Madras High Court
Deputy Commercial Tax Officer, ... vs R.K. Steels on 1 September, 1997
Equivalent citations: 1998(1)CTC124
ORDER Judgement pronounced by J. Kanakaraj, J.
1. This writ appeal is directed against the order of learned single Judge in Writ Petition No. 4470 of 1983 filed by the respondent herein seeking to quash a form 7 notice, dated March 5, 1983 issued by the appellants herein under the Tamil Nadu Revenue Recovery Act (hereinafter referred to as "the Act"), which plea was accepted by the learned single Judge and the proceedings of the appellants were quashed.
2. The respondent (writ petitioner) was a partnership-firm, carrying on business in the manufacture of iron and steel. One Balaji Steels, Coimbatore another partnership-firm had been assessed under the Tamil Nadu General Sales Tax Act and the Central Sales Tax Act for the assessment years 1976-77, 1977-78, 1978-79 and 1979-80. they were in arrears of tax to the tune of Rs. 9,37,911. This later firm was closed on October 19, 1979, One Ramkumar Gogia was one of the partners in the firm M/s. Balaji Engineering Works and Balaji Oil Mills. The said Ramkumar Gogia sold an extent of 38.30 cents of land to the writ petitioner for a total sum of Rs. 22,000 on December 30, 1981. It is the case of the revenue that valid demand notices had been issued for the various assessments and served on the assessee. For the purpose of clarity, the dates of service of the notice of assessment are as below:
"TNGST Act. 1959 CST Act. 1956 1976-77 19.4.1979 4.2.1981 1977-78 1.4.1979 1.4.1979 1978-79 17.5.1980 12.5.1980" 1979-80 10.1.1981
It has to be noticed that the service of notices had taken place long prior to the date of sale by Ramkumar Gogia on December 30, 1981. The first appellant has issued notices under forms 4, 5, 7 and 7A, all of them being dated March 5, 1983 issued under the Act, demanding payment of arrears of sales tax due and payable by Ramkumar Gogia. The petitioners appeared before the first respondent and requested him to withdraw the notices, pointing out that there were irregularities in the notices and in any event, the writ petitioner was not liable for the sales tax dues of Ramkumar Gogia. There being no response from the appellants, the writ petition was filed seeking to quash the form No.7 notice, dated March 5, 1983. it is worthwhile to refer to the impugned form No. 7 notice issued under section 36 of the Act. The preamble portion of the notice is as follows: -
"It is hereby notified that undersigned lands selected out of those attached in satisfaction of arrears of sales tax by Thiru Ramkumar Gogia, Balaji Steels, subsequently sold to R.K. Steels, the present registered landholder and not Revenue defaulters, will be sold by public auction on May 30, 1983 or other day to which the sale may be adjourned at the following place and time and the lands will be knocked down to the highest bidder."
3. In the counter-affidavit filed by the appellants the impugned notice was sought to be sustained on the basis of sections 24(1) and (2) and 24A of the Tamil Nadu General Sales Tax Act. 1959 (hereinafter called as "the Sales Tax Act"). It was also contended that the writ petitioner had an alternative remedy of adjudicating his claim in a civil court under section 59 of the Act. Learned single Judge, who heard the writ petition allowed the writ petition on the following reasoning:
"The property in question stood in the name of Ramkumar Gogia in his individual capacity and not belonging to the firm in the hands of a partner. There is no bar if the respondents proceed against the properties held by a partner, before the sale was effected by the partner. Even though it is open to the respondents to proceed against the properties of the firm as well as the properties of the partners, since the partners are jointly and severally liable, it cannot be said that the respondents are entitled to proceed against a property, the title of which has already been passed to a third party.............."
The revenue has come on appeal before us.
4. The order of the learned single Judge is challenged on the basis of sections 19, 24(1) and (2) and 24A of the Sales Tax Act. Reliance is also placed on certain decisions of this court upholding such recovery proceedings.
5. Mr. N. Sriprakash, learned counsel for the respondent has argued elaborately to dispute the contention of the appellants and has also explained the various decisions on the point and he still maintains that the recovery proceedings are illegal and cannot be given effect to against the respondent (writ petitioner). We will therefore proceed to consider the points arising for our decision, because it appears to us that the questions raised by learned counsel for the respondent are very important legal issues. We will proceed to refer to the relevant provisions of the Sales Tax Act, before adverting to the points raised before us. Section 19 of the Sales Tax Act refers to the liability of the parties. It is as follows:
" 19. Liability of firms -- (1) Where any firm is liable to pay any tax or other amount under this Act, the firm and each of the partners of the firm shall be jointly and severally liable for such payment.
(2) Where a partner of a firm liable to pay any tax or any amount under this Act retires, he shall, notwithstanding any contract to the contrary, be liable to pay the tax or other amount remaining unpaid at the time of the retirement and any tax or other amount due up to the date of retirement, though unassessed."
Section 24 relating to payment and recovery of tax is strongly relied upon by the revenue and at the relevant point of time, the material portion of the section was in the following terms:
"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 instalments, 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 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 24A of the Sales Tax Act has relevancy, in view of certain arguments raised before us. It is as follows:
"24-A. Transfers to defraud revenue void. --Where, during the pendency of any proceeding under this Act or after the completion thereof, any dealer creates a charge on, or parts with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever) of any of his assets in favour of any other person, with the intention to defraud the revenue, such charge or transfer shall be void as against any claim 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."
6. It is not seriously disputed in view of section 19 of the Sales Tax Act that a partner is equally liable for payment of tax due by the firm. consequently, it cannot be disputed that since the firm had been served with notices of assessment, the property of Ramkumar Gogia stood charged with the burden of the payment of tax at the expiry of 21 days from the date of service of notice. Therefore, when the property was sold on December 30, 1981 to and in favour of the writ petitioner, the property was subjected to the said charge. Under section 24A of the Sales Tax Act, the charge in favour of the revenue had priority over all other Claims against the property of the dealer, and the same could be recovered as land revenue. Consequently, there is little difficulty in coming to the conclusion that the resort to the Act so far as the dealer is concerned, it is perfectly justified. But the difficulty arises because the defaulter had sold the property and the question of the sale being for adequate consideration and without notice of the charge looms large over the validity of the recovery proceedings.
7. We will now refer to the provisions of the Revenue Recovery Act, which relates to the collection of public revenue and for the purpose of the Sales Tax Act, the arrears of sales tax are deemed to be public revenue, there is no dispute about this fact also. Section 36 of the Act explains the procedure for sale of immovable property. In this connection reference is made to section 5 of the Act, which reads as follows:-
"5. Arrear of revenue how recovered, -- Whenever revenue may be in arrear, it shall be lawful for the Collector, or other officer empowered by the Collector in that behalf, to proceed to recover the arrear, together with (penalty) and costs of process, by the sale of the defaulter's movable and immovable property, or by execution against the person of the defaulter in manner, hereinafter provided."
Much emphasis is land on the words by sale of defaulter's movable and immovable property. For the sake of completion section 59 of the Act may also be referred to which enables any aggrieved party to apply to any civil Court for redress. The various forms issued by the first appellant before resorting to sale of the transferee's properties are provided for in the Act. The power of the first appellant to invoke the powers of the Act is also not disputed. However, the manner in which the forms had been issued is objected to by the respondent/writ petitioner because there are very many technical defects in the issue of the notices.
8. On the above provisions of law and on the facts of the case, the following points are raised for our consideration:
(1) The charge under section 24(1) of the Sales Tax Act cannot be enforced against a transferee of the property from a defaulter;
(2) The Revenue Recovery Act cannot be resorted to against a person, who is not a defaulter;
(3) Under section 100 of the Transfer of Property Act, a bona fide purchaser for value without notice of the sales tax arrears is protected and neither section 24 nor section 24A of the Sales Tax Act can be deemed to be an express provision to the contrary; and (4) Whether the recovery proceedings are vitiated by virtue of the technical defects in the issue of the various forms prescribed under the Act.
9. The earliest decision was rendered on December 18, 1956 reported in C. Dhanalakshmi Ammal v. Income-tax Officer, . In that case, for the income- tax arrears of a husband, the property standing in the name of wife was sought to be attached under the Act. Observed the Division Bench of mis Court as follows:-
"We agree with Mr. Nambiar that there is no provision in the Madras Revenue Recovery Act, which enables the Collector to attach and sell land not registered in the defaulter's name for arrears of revenue due from the defaulter. In Padhmanabha v. Visalakshmi, AIR 1938 Mad. 283, it was pointed out, though in another connection, that it would not be competent to the Collector to go into the question of benami."
10. In P. kannamba v. Board of Revenue, (C. T.), 19 STC 456 (Mad.), a house property was sold by an assessee on April 18, 1958. Even on the date of the sale, there were arrears of sales tax due by the assessee and in seeking to recover the tax arrears, the said property was brought to sale under the Act. Ramakrishnan, J., held that the transferee of the property is not a defaulter, in respect of the sales tax due by the transferor. The question of bona fide sale without notice of the application of section 100 of the Transfer of Property Act was left open. Accordingly, the learned Judge held that the house property cannot be proceeded against for recovery of tax arrears. It has to be noticed that the learned Judge was considering section 10 of the Sales Tax Act. 1939, whereas the notice was issued under section 24 of the Madras General Sales Tax Act (1 of 1959).
11. In K. Nagammal v. Joint Commercial Tax Officer, 1973 (31) STC 607 (Mad.), Rakaprasada Rao, J., held that there is no provision in the Tamil Nadu Revenue Recovery Act, 1864, which enabled the Collector to attach and sell a land not registered in the defaulter's name for arrears of revenue due from the defaulter. Learned Judge, therefore, quashed the revenue recovery proceedings.
12. In Balakrishna Goenka v. State of Tamil Nadu, 1981 (2) SISTC 43, Mohan, J. (as he then was) rejected the plea of a purchaser for value without notice of the sales tax arrears and held that no such plea was acceptable because valid demand notices had been issued anterior in point of time to the sale of the property in favour of the purchaser. This judgment was rendered on August 21, 1978 in S.A. No, 278 of 1977.
13. We have now for consideration a judgment of the Division Bench of this Court rendered on December 5, 1984 and reported in Dy. Commercial Tax Officer v. Asha Kumrai, 1985 (14) STL (Mad.) 164. This judgment was rendered on an appeal preferred by the Revenue and the respondent was not represented. The Division Bench of this Court has referred to the decision in Balakrishna goenka v. Special Assistant Commercial Tax Officer for Sales Tax Collection, Thanjavur, 1971 (28) STC 572, which is the judgment of Ramaprasada Rao, J.,(sic) already quoted by us and proceed to say as follows:
"If the tax assessed remained unpaid for a period of twenty-one days after the notice of demand had been served, that charge can be enforced by invoking the provisions of the Revenue Recovery Act, under section 24(2) of the Tamil Nadu General Sales Tax Act. Since the learned Judge has not considered the scope of section 24(1) but proceeded only on the basis of section 24(2), we are not included to agree with the view expressed by the learned Judge that arrears of sales tax cannot be recovered from the properties sold by the assessee after a charge has fastened itself on the properties of the defaulter, on his default in paying the arrears of sales tax within the time stipulated by section 24(1)."
The Division Bench also distinguishes the judgment of Ramakrishnan, J. in P. Kannamba v. Board of Revenue, (C.T.), 1967 (19) STC 456 (Mad.). We have to remark that the Division Bench had no occasion to consider section 100 of the Transfer of Property Act and a pertinent judgment of the Supreme Court with reference to section 100 of the Transfer of Property Act.
14. We will now refer to the said judgment of the Supreme Court which is reported in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai, . In that case before the Supreme Court, the party was in arrears of property tax due under the Bombay Provincial Municipal Corporation Act. The said Act imposed a charge over the property held by a defaulter. The same was brought to sale in execution of a mortgage decree. When the municipality purported to exercise their charge over the property, the purchaser in court auction filed a suit for a declaration that he was the owner of the property and that therefore, the 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. The apex Court upheld the said judgment and while doing so, referred to section 100 of the Transfer of Property Act, which is as follows:
Section 100: "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 transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provision hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge.
Nothing 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 enquiries 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 notice, the Supreme Court upheld the view of the Division Bench that the purchaser cannot be made liable for the municipal taxes. In our considered view, the judgment of the Supreme court is comprehensive in all respects and the same should have been taken note of by this Court, while dealing with cases of transferee for value without constructive notice of the sales tax arrears. We are compelled to make the above observation because there is a subsequent Division Bench judgment of this Court in Coramattdel Indag Products India Ltd. v. commercial Tax Officer, 1993 (3) MTCR 8, dated October 29, 1992. Before the division Bench of this Court, the very same point was agitated and the judgment of the Supreme Court above referred to was also cited. All the same, the Division Bench has again chosen to follow the earlier Division Bench judgment of this Court in Dy. Commercial Tax Officer v. Asha Kumari, 1985 (14) STL (Mad.) 164. The latter Division Bench Judgment was rendered on October 29, 1992 in W.A.No.1019 of 1989 and the facts are almost identical to the facts of the present case. In that case, the assessee-company had tax arrears. They sold a property belonging to them on April 14, 1980, when the statutory charge had been fastened on them. When the Revenue proceeded against the transferee and a Form No.7 notice was issued the transferee filed a writ petition against the recovery proceedings. The transferee contended that they are the bona fide purchasers for value without notice of the charge. When the decision of the Supreme Court in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai, was brought to the notice of the Division Bench, they purported to distinguish the same by the following observation:
"Section 141(1) of the Bombay Provincial Municipal Corporation Act, 1949 merely creates a charge for the property tax. There is no provision in the Bombay Provisional Municipal Corporation Act, similar to section 24(2) of the Tamil Nadu General Sales Tax Act, 1959, providing for enforcement of the charge created under section 141(1) of the Bombay Provisional Municipal Corporation Act. Therefore, the ratio of the decision of the Supreme Court in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gaful Haji Hussenbhai, cannot be applied to the facts of the present case. We are inclined to follow the decision of the Division Bench of this Court in 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 anything contrary to section 100 of the Transfer of Property Act. Similarly, the Division Bench held that section 24A 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 the Sales Tax Act, read with the relevant provisions of the Revenue Recovery Act. Thirdly, the Division Bench held that even if the transferee is not taken as a defaulter, the properties in his hands can be proceeded against the relevant provisions of the Revenue Recovery Act in view of the statutory directions contained in section 24(1) read with section 24(2) of the Sales Tax Act. In this connection, they purported to follow the Division Bench judgment of this court in Dy. Commercial Tax Officer v. Asha Kumari, 1985 (14) STL 164 (Mad.) : 1985 WLR 240. We have already pointed out that the earlier Division Bench judgment in Asha Kumari's case, 1985 (14) STL 164 (Mad.) had not adverted to section 100 of the Transfer of Property Act or the judgment of the Supreme Court in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai, .
15. Having regard to the clear and categorical views expressed by the Supreme Court in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai, , we are not inclined to accept the two Division Bench judgments of this Court in Dy. Commercial Tax Officer's case, 1985 (14) STL 164 (Mad.) and Coramandel Indag Products India Ltd's case 1993 (3) MTCR 8, we would have normally referred the issue for decision by a Full Bench, but for the fact that the judgment of the Supreme Court is crystal clear. To repeat unless a provision is made in any statute contrary to the rule of section 100 of the Transfer of Property Act, a bona fide purchaser for consideration without notice of the charge is protected. This proposition of law is too very clear and so categorically emphasised by the Supreme Court in Ahmedabad Municipal Corporation case, . We therefore with respect differ from the views expressed by the two Division Bench judgments referred to above and propose to follow the judgment of the Supreme Court.
16. We are not inclined to go into the other question raised by the learned counsel for the respondent relating to the institution of the suit and the technical defects in the notices issued by the appellants. No doubt, we accept the stand of the revenue that the respondent/petitioner could have filed a civil suit and challenged the revenue recovery proceedings. Inasmuch as the writ petition had already been entertained and the writ appeal has also been entertained at this belated stage, we do not want to reject the plea of the respondent that they are the bona fide purchasers for value without notice of the sales tax arrears. Since the appellants have nowhere stated that the respondents had notice of the charge over the property by virtue of the sales tax arrears, we are inclined to accept the stand of the respondent that they had no notice of the charge or sales tax arrears. To be more precise the affidavit says:
"As per section 100 of the Transfer of Property Act, the petitioners who have bona fide purchased for consideration are protected. This protection has been upheld and held applicable even against revenue arrears in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Hank Hussenbhai, . There is no provision under the Tamil Nadu General Sales Tax Act, 1959 or the Central Sales Tax Act, 1956 by which tax clearance certificate or no objection certificate is required to be taken before registering a conveyance as under section 230A of the Income-tax Act, 1961. The petitioners obtained 'no encumbrance' certificate from the sub-registrar, and they only purchased the property. In the circumstances, the property of the petitioner cannot be proceeded against and the recovery measures on the property are illegal."
The counter-affidavit does not deny the factual allegation but pleads a legal contention as follows:
"The respondent most respectfully submits that there was no question of bona fide purchase would rise under section 100 of the Transfer of Property Act when once valid demand notices had been issued which were far anterior in point of time to the sale deed in view of the ratio of decision of this Honourable Court in Balakrishna Goenka v. State of Tamil Nadu, 1981 (2) SISTC 43."
In other words, out of the four points raised by us, we are not deciding the first two points as well as the fourth point. It is only on the third point we hold, following the Supreme Court judgment in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Hani Hussenbhai, that the respondent is a bona fide purchaser without notice of the charge under section 24(2) of the Sales Tax Act and therefore, his property cannot be proceeded against for the recovery of sales tax arrears. In this view of the matter, the appellants cannot proceed against the property of the respondent for the alleged arrears of sales tax due from a fresh vendor, viz., Ramkumar Gogia. We do not decide the question whether under the Revenue Recovery Act only the property of a defaulter can be brought to sale. We also do not want to decide the question whether the technical defects in the notices issued by the appellants would vitiate the proceedings. We therefore, confirm the judgment of the learned single Judge though for different reasons.
17. The writ appeal fails and is dismissed. However, there will be no order as to costs.