. The copies of above attachment proceedings and letters have been filed along with material papers enclosed to the counter. 17. Challenging the letter dated 06.07.2022 addressed by 2nd respondent, the present writ petition is filed. As can be seen, the main contention of the petitioner is that the subject property of 12000 sq. yds was purchased by the petitioner under a registered sale deed dated 31.07.20....
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.... as it may, sections 25 to 27 of the AP VAT Act deal with the method of recovery of the tax and other incidental aspects. For convenient reference, they are extracted below: 25. Tax as on arrear of land revenue: If the tax assessed or penalty levied or interest payable under the Act, or any amount of tax including deferred tax which is treated as a loan extended by the Government to the dealer and any instalment thereof, are not paid by a dealer within the time specified therefor, the whole of the amount then remaining unpaid may be recovered as if it were an arrear of land revenue. 26. Preferential claims to assets: Notwithstanding anything to the contrary contained in any law for the time being in force, any amount of tax, including deferred tax which is treated as a loan extended by the Government to the dealer, penalty, interest and any other sum payable by a VAT dealer or TOT dealer or any other dealer under the Act, shall be the first charge on the property of the VAT dealer or TOT dealer or any other dealer as the case may be. 27. Transfers to defraud revenue void and Provisional Attachment of Property: (1) Where during the pendency of any proceedi....
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.... is pellucidly clear that contrary to the agreement, M/s SLSJM Ltd sold subject property of 12000 square yards in favour of the petitioner under the Sale Deed dated 31.07.2020. By virtue of Section 25, the deferred tax amount due to the State from the units of Rajam, Vizianagaram and Bobbili shall be treated as arrears of land revenue and by virtue of Section 26, tax, penalty and interest shall, being preferential claim, have first charge over the assets of M/s. SLSJM Ltd. including the subject property. Then most importantly, since the proceedings were already initiated by the Revenue by issuing notices periodically from 2015 onwards and pending such proceedings, as M/s.SLSJM Ltd. sold the subject property in favour of the petitioner, such transfer, shall be held as void in terms of Section 27 of the AP VAT Act as it was intended to defraud the revenue. The fraudulent intention of M/s. SLSJM Ltd. is manifest from its conduct, inasmuch as, it did not obtain prior permission of the State to dispose of its property and further, it mentioned in the Sale Deed as if there were no Government dues over the subject property. It must be noted that Section 27 is legislated in the context of ....
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.... "This section in unambiguous language lays down that no charge is enforceable against any property in the hands of a transferee for consideration without notice of the charge except where it is otherwise expressly provided by any law for the time being in force. The saving provision of law must expressly provide for enforcement of a charge against the property in the hands of a transferee for value without notice of the charge and not merely create a charge" Then with regard to appellant's argument that the respondent must be deemed to have constructive notice of the arrears of municipal taxes and thereby he and the property purchased by him are liable to pay the taxes, the Apex Court observed thus: " 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 is the duty of a person of ordinary prudence to....
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....icipality claimed payment of arrears of property tax from the appellant which was refuted on the ground that appellant had no liability and dues if any, had to be adjusted from the sale proceeds. The Apex Court having found that the provisions of the Municipality Act do not create any encumbrance on the property or the charge observed that it was only a personal liability. It held thus: "14. If the property tax was merely a statutory dues without creating any encumbrance on the property which had cast a duty upon all the auction purchasers to make any investigation, it would mean that he must try to find out all the liabilities of the company in liquidation in their entirety. Respondent-Municipality was an unsecured creditor. In that capacity it cannot stand on a higher footing than an ordinary unsecured creditor who is required to stand in queue with all others similarly situated for the purpose of realization of their dues from the sale proceeds. xxxx. 16. There cannot, thus, be any doubt or dispute that a provision of law must expressly provide for an enforcement of a charge against the property in the hands of the transferee for value without notice t....
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....ngs, such transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee under the K.G.S.T. Act. Inspection of the shop, factory or business premises of the assessee by the sales tax officers would also come within the meaning of the expression 'during the pendency of any proceedings' under S. 26A. The transfer as such is not void. It would be a valid transfer as between the transferor and the transferee. But it would be void against any claim in respect of any tax or any other sum payable by the assessee-transferor under the Act. The transferee is not entitled to put forward any defence that the transfer was made for valid consideration or that he is a bona fide purchaser for value. Such defences are outside the purview of S. 26A of the Act. Once the ingredients of S. 26A are attracted, the transfer made by the assessee would be void. The transferee cannot claim any valid title in such cases as against 'any claim in respect of any tax or any other sum payable by the assessee' under the K.G.S.T. Act. (emphasis supplied) It was held that the transferee is not entitled to put forward any defence that the transfer wa....
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....aser for value and the decision on the other side in DCTO T Assessment Circle, Coimbatore v. R.K. Steels (supra 1) holding that the bonafide purchaser was not answerable. (a) The Full Bench, following the judgment in State of Karnataka v. Shreyas Papers Pvt Ltd (supra 4) held that the judgment in DCTO, Coimbatore v. R.K. Steels (supra 1) laid the correct law whereas the other two decisions were no longer good law. After holding so, the full bench in the light of above Supreme Court judgment, embarked upon to find out whether the plaintiffs in that case were bonafide purchasers of the suit property without notice. It observed that the plaintiffs have not pleaded that they made any enquiries regarding sales tax arrears of their vendors; in the evidence, PW-1 has not stated that he was not aware of the arrears of his vendors; the omission on the part of the plaintiffs to enquire with their vendors with regard to their sales tax arrears amounts to negligence and willful abstention on their part and therefore it could be held that plaintiffs have constructive notice. The full bench thus agreed with the finding of single judge that the vendors with fraudulent intention sold thei....
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....d to make reasonable enquiries with the vendor of M/s. SLSJM Ltd. to know about the pending encumbrances and charges if any over the subject property. Had he made such enquiry, he would have known that the subject property and other units of Hugli Mills Project Limited were under sales tax deferment scheme and later M/s. SLSJM Ltd. also entered into sales tax deferment agreement dated 14.07.2009 with Tax Department. The petitioner has not produced any iota of material to show that he made such enquiries. Therefore, even though the defence plea of bonafide purchaser for value without notice is made applicable for argument sake, the petitioner by his conduct could not justify the same. For the above reasons Point No.1 is held against the petitioner. 29. Point No.2: This point is concerned the third party i.e., M/s Khetulal Pugalia and Sons who is an operational creditor of M/s. SLSJM Ltd., filed CP (IB) No.73 by 9/AMR/2020 U/s 9 of the Insolvency and Bankrupty Code, 2016 (IBC) before NCLT in the year 2020 and the NCLT passed orders dated 16.02.2022 and admitted the Company Petition and declared that the Corporation Insolvency Resolution Process of the Corporate Debtor shall com....