Madras High Court
Badrinath vs The Assistant Commissioner (St) on 20 June, 2022
Author: Anita Sumanth
Bench: Anita Sumanth
W.P.No.8880 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 20.06.2022
CORAM
THE HONOURABLE DR. JUSTICE ANITA SUMANTH
WP.No.8880 of 2019 and
WMP.No.9428 of 2019
Badrinath ... Petitioner
Vs
1.The Assistant Commissioner (ST),
Thiruvallur Assessment Circle,
Thiruvallur.
2.The Branch Manager,
M/s.Tamil Nadu Industrial Investment Corporation,
Special Recovery Branch, Division-II,
No.86, 2nd Main Road, Ambattur Industrial Estate,
Chennai-58. ... Respondents
Prayer: Writ Petition filed under Article 226 of the Constitution of India, to
issue a Writ of Certiorari, calling for the records of the 1st respondent in
Na.Ka.No.2021/2014/A3 dated 07.03.2019 quash the same being illegal,
arbitrary and contrary to the principles laid down by the Hon'ble Apex Court
and this Court.
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W.P.No.8880 of 2019
For Petitioner : Mr.S.N.Kirubanandam
For Respondents : Mr.V.Prashanth Kiran (for R1)
Government Advocate
Mr.K.Magesh (for R2)
ORDER
The petitioner challenges a communication from the Assistant Commissioner, Commercial Taxes/R1 dated 07.03.2019. The communication, styled as an 'mwptpg;g[ fojk;', puts the petitioner to notice that it is liable to settle all outstanding sales tax arrears of one Guru Krupa Castings (in short ‘assessee’) for the period 1994-95 to 1997-98 amounting to a sum of Rs.17,58,736/- along with interest.
2.The said Guru Krupa had been engaged in manufacturing activity at Nos.82 and 84, SIDCO Industrial Estate, Thirumazhisai 602107 (property in question). It was also an assessee on the file of the Commercial Taxes Department and had admittedly defaulted in both, repayments to R2 as well as Sales Tax demands.
3.On account of the defaults in repayments to R2, by virtue of the power vested under Section 29 of State Financial Corporation Act, 1951 the property 2/11 https://www.mhc.tn.gov.in/judis W.P.No.8880 of 2019 in question i.e. land and building as well as the machinery of the defaulter were brought to sale in public auction.
4.An auction sale notice had been issued by Tamil Industrial Investment Corporation (TIIC/R2) on 10.07.2005 followed by an advertisement in the Daily Thanthi on 13.07.2005 offering the land, building and machinery at Shed Nos.82 and 84, SIDCO Industrial Estate, Thirumazhisai 602107, for public auction.
5.Neither the advertisement nor the sale notification refer to an attachment upon the property by the Commercial Taxes Department and only contain a statement to the effect that any lawfully created arrears of taxes shall be settled by the petitioner. The question that therefore arises is as to whether there is any charge lawfully created upon the property by the Commercial Taxes Department so as to justify the impugned communication.
6. The petitioner has also been diligent in examining, prior to the sale, if any encumbrance had been created upon the property and has produced a certificate of encumbrance in respect of the property in question for the period 01.01.1993 to 24.10.2006, that reveals Nil encumbrance thereupon.
7. At this juncture, learned counsel places reliance, and brings to my notice, a series of decisions of the Courts including this Court to the effect that 3/11 https://www.mhc.tn.gov.in/judis W.P.No.8880 of 2019 being a bonafide purchaser, it should not have to have the consequences of defaults in the case of the vendor. The decisions are:
(i) Deputy Commercial Tax Officer, Thudiyalur Assessment Circle, Coimbatore and Another vs. R.K.Steels (1998 (1) CTC 124);
(ii) State of Karnataka and Anr. vs. Shreyas Papers Pvt. Ltd. and Ors. [2006 (1) JT 180];
(iii) D.Senthil Kumar and others vs. Commercial Tax Officer, Erode and Another [2006 148 STC 204 (Mad)];
(iv) Badrinath, Proprietor, M/s.Bee Gee Forge, No.82 & 84 Sidco Industrial Estate, Thirumazhisai vs. The Commercial Tax Officer, Sri Perambudur Assessment Circle, Varadharaja Puram-602 103 and another (WP.No.45082 of 2006, dated 06.10.2017)
(v) Noor M.Saied vs. The Commercial Tax Officer, Thiruvanmiyur Assessment Circle, 98, Annai Velankanni Church Road, Besant Nagar, Chennai-600 090.
(vi) P.Sathasivam v. The Assistant Commissioner (CT), Udumalpet (North) Assessment Circle Udumalpet, Tirupur District and another (WP.No.1440 of 2019, dated 21.01.2019)'
8. Both the advertisement as well as in the terms and conditions of the auction sale make reference to pending statutory dues in the following terms:
Advertisement in Daily Thanthi dated 13.07.2005 'Fwpg;g[: rl;lg;g{h;tkhf bfhLf;f ntz;oa epYitapy; cs;s tpw;gid thp gpuhtpld;l;gz;l;
epYit bjhif. jPhi ; t thp. ,ju epYitfs;
Mfpait Vyj;jpy; cWjp bra;ag;gl;lth;fns
Vw;Wf; bfhs;s ntz;Lk;/
nkYk; gpw tptu';fSf;F : http://www.tiic.org Visit us at : www.tn.gov.in br/k/bjh/,-963-
tiufiy-2005 Vyk; nfl;gth;fs; jh';fs; nfhUk; mjpfg;gl;r bjhifapy; 10# mst[ gzj;ij clnd brYj;jpl ntz;Lk;/ Vyk; rk;ge;jkhd tpgu';fis midj;J ntiy ehl;fspy; fhiy 10/00 kzp Kjy; khiy 5/45 kzp tiu bgw;Wf;bfhs;syhk;/ 4/11 https://www.mhc.tn.gov.in/judis W.P.No.8880 of 2019 fpis nkyhsh;
rpwg;g[f;fld; tNy; fpis?II' Terms and conditions for sale by Tender-cum-Public Auction of the assets of M/s.Guru Krupa Castings :
....
'(16) The purchaser has to pay the property taxes. Electricity dues Commercial Tax and other dues to the Government and other statutory and other liabilities, if any, in respect of the property advertised for sale, Possession of the property will be released only after getting NOC from the above said authorities.'
9.The respondent would emphasize the position that both the advertisement as well as the terms and conditions of auction, refer to pending dues, including specifically, commercial tax dues. Thus, it was the bounden responsibility of the petitioner, the purchaser to remit the pending dues, as and when demands were made.
10. It is thus their submission that the purchase is itself subject to the charge created by the respective departments to which the defaulting assessee owed amounts. The aforesaid argument is, in my considered view, liable to be rejected on two counts. Firstly, the arrears of statutory dues should have been ‘validly created’ under the respective enactments. 5/11 https://www.mhc.tn.gov.in/judis W.P.No.8880 of 2019
11. For the aforesaid purpose, the Commercial Taxes Department is expected to follow the procedure set out under the respective enactment as well as the Tamil Nadu Revenue Recovery Act, 1864. The procedure set out in the latter commences from the stage of attachment in terms of Section 27 dealing with mode of attachment. There is also a procedure stipulated as to how the respondents are to provide adequate publicity for the attachment as well as the subsequent procedures, including the auction of the property concerned.
12. The demands in the present case are stated to have been created under the provisions of the Tamil Nadu General Sales Tax Act 1959 (in short ‘Act’) that contains the provisions of Section 24. designed to protect the interests of the department in the event the defaulting assessee transfers the ownership of its assets merely to frustrate recovery of the demands raised. Section 24 reads thus:
'Section 24. Payment and recovery of tax: (1) Save as otherwise provided for in sub-section(2) of section 13, the tax assessed or has become payable under this Act from a dealer or person and any other amount due from him under this Act shall be paid in such manner and in such installments, if any and within such time as may be specified in the notice of assessment, not being less than twenty-one days from the date of service of the notice. The tax under sub-section (2) of section 13 shall be paid without any notice of demand. In default of such payments the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or interest under this Act.
Section 24-(2) Any tax assessed on or has become payable by, or any other amount due under this Act from a dealer or person and any fee due from him under this Act, shall, subject to the claim of the government 6/11 https://www.mhc.tn.gov.in/judis W.P.No.8880 of 2019 in respect of land revenue and the claim of the Land Development Bank in regard to the property mortgaged to it under section 28(2) of the Tamil Nadu Co-operative Land Development Banks Act, 1934(Tamil Nadu Act X of 1934), have priority over all other claims against the property of the said dealer or person and the same may without prejudice to any other mode of collection be recovered:-
(a) as land revenue, or
(b) on application to any Magistrate by such Magistrate as if it were a fine imposed by him:
.........'
13. In the present case, the sale is by way of public auction and there is no allegation by any of the respondents that the petitioner and the defaulting assessee are related in any manner whatsoever. Thus, the transaction of purchase is above question, that is, untainted in any way, and is not, admittedly, a transaction designed to avoid/evade tax.
14. In such circumstances, the larger question would also be as to what R1 has done in terms of required/necessary action to protect its own interests. In cases where demands have been raised that remain unsettled for long, the Department can well identify assets belonging to the assesses and take necessary action to create a charge thereupon to protect the demands as well to ensure that no third party interests are created.
15.Learned Government Advocate would draw attention to communication dated 05.08.2004 sent by R1 to R2 putting them to notice that there are sales tax arrears payable by the assessee. They refer inter alia to the 7/11 https://www.mhc.tn.gov.in/judis W.P.No.8880 of 2019 provisions of Section 24 of the TNGST Act and in conclusion, call upon R2 to take necessary action to pay the money held by TIIC (erroneously referred to a SIPCOT in several places).
16.This letter is accompanied by Form-B6, a Garnishee notice, whereunder R1 calls upon R2 to pay to it any amounts that may be due by it to the assessee. The receipt of this communication and the enclosures by R2 are admitted. Thus, R1 was well aware that the assessee was in receipt of financial facilities from TIIC and was in occupation of the property in question and has secured its interests to the extent of the issuance of the garnishee notice.
17. However, I am of the considered view that the above communication assumes no consequence qua the petitioner and the remedy, if at all, that R1 has, is as against R2. Though Section 24 has been inserted in the Act with the intention of protecting the department from transfers designed solely to evade tax liability, the department cannot be seen to merely rely upon the statutory provision, particularly in the light of the admitted position that the transaction is at arms’ length, being an auction sale by TIIC and the parties being unrelated.
8/11 https://www.mhc.tn.gov.in/judis W.P.No.8880 of 2019
18. Reliance upon Section 24, in isolation, and bereft of corroborative action to attach any assets of the defaulting assessee, is thus rejected in the light of the admitted facts and circumstances as above.
19. Secondly, clause 16 of the terms and conditions states that possession would be handed over by TIIC only upon receipt of a ‘no objection certificate’ from the respective revenue department. However, possession has been handed over to the petitioner as early as on 05.09.2005 and a sale deed has been executed by R2 on 29.09.2005.
20. The sale deed, no doubt, contains a clause to the effect that tax levies, statutory and other liabilities, if found due, shall be borne by the purchaser. However, the purport of such a clause is to insulate TIIC against any liability. The clause cannot, in any way, better the case of the commercial tax department/R1.
21. That apart, and again, the question that arises is whether at all the dues of the defaulting assessee, are in any way to be borne by the petitioner, and I have, in the preceding paragraphs, answered that question in the negative. I draw support in this regard, from the judgment of the Hon'ble Supreme Court in Civil Appeal Nos.3170 to 3173 of 2000 in the case of State of Karnataka and another vs. Shreyas Papers Pvt. Ltd. and others.
22. Paragraph 20 is relevant and reads as follows: 9/11
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20.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 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.'
23. In light of the aforesaid discussion, the impugned order is quashed. This writ petition is allowed. No costs. Connected miscellaneous petition is closed.
20.06.2022 vs Index : Yes Speaking Order To
1.The Assistant Commissioner (ST), Thiruvallur Assessment Circle, Thiruvallur.
2.The Branch Manager, M/s.Tamil Nadu Industrial Investment Corporation, Special Recovery Branch, Division-II, No.86, 2nd Main Road, Ambattur Industrial Estate, Chennai-58.
10/11 https://www.mhc.tn.gov.in/judis W.P.No.8880 of 2019 DR.ANITA SUMANTH,J.
vs WP.No.8880 of 2019 and WMP.No.9428 of 2019 20.06.2022 11/11 https://www.mhc.tn.gov.in/judis