TMI Blog2023 (4) TMI 823X X X X Extracts X X X X X X X X Extracts X X X X ..... in the bond. Thus, the contentions of the writ petitioner is to be rejected. The Explanation-I to Section 24 (15-A) of the erstwhile Tamil Nadu General Sales Tax Rules, 1959 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 cannot be construed as a mortgage or charge created under Explanation I to Section 24 (15-A) of the erstwhile TNGST Act or under the Transfer of Property Act. The Form 19-B security bond signed by the vendor of the petitioner smt R.Kanthimathi is restricted only to the extent of her personal undertaking and there is no mortgage or charge created in respect of the property purchased by the petitioner from the said Kanthimathi. Thus, the security bond executed by the vendor of the petitioner is not in consonance with the Form prescribed unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amily. 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 assessee. She submitted a reply by stating that she came to know subsequently that her vendor Rangarajan and wife Kanthimathi and son Gopalakrishnan had formed a private limited company under the name of 'Maze net Solutions India Private Limited' and the said Kanthimathi had given the property by way of security for the purpose of registration of the said company under the erstwhile Tamil Nadu General Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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, the Action now taken by the respondents are untenable and liable to be set aside. 9. In support of the contentions, the learned Senior Counsel appearing on behalf of the petitioner relied on the following judgments: (a) In the case of Deputy Commissioner Tax Officer, Thudiyalur, Assessment Circle, Coimbatore and Another Vs. R.K. Steels reported in [1999 (I) CTC 63] , wherein, the Hon'ble Div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... othing 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 municipal tax. It was further pointed out that a pertinent and reasonable man was bound to make enquires regarding arrears of municipal tax and that in any event, the question of constructive knowledge or notice has got to be determined, on the facts and circumstances of each case. In view of the finding that the purchaser could not be fixed with any constructive n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eputy 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. In other words, Section 24(2) of the Sales Tax Act does not provide any thing contrary to Section 100 of the Transfer of Property Act. Similarly, the Division Bench held that Section 24-A of the Sales Tax Act had no application because the Sales tax arrears were sought to be recovered by proceeding against the charged property by invoking Section 24(2) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purchasers of the property in a civil suit. 11. In Shreyas Paper's case, the Supreme Court also referred to the decision of a Division Bench of this Court in C.T.O. v. R.K. Steels, (1998) 108 S.T.C. 161 (Madras), where this very question arose under Section 24 of the TNGST Act. In that case, the assessee firm was in arrears of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A. 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, 1202-04(para 3)] (hereinafter Ahmedabad Municipal Corpn. ). In this connection, we may refer to the latter judgment, which is particularly relevant for the present case. 21. Ahmedabad Municipal Corpn. [(1971) 1 SCC 757, 759-61 (paras 3 4) : AIR 1971 SC 1201, 1202-04(para 3)] was a case where a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent. (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 transfer of interest in the specific immovable property for the purpose of securing the money advanced by way of loan. Section 17(1)(c) of the Registration Act provides that a non-testamentary instrument which acknowledges the receipt or payment of any consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very 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, there was no interest because such interest has already been passed on to the petitioner therein and accordingly, held that the order of attachment of the property claimed and held by the petitioner was not s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 statute confers an express right to enforce the charge against a transferee without notice. 10. This leads to the next question as to whether section 24A of the TNGST Act co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i 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 rights as a simple mortgagee, a charge is enforceable against the property in the hands of a transferee only if the transfer was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 create mortgage at the time of registration. However, such security bonds are executed with the property detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 cannot be construed as a mortgage or charge created under Explanation I to Section 24 (15- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge has been created in consonance with the provisions of the erstwhile TNGST Act and Rules. The contention of the respondent that they are entitled to create an encumbrance in the office of the Sub-Registrar is untenable and the encumbrance made without creating any mortgage or charge cannot be held as in consonance with the provisions of the erstwhile TNGST Act. 23. This being the factum established, the actions initiated against the petitioner is in violations of the provisions of the TNGST Act and more so the petitioner is not a sales tax assessee and she is the bonafide purchaser of the property from her vendor Smt.Kanthimathi. 24. For all these reasons, the order impugned passed by the 1st respondent in Letter Na.Ka.2181192/2001/02/A3 dated 26.08.2013 dated 26.08.2003 and the consequential entry of encumbrance made by the 2nd respondent / Sub-Registrar of Assurances in Document No.L.No.11/2013 on the petitioner's property Door No.12/36 A Ramalakshmi Nagar, Goundampalayam Road, Idayarpalayam, Coimbatore 641 044 are quashed and the Writ Petition stands allowed. No costs. Consequently, connected miscellaneous petition is closed. - - TaxTMI - TMITax - CST, VAT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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