TMI Blog2018 (3) TMI 1859X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. In the absence of any specific condition, in the sale notice that, arrears of tax due and payable by M/s. Moolchand Exports Limited, has to be paid by the auction purchaser, in the sale notice we are of the view that sale notice he should be treated as a be bona fide purchaser, without notice - the petitioner is bona fide purchaser and that he should not be imposed with any liability to pay arrears of tax, payable by M/s. Moolchand Exports Limited, (In Liquidation), Chennai. Petition allowed - decided in favor of petitioner. - W.P. No. 6267 of 2006 - - - Dated:- 9-3-2018 - S. Manikumar And V. Bhavani Subbaroyan, JJ. For the Appellant : V. Ramesh For the Respondent : M. Hariharan, Additional Govt. Pleader ORDER S. Manikumar, J. 1. Auction purchaser/writ petitioner has challenged Form No. 5 in Rc. 23/2006/A3 dated 16.01.2006 of the Commercial Tax Officer, Alandur Assessment Circle, first respondent herein, towards recovery of arrears of ₹ 6,94,09,527/-, for the years 1995-96 and 1996-97, and sought for a Writ of Certiorari to quash the same. Facts leading to the writ petition are that the petitioner had purchased immovable property bearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 3,85,99,770/- for the years 1993-94 to 1996-97 and that the arrears accrued during the year 2000. 6. First respondent has further informed the petitioner that since the assessee/defaulter has sold the property without discharging the sales tax liability and as per the provisions of Tamil Nadu General Sales Tax Act, 1959, a charge had been created over the property for the sales tax amount due by the M/s. Moolchand Exports Limited, defaulter, and such charge can be enforced against the property transferred in the hands of the petitioner. 7. Vide notice dated 05.01.2006, first respondent herein, instructed the petitioner to file reply to the show cause as to why Revenue Recovery proceedings should not be taken against the petitioner for the recovery of arrears of sales tax due by M/s. Moolchand Exports Limited, the defaulter under the Revenue Recovery Act. 8. It is the further case of the petitioner that, the first respondent herein, without waiting for any reply, initiated proceedings under Revenue Recovery Act and issued notice in Form 4 as per Section 25 of the Revenue Recovery Act and directed the petitioners to pay a sum of ₹ 3,85,99,770/-, within 7 days fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lacing on reliance on a Full Bench decision of this Court in the case of B. Suresh Chand v. State of Tamil Nade, represented by the Secretary, Revenue Department, Chennai, reported in 2006-4-L.W. 409 : 2006 (4) CTC 805, Mr. V. Ramesh, learned counsel for the petitioner submitted that the bona fide purchaser, without notice of the charge over the property under Section 24(1) of the Tamil Nadu General Sales Tax Act, 1959, cannot be proceeded against, for the recovery of sales tax arrears. 12. Attention of this Court was also brought to the decision of this Court in Rukmani v. Deputy Commercial Tax Officer I, Pattukottai I, Assessment Circle, Pattukottai, reported in [2013] 62 VST 369 (Mad), wherein one of us (S. Manikumar, J.,) held that right of the bona fide purchaser for the value has to be protected. 13. In response to the above submission of petitioner, Mr. M. Hariharan, learned Additional Government Pleader (Taxes), submitted that when the subject property was brought for auction by the Recovery Officer, fourth respondent herein, the fact of the sale arrears due and payable by M/s. Moolchand Exports Limited, the defaulter was brought to the notice of the Debts Recovery Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid after the date specified for its payment as referred to in sub-section (1) or in the order permitting payment in instalments, the dealer or person shall pay, in addition to the amount due, interest at [one and a half per cent per month of such amount for the first three months of default and two per cent per month of such amount for the subsequent period of default]: Provided that if the amount remaining unpaid is less than one hundred rupees and the period of default is not more than a month, no interest shall be paid: Provided further that where a dealer or person has preferred an appeal or revision against any order of assessment or revision of assessment under this Act, the interest payable under this sub-section, in respect of the amount in dispute in the appeal or revision, shall be postponed till the disposal of the appeal or revision, as the case may be, and shall be calculated on the amount that becomes due in accordance with the final order passed on the appeal or revision as if such amount had been specified in the order of assessment or revision of assessment, as the case may be. (3-A) Where a dealer submits the prescribed return within ten days after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealer. 17. Contention of Mr. V. Ramesh learned counsel for the petitioner that the property had been purchased in the public auction held on 17.04.2003, by the Recovery Officer II, Debt's Recovery Tribunal I, Chennai, fourth respondent herein, in execution of Certificate No. 150/2002, dated 27.08.2002 issued in O.A. No. 1032 of 1998 on the file of the Debts Recovery Tribunal, Chennai, for recovery of debts due to the fifth respondent/State Bank of India, represented by its Branch Manager, Chennai, from M/s. Moolchand Industries Ltd., and 10 others, is supported by the auction notice issued by the Recovery Officer-II, Debt's Recovery Tribunal -I, Chennai, fourth respondent herein, bringing the subject property, for auction and the same is extracted hereunder:- AUCTION SALE DEBTS RECOVERY TRIBUNAL I 6TH FLOOR, SPENCER TOWERS, 770-A, ANNA SALAI, CHENNAI 600 002. Fax. No. 044-2854 8163 DRC. No. 150/2002-R.O.-II Auction sale of Immovable Property, Mortgaged to Bank, Under Recovery of Debts, due to Banks and Financial Institutions Act, 1993. IN THE MATTER OF State Bank of India, Leather International Branch, MVJ Towers, Chennai 600 010 v. Moolchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein, has also issued a Sale Certificate dated 22.05.2003, to the writ petitioner and the same is extracted hereunder:- (Proceedings of Recovery Officer, Debts Recovery Tribunal-I at Chennai) CERTIFICATE OF SALE OF IMMOVABLE PROPERTY (Section 25 to 29 of the Recovery of debts due to Bans and Financial Institutions Act, 1993, read with Rule 65 of the Section Schedule to the Income Tax Act, 1961) THIS IS TO CERTIFY THAT M/s. Gupta Company Represented by Dr. S.K. Gupta, Managing Partner Having its office at No. 8 11, Ekkaduthangal Road, Guindy, Chennai 600 032. Has paid a sum of ₹ 1,20,10,000/- (Rupees One Crore Twenty Lakhs Ten Thousand only) and has been declared the purchaser at a sale by public auction held on 17.04.2003 of the undermentioned immovable property in execution of Certificate No. 150/2002 dated 27.08.2002 issued in O.A. No. 1032/1998 by the Hon'ble Presiding Officer, Debts Recovery Tribunal, Chennai-600002 under Section 19(22) of the Recovery of Debts Due to Bank and Financial Institution Act, 1993 (Act 51 of 1993) for RECOVERY OF DEBTS DUE FROM 1. M/s. Moolchand Industries Ltd. 2. Mr. Pradeep Kothari No. 151/1, Mount Poonamalle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice dated 17.08.2004, supports his contention. 21. Sale Notice dated 17.08.2004, issued by the Official Liquidator, High Court of Madras, representing M/s. Moolchand Exports Limited, (In Liquidation), third respondent herein, is reproduced hereunder:- IN THE HIGH COURT OF JUDICATURE AT MADRAS ORIGINAL JURISDICTION In the matter of the Companies Act, 1956 and In the matter of M/s. Moolchand Exports Limited (In Liquidation) Company Petition No. 254 of 1997 SALE NOTICE Pursuant to the orders passed on 13.08.2004 by Hon'ble Mr. Justice, Kulasekaran of the Hon'ble High Court, Madras offers are invited in Sealed Tenders from the intending purchasers for the sale of landed property admeasuring 50 cents under Survey No. 151/1B 151/2C of the company situated at Door No. 2/4, Mount Poonamallee Road, Ramapuram, Chennai 89, excluding two buildings thereon which were sold already to another purchaser through the DRT, Chennai and the movables such as furniture and other articles on As is where is basis. The upset price for the landed property is ₹ 77,10,000/- (Rupees Seventy Seven Lakhs and Ten Thousand Only) and ₹ 50,000/- (Rupees Fifty Thousa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer, Alandur Assessment Circle, has issued notice dated 05.01.2006, to Thiru. Dr. S.K. Gupta, Managing Partner, Tvl. Gupta Company, No. 8 11, Ekkattuthangal Road, Guindy, Chennai-600 032, petitioner herein, and the same is extracted hereunder:- Rc. 23/2006/A3--Office of the Commercial Tax Officer, Alandur Assessment Circle, No. 62, Pudupet Street, Alandur, Chennai 600 016. Dated: 05.01.2006 NOTICE Sub: ARREARS Office of the Commercial Tax Officer, Nandanam Assessment Circle Tvl. Moolchand Exports Limited Arrears of ₹ 3,85,99,700 for the years 1993- 94 to 1996-97 R.R. Action Notice issued. Ref: Commercial Tax Officer, Nandanam Assessment Circle Rc. 2914/96/1999/A3, dated 26.12.2005. ********* You take notice that the Commercial Tax Officer, Nandanam Assessment circle has informed that Tvl. Moolchand Exports Ltd., are in arrears of sales tax to the extent of ₹ 3,38,99,770/- for the years 1993-94 to 1996-97 and the defaulters were having a Land and Building at No. 151/1, Mount Poonamallee Road, Ramapuram, Chennai-89. The arrears were accrued during the year 2000. 2) It is learnt that you have purchased the said land and building situated at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... naging Partner, Tvl. Gupta and Company, No. 8 11, Ekkattuthangal Road, Guindy, Chennai 600 032.) 26. Subsequently, Form 5 notice dated 16.01.2006 has been issued under Section 27, which is a Notice of Attachment and the same is extracted hereunder:- Rc. 23/2006/A3 Office of the Commercial Tax Officer, Alandur Assessment Circle, No. 62, Pudupet Street, Alandur, Chennai 600 016. Dated: 16.01.2006 Form No. 5 SECTION 27 - NOTICE OF ATTACHMENT Notice of attachment to Tvl. Moolchand Exports Limited, 151/1, Mount Poonamallee Road, Ramapuram, Chennai - 600 089 (Present occupier Thiru Dr. S. Gupta, Managing Partner, Tvl. Gupta and Company, No. 8 11, Ekkattuthangal Road, Guindy, Chennai - 600 032. Take notice that as you have not paid or shown sufficient cause for the non-payment of ₹ 3,85,99,770/- (Rupees Three Crores Eighty Five Lakhs Ninety nine thousand seven hundred and seventy only) TNGST/1990-94 to 1996-97 Although the said sum has been duly demanded in writing from you, the landed property belonging to you is hereby placed under attachment, and that unless the arrear due by you with interest and other charges be paid within SEVEN days the 23rd d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with notwithstanding clause and has come into force from 01.09.2016. 4. The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending. 5. The aforesaid would, thus, question (a) in favour of the financial institution, which is a secured creditor having the benefit of the mortgaged property. 6. In so far as question (b) is concerned, the same is stated to relate only to auction sales, which may be carried out in pursuance to the rights exercised by the secured creditor having a mortgage of the property. This aspect is also covered by the introduction of Section 31B, as it includes secured debts due and payable to them by sale of assets over which security interest is created . 7. We, thus, answer the aforesaid reference accordingly. 30. Thus, after reference, instant writ petition filed in the year 2006, is placed before us. In B. Suresh Chand v. State of Tamil Nadu, rep. by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is, an unsecured one. 23. Furthermore, the right of a State Financial Corporation is a statutory one. The act contains a non obstante clause in Section 46-B of the Act which reads as under: 46-B. Effect of Act on other laws.--The provisions of this Act and of any rule or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of any law other than this Act, but save as aforesaid, the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern. The non obstante clause shall not only prevail over the contract but also other laws. (See Priyar Pareekanni Rubbers Ltd. v. State of Kerala). In the light of the above discussions, the issue as to whether the right of the secured creditor over the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m in respect of any tax, or any other sum payable by the dealer as a result of the completion of the said proceeding or otherwise: Provided that, such charge or transfer shall not be void, if it is made,- (i) for adequate consideration and without notice of the pendency of such proceeding under this Act or, as the case may be, without notice of such tax or other sum payable by the dealer: or (ii) with the previous permission of the assessing authority.' ............. 4. Under section 19 of the Tamil Nadu General Sales Tax Act, 1959, (hereinafter referred to as, 'the Act'), when the firm is liable to pay tax under the Act, the firm, and each of the partners of the firm shall be jointly and severally liable for such tax. Under this section, for the liability of the firm, the partners also are made liable and therefore their properties cannot escape for the tax liability. When such a person has effected transfer of his property during the pendency of the proceedings under the Act or after the completion thereof, it cannot be stated that he did not intend to evade the tax and therefore if the sale was to defraud the Revenue, the sale will be ab initio void. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to pay the sales tax, even at the time of the sales, but claim protection under the exception clause, for which the parameters of section 3 of the Transfer of Property Act, 1882, have to be applied. This can be done only in a regular suit where there is scope for the evidence to prove the conduct of the parties in making the enquiries with prudence, or utter negligence and the real intention in their mind. Every purchaser from the assessee is naturally interested to protect the property and will claim to be a bona fide purchaser. For the sake of their claim, the court cannot approve the transaction as a bona fide sale. 15. N. Padma Coffee Works' case [1999] 114 STC 494 (TNTST), has been relied on by a honourable judge of this court, while dismissing a Writ Petition (MD). No. 1277 of 2005, dated February 28, 2005 (R. Balasubramaniam v. Additional Deputy Commercial Tax Officer III, Thoothukudi). The appeal preferred by the subsequent purchaser in W.A. (MD). No: 130 of 2005, has been dismissed on February 7, 2008 (R. Balasubramaniam v. Additional Deputy Commercial Tax Officer). However, in D. Senthil Kumar's case reported in [2006] 148 STC 204 (Mad), the First Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration, without notice. 18. In the reported case, per contra, learned Special Government Pleader for the Department has submitted that since a charge over the property of the defaulting firm had been created under the Tamil Nadu General Sales Tax Act, 1959, the appellant, as transferee of the said property, has held the property subject to that charge, and therefore, the Department can take appropriate action. 19. While adverting to the aforesaid rival submissions, in D. Senthil Kumar's case reported in [2006] 148 STC 204 (Mad), the honourable Division Bench, at paragraph No. 8, held as follows (pages 208-211 in 148 STC): 8. The short question is whether the charge created on a property under the TNGST Act is enforceable against a transferee of such property. The expression 'charge' is not defined by the TNGST Act. However, this concept is well-known in law of transfer of property and has been defined by section 100 of the Transfer of Property Act, wherein the word 'charge' is defined as follows: 'Where 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 tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there could be no fixed presumption as to the transferee having constructive notice of the charge against the property. The principle laid down in Ahmedabad Municipal Corporation's case [1971] 1 SCC 757; AIR 1971 SC 1201 has been applied in a sales tax case arising under the Karnataka Sales Tax Act, 1957 in State of Karnataka v. Shreyas Papers P. Ltd. [2006] 144 STC 331 (SC); [2006] 1 SCC 615. There, following the decision in Ahmedabad Municipal Corporation's case [1971] 1 SCC 757; AIR 1971 SC 1201, the Supreme Court held as follows (paras 18 and 19 in 144 STC): '22. In the present case, firstly, no provision of law has been cited before us that exempts the requirement of notice of the charge for its enforcement against a transferee who had no notice of the same. It remains to be seen, therefore, if in the facts of the present case, the first respondent had notice-actual or constructive-of the charge. At the outset, in the advertisement/notice dated March 17, 1992, issued by the Corporation, mention is only made of the sale of the defaulting company's assets and there is no indication, whatsoever, of any sales tax arrears. Further, the bid offer made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irm on December 30, 1981. The purchaser had no notice of the charge over the property by virtue of sales tax dues. The purchaser challenged the form 7 notice issued under the Tamil Nadu Revenue Recovery Rules on the ground that he is a bona fide purchaser without notice of charge under the TNGST Act. The Division Bench held that no provision is made in the TNGST Act contrary to section 100 of the Transfer of Property Act and therefore, a bona fide purchaser for consideration without notice is protected. 20. It is a well-settled legal position that a judgment rendered by a court, taking into consideration of the later judgment of the Supreme Court, on the same issue is binding. Later judgment of the Supreme Court, on the point of law, would prevail over the former. One of the issues considered by another Division Bench of this court in A. Senthilkumar v. Assistant Commissioner (CT), Koyembedu Assessment Circle reported in [2011] 1 CTC 828, was whether the arrears of sales tax would prevail upon the claim of the secured debtors, like a bank, on the basis of the charge over the property and if the purchaser establishes that he is a bona fide purchaser, without notice, in a valid s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g actual notice . Knowledge of any fact which would put a prudent man upon inquiry. Knowledge of such facts as should induce inquiry, and as would lead to injury in the case of an ordinarily prudent man and which cannot be neglected without a voluntary closing of the eyes, and conduct inconsistent with good faith. 28. Even in N. Padma Coffee Works' case [1999] 114 STC 494 (TNTST) the Special Tribunal has clearly observed that the legislative intent in engrafting proviso to section 24A of the Act, is to protect a honest person, who had purchased the property from a seller and further observed that there should not be any collusion with the seller, but the necessary ingredients of section 24A of the Act should be there, i.e., the sale effected should be for adequate consideration and want of notice. Unless the charge is duly registered in the Registration Department, it would not be possible for any prospecting buyer to know whether there is any charge over the property, for any arrears of tax or any statutory dues to be paid to the Government or statutory body. That apart, there are no materials to indicate that the petitioner had any constructive notice of the charge. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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