TMI Blog2014 (9) TMI 176X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of any tax, or any other sum payable by the dealer as a result of the completion of the said proceeding or otherwise. It is only if the defaulting dealer proves that transfer of the property, which is subject to first charge under Section 26 of the A.P. VAT Act, is not with the intention to defraud revenue, would the transferee be entitled to claim title over the subject property for, otherwise, such transfer of property is void. Where property has been transferred and the defaulting dealer, who has transferred the property which is subject to a statutory charge under Section 26 of the A.P. VAT Act, does not discharge the onus of proving that the transfer was not with the intention to defraud revenue, a person, who has purchased such immovable property from the defaulting dealer, cannot claim protection either of Section 53 of the Transfer of Property Act or of Section 100 thereof, on the ground that he is a bonafide purchaser of the property for valid consideration and without notice of the charge. Even after a notice was issued in Form IV, the 4th respondent did not dispute their liability to pay arrears of VAT for the years 2005-06 and 2006-07 and, instead, made par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Geology granted them permission on 31.05.2007, after which the quarry lease was transferred and a deed executed in their favour on 16.06.2007; they had verified, whether there were any encumbrances on the subject land, from the Sub-Registrar Office, and were informed that there were none; the third respondent issued notice dated 10.08.2009 informing them that M/s. Baba Mines and Minerals, who had sold the subject land, were in arrears of tax for the years 2005-06 to 2007- 08 and, under Section 27(1) of the A.P. Value Added Tax Act, 2005 (for short, the A.P. VAT Act), persons who have purchased property, belonging to a defaulting dealer, can be proceeded against for recovery of tax arrears; they had informed him, by letter dated 24.08.2009, that they had purchased the property, under registered sale deed, from M/s. Baba Mines and Minerals - a registered dealer on the rolls of the third respondent; the first respondent had again issued notice dated 13.05.2010 informing them that action was proposed to be initiated, under the Revenue Recovery Act, for recovery of tax arrears of the defaulting dealer i.e., the fourth respondent; and they had replied thereto, by letter dated 29.05.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P.VAT Act; the fourth respondent did not prove that the transfer was not with an intention to defraud revenue; and as the fourth respondent is, admittedly, a registered VAT dealer, the petitioner ought to have enquired from the 1st respondent, before purchasing the property, whether the fourth respondent was in arrears of tax. The records placed before this Court show that, despite several notices, the fourth respondent had defaulted in payment of VAT for the years 2005-06 to 2007-08. Section 25 of the A.P. Revenue Recovery Act, 1864 requires the officer, empowered to attach the land of the defaulter, to cause a written demand to be served on him specifying the amount due, the land in respect of which it is claimed, the name of the party in arrears etc., and the time allowed for payment. Such demand shall be served by delivering a copy thereof to the defaulter. Form IV is the demand, prior to attachment of land, under Section 25 of the A.P. Revenue Recovery Act. The first respondent requested the Commercial Tax Officer, Mahaboobabad Circle, by letter dated 18.09.2007, to instruct the DCTO, Mahaboobabad to issue Form-IV Notice and further notices under the Revenue Recovery Act fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,53,828/- for the year 2005-06; ₹ 4,46,958/- for the year 2006-07; and ₹ 42,682/- for the year 2007-08; and the total dues were ₹ 9,43,468/-. The Form-V notice of attachment, under Section 27 of the Revenue Recovery Act, was published in the Warangal District Gazette on 22.10.2008. Sri J.V. Rao, Learned Counsel for the petitioner, would submit that, as the fourth respondent was in default of payment of value added tax for the years 2005-06 to 2007-08, the department should have exercised abundant caution by notifying the properties of the fourth respondent to the public; without taking any precautionary steps, they had abruptly issued the impugned notices to a genuine dealer; the petitioner cannot be made a scapegoat for the negligent acts of the first and second respondents; they had purchased the land in good faith, under a bonafide belief, and without being aware of the tax arrears due from the defaulting dealer i.e., the fourth respondent; the first respondent cannot proceed against them, for recovery of the tax arrears of the defaulting dealer, under Section 27(1) of the A.P.VAT Act; the first respondent can only proceed against the defaulting dealer who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial Standing Counsel places reliance upon State Bank of India v. DCTO, Suryapet . Section 53(1) of the Transfer of Property Act, 1882, as it stood before the Amending Act, 1929, read thus:- Every transfer of immovable property made with intent to defraud prior or subsequent transferees thereof for consideration or co-owners or other persons having an interest in such property or to defeat or delay the creditors of the transferor, is voidable at the option of any person so defrauded or delayed. Where the effect of any transfer of immovable property is to defraud, defeat or delay any such person, and such transfer is made gratuitously or for a grossly inadequate consideration, the transfer may be presumed to have been made with such intent as aforesaid. Nothing contained in this section shall impair the rights of any transferee in good faith and for consideration. Section 53(1), as it stands after the Amending Act, 1929, is as under:- Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed. Nothing in this sub-section shall impair the rights o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building or land of the person liable for such taxes and upon the movable property, if any, found within or upon such building or land and belonging to such person ; and, in the case of any other building or land, upon the said building or land and upon the moveable property, if any, found within or upon such building or land and belonging to the person liable for such taxes. In Ahmedabad Municipal Corporation of the City of Ahmedabad2, the defaulter was in arrears of property tax due under the Bombay Provincial Municipal Corporation Act, and the property was brought to sale in execution of a mortgage decree. When the municipality purported to exercise their charge over the property, the purchaser, in the court auction, filed a suit for declaration that he was the owner of the property and, therefore, arrears of municipal taxes due by the transferor were not recoverable by attachment and sale of the property in the hands of the purchaser. A Division Bench of the Gujarat High Court accepted the case of the purchaser, and decreed the suit, holding that the charge created in favour of the municipal corporation was not enforceable against the property. Before the Supreme Court it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut enforceability of the charge against the said property in the hands of a transferee for consideration without notice of the charge; Section 141 was clearly not such a provision; according to Section 3 of the Transfer of Property Act, which is described as the interpretation clause, a person is said to have notice of a fact when he actually knows that fact or when, before wilful abstention from an enquiry or search which he ought to have made or gross negligence, he would have known it; there were three explanations to this definition dealing with three contingencies when a person acquiring immovable property is to be deemed to have notice of certain facts; 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 the statute and has to be interpreted as such; wilful abstention suggests conscious or deliberate abstention and gross negligence, and is indicative of a higher degree of neglect; negligence is, ordinaril ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the properties even if it changes hands by transfer. It is in this context that the Supreme Court held:- While the expression charge is not defined by the KST Act, this concept is well known in property law and has been defined by Section 100 of the Transfer of Property Act, 1882 (hereinafter the TP Act ) As the section itself unambiguously indicates, a charge may not be enforced against a transferee if s/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 Chitaman Datar, and Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai (hereinafter Ahmedabad Municipal Corporation ). In this connection, we may refer to the latter judgment, which is particularly relevant for the present case In these circumstances, we are of the view that the First Respondent was a purchaser for value without notice of the sales tax arrears of the Defaulting Company or the consequent charge on the property. This would, therefore, attract the principle laid down by this Court in Ahmedabad Municipal Corporation, which is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision had been quoted by the respondent in the counter affidavit; a purchaser, in the normal course, would only verify from the Registration Department as to whether the property to be purchased has any encumbrance; unless the charge is duly registered in the Registration Department, it would not be possible for any prospective buyer to know whether there is any charge over the property for arrears of tax or statutory dues to be paid to the Government or statutory body; no material had been produced before the Court to prove that the notice, demanding arrears of tax, had been served on the defaulter; no material had been placed before the Court to prove that steps had been taken, under the provisions of the Revenue Recovery Act, against the defaulter or the subsequent first purchaser from whom the petitioner had purchased the property six years after the date of finalisation of the assessment; there was no material to indicate that the petitioner had any constructive notice of the charge; there was no pleading to that effect and, rightly, no arguments had been advanced; and, therefore, the Court was of the view that the case on hand would squarely fall within the ambit of the judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Section culminating in the enactment of the provision in the present form. (Income Tax Officer, Sitapur v. M/s. M. Bhagwan Das ). The value of historical evolution of a provision, or reference to what preceded the enactment, as an external aid to understand and appreciate the meaning of a provision, its ambit or expanse has been judicially recognised and textually recommended. (R.S. Nayak v. A.R. Antulay ; Mohan Lal Tripathi v. Dist. Magistrate, Rae Bareilly ). The general history of a statute and the various steps leading upto an enactment, including amendments or modifications of the original bill, can be looked at for ascertaining the intention of the Legislature. (R.S. Nayak (1984) 2 SCC 183 : AIR 1984 SC 684 ; Crawford on Statutory Construction (p.388). In examining whether the legislative intent, in amending the law or in enacting a new legislation, is to make substantial changes in the pre-existing law, it is necessary to consider what the law was previous to the particular enactment and to ascertain whether the words used in the statute can be taken to effect the change that is suggested as intended. For this reason it becomes necessary to consider how the law stood prio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of this Court held that, under Section 17-A of the APGST Act, the charge created by the dealer on his assets in favour of any other person, with the intention to defraud the revenue, shall be void; however, as per the proviso, such charge or transfer shall not be void if it is made for adequate consideration and without notice of the pendency of such proceeding under the APGST Act; Section 17-A appears to have diluted the absolute precedence given to arrears of tax under Section 16-C; however the principles of statutory interpretation required the Court, in such circumstances, to have regard to the consequences and to reject a construction that results in hardship, absurdity or anomaly or which leads to inconsistency in the system which the Statute purports to regulate; the contention that Section 17-A should be read as an exception to Section 16-C of the APGST Act could not be accepted as the very purpose of insertion of Section 16-C would be defeated thereby, and it would render the said Section otiose; the non-obstante clause, incorporated in Section 16-C, was intended to exclude not only other statutes but also other provisions of the APGST Act; in Damera Ramakrishna6, the Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Act. In amending the provision, the Legislature has sought to clarify the position and to avoid arguments based on the interpretation of the statute before it was amended. (1st I.T. Officer, Salem v. Short Bros. (P) Ltd. ). The general prohibition in Section 100 of the Transfer of Property Act is that no charge can be enforced against the property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge. Section 3 of the Transfer of Property Act and its three explanations have a bearing in determining whether or not the transferee has notice of the charge. The three explanations deal with three contingencies under which a person is deemed to have notice of certain facts. These circumstances, by deeming fiction, impute notice to a party. This presumption of notice is known as constructive notice. If a transferee has constructive notice of the charge he would not be entitled for the protection of Section 100 of the Transfer of Property Act as he cannot then be said not to have notice of the charge. The protection conferred on a bonafide transferee, by Section 100 of the Transfer of Property Act, was also extende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this premise underlying Section 27(1) which places the onus on the defaulting dealer to prove that such charge or transfer was not with the intention to defraud any tax or any other sum payable by him under the Act. Unless the defaulting dealer discharges this onus, transfer by him of his assets, either during the pendency of proceedings under the AP VAT Act or after completion thereof, is void. Unlike Section 100 of the Transfer of Property Act and the proviso to Section 17-A of the APGST Act, Section 26 and 27 of the AP VAT Act, conjointly, provide that the charge, created on the property, can be enforced unless the defaulting dealer proves that the transfer was not with the intention to defraud tax or any other sum payable under the Act. If, notwithstanding Section 27(1) of the A.P. VAT Act, the protection under Section 100 of the Transfer of Property Act is construed to be still available to a transferee, without notice of the charge, then the very object of placing the onus on the defaulting dealer would be defeated as, even if the defaulting dealer fails to discharge this onus, the transfer of property would not be void as title over the property would have passed on to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t transfer of the property, which is subject to first charge under Section 26 of the A.P. VAT Act, is not with the intention to defraud revenue, would the transferee be entitled to claim title over the subject property for, otherwise, such transfer of property is void. Where property has been transferred and the defaulting dealer, who has transferred the property which is subject to a statutory charge under Section 26 of the A.P. VAT Act, does not discharge the onus of proving that the transfer was not with the intention to defraud revenue, a person, who has purchased such immovable property from the defaulting dealer, cannot claim protection either of Section 53 of the Transfer of Property Act or of Section 100 thereof, on the ground that he is a bonafide purchaser of the property for valid consideration and without notice of the charge. III. IF A PROVISION IN A TAXING STATUTE IS CAPABLE OF TWO INTERPRETATIONS, THE CONSTRUCTION FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED: The only other contention which necessitates examination is whether the tax due and payable by the defaulting dealer, after the property has been transferred, can be recovered by putting the charged proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a tax-payer and against the Revenue. In case of doubt or dispute, the construction should be made in favour of the taxpayer and against the Revenue. (Manish Maheshwar v. Asst. CIT ; Sneh Enterprises v. Commissioner of Customs, New Delhi ; J. Srinivasa Rao v. Govt. of A.P. ; CIT v. Naga Hills Tea Co. Ltd., ; Petron Engineering Construction (P) Ltd. v. Central Board of Direct Taxes ; CIT v. Madho Pd. Jatia ; CIT v. Vegetable Products Ltd. ; CIT v. Kulu Valley Transport Co. (P) Ltd. ). In interpreting a fiscal statute the court cannot proceed to make good deficiencies if there be any. It must interpret the statute as it stands and, in case of doubt, in a manner favourable to the taxpayer, (C.A. Abraham v. ITO, Kottayam ; J.K. Steel Ltd. AIR 1970 SC 1173 ), and not the one that imposes a burden on him. (Central India Spg., Wvg. Mfg. Co. Ltd. v. Municipal Committee ). If there is any ambiguity in the language of a fiscal statute, the benefit of that ambiguity must be given to the assessee. The doctrine that in taxation cases the subject is to be taxed, if in the Court's view the case falls within the contemplation or spirit of the statute, must be viewed with disfavour. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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