Case Law Details
The Hon’ble HC, Gujarat in the matter of M/s Choksi Texlen Pvt. Ltd. v. State of Gujarat [Special Civil Application No. 8096 of 2019 dated October 18, 2019] instructs Revenue authorities to withdraw the charge and attachment made on the Petitioner’s property to recover alleged dues of the erstwhile owner of the property under the Gujarat Value Added Tax Act, 2003.
Facts:
M/s Choksi Texlen Pvt. Ltd. (“the Petitioner 1”) is a private limited company and is engaged in the manufacture and sale of textile articles. The Petitioners 1 and the Director (“Petitioner 2”) purchased the property by a registered sale deed dated July 13, 2011 from one M/s. Varun Filaments Private Limited (“Varun Filament”) on payment of consideration. Next day, the Petitioners made an application with the Revenue department (“Respondents”) for mutation of the entry of sale of property by registered sale deed. Subsequently, on September 26, 2011, the Petitioners had obtained a title clearance certificate in respect of the subject property from an advocate, who certified that there was no subsisting encumbrance on the property.
Thereafter, the Petitioners came to know that by an order dated September 9, 2011 (“Impugned Order”), the Respondents had created a charge and attached the subject property for alleged dues of the erstwhile owner of the property namely, Varun Filaments for the year 2006-07. It is the case of the Petitioners that they had approached the Respondents and informed them that they had already purchased the subject property by way of a registered sale deed dated July 13, 2011. However, despite oral requests being made time and again for removal of the charge and attachment there was no response from the Respondents.
In view of the charge registered by the Respondents, by an order dated January 7, 2013, the Deputy Mamlatdar, Mandvi, rejected the application made by the Petitioners for mutating the entry for transfer of the subject property in the name of the Petitioners.
Being aggrieved, the Petitioners preferred an appeal against the said order before the Deputy Collector, Mandvi, who by an order dated August 27, 2015 dismissed the appeal. Against the said order, the Petitioner filed a revision application before the Collector, Surat, but failed. The Petitioners, therefore, approached the Value Added Tax Department again.
In the meantime, the Petitioners also filed an application under the Right to Information Act, 2005 for getting information of the assessment order for the year 2006-07 passed in the case of the erstwhile owner of the subject property based on which the impugned attachment and charge had been entered by order dated September 9, 2011. Pursuant thereto, the Petitioners were served with a copy of the assessment order dated May 3, 2014 for the year 2006-07. On scrutiny of the said order, the Petitioners found that the Impugned Order, on the basis of which the charge and attachment had been made on the subject property, had been quashed and set aside in appeal and the matter had been remanded for fresh assessment.
Issue involved:
The Petitioners seek a direction against the Respondents to withdraw the charge and attachment on property in respect of alleged dues of the erstwhile owners of the property i.e., Varun Filaments under the Gujarat Value Added Tax Act, 2003 (“the GVAT Act”).
Held:
The Hon’ble HC, Gujarat in Special Civil Application No. 8096 of 2019 dated October 18, 2019 held as under:
- In this case no charge was created prior to the subject property being transferred in favour of the Petitioners. Section 48 of the GVAT Act bears the heading “Tax to be first charge on property” and which lays down that notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case may be, such person, would not come into play. Thus, the Section envisages a first charge on the property of the dealer on account of tax, interest or penalty which he is liable to pay to the Government.
- In the present case, the Petitioners are not liable to pay any tax, interest or penalty to the Government and therefore, would not fall within the ambit of the expression “any other person” as contemplated in Section 48 of the GVAT Act. The subject property was transferred in favour of the Petitioners, prior to the order of attachment and creation of a charge thereon. Therefore, as on the date when the subject property came to be attached and a charge came to be created thereon, it did not belong to the dealer viz. Varun Filaments. The provisions of Section 48 of the GVAT Act, therefore, would clearly not be attracted in the facts of the present case.
- Apart from the fact, that the Impugned order dated September 9, 2011 is invalid as it has been passed in respect of property in which the defaulter had no right, title or interest; as noticed earlier, the assessment order, which formed the basis for passing the Impugned Order came to be set aside by the Tribunal and the matter was remanded. Therefore, the very substratum of the Impugned order was lost and hence, such order was rendered ineffective.
- The Impugned Order made by the Respondent cannot be sustained. However, the right of the department to have the transfer declared as void under Section 47 of the GVAT Act is not thereby taken away.
Relevant provision:
Section 47 of the GVAT Act
“47. Transfer to defraud revenue void:
Where a dealer after any tax has become due from him creates a charge on or parts with the possession by way of sale, mortgage, exchange or any other mode of transfer whatsoever of any of any of his property in favour of any other person with the intention of defrauding the government 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.”
Section 48 of the GVAT Act
“48. Tax to be first charge on property:
Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case may be, such person.”
FULL TEXT OF THE HIGH COURT ORDER / JUDGEMENT
1. Rule Ms. Maithili Mehta, learned Assistant Government Pleader, waives service of notice of rule on behalf of the respondents.
2. Having regard to the controversy involved in the present petition, which lies in a very narrow compass as well as the fact that the matter was heard at length, the petition is decided finally.
3. By this petition under article 226 of the Constitution of India, the petitioners seek a direction against the respondents to withdraw the charge and attachment on property located at Plot No.4/C, Block No.211, Survey No.133/2, Village Karanj, Taluka Mandvi, District Surat (hereinafter referred to as “the subject property”) in respect of alleged dues of the erstwhile owners of the property, that is, Varun Filaments Private Limited under the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as “the GVAT Act”).
4. The petitioner No.1 is a private limited company and is engaged in the manufacture and sale of textile articles. The petitioner No.2 is a Director and authorised signatory of the first petitioner company. The petitioners purchased the subject property by a registered sale deed dated 13.7.2011 from one M/s. Varun Filaments Private Limited on payment of valuable consideration. On the very next day, the petitioners made an application with the revenue department for mutation of the entry of sale of property by registered sale deed. Subsequently, on 26.9.2011, the petitioners had obtained a title clearance certificate in respect of the subject property from an advocate, who certified that there was no subsisting encumbrance on the property. Thereafter, the petitioners came to know that by an order dated 9.9.2011, the respondent authorities had created a charge and attached the subject property for alleged dues of the erstwhile owner of the property namely, M/s. Varun Filaments Private Limited for the year 2006-07. It is the case of the petitioners that they had approached the respondent authorities and informed them that they had already purchased the subject property by way of a registered sale deed dated 14.7.2011. However, despite oral requests being made time and again for removal of the charge and attachment there was no response from the respondent authorities.
5. In view of the charge registered by the respondent authorities, by an order dated 7.1.2013, the Deputy Mamlatdar, Mandvi, rejected the application made by the petitioners for mutating the entry for transfer of the subject property in the name of the petitioners. Being aggrieved, the petitioners preferred an appeal against the said order before the Deputy Collector, Mandvi Prant, Mandvi, who by an order dated 27.8.2015 dismissed the appeal. Against the said order, the petitioner filed a revision application before the Collector, Surat, under rule 108(6) of the Gujarat Land Revenue Rules, 1972, but failed. The petitioners, therefore, approached the Value Added Tax Department again and made a detailed submission contending that since the property had already been purchased by the petitioners, no charge could be entered on the property for alleged dues of the erstwhile owners.
6. In the meantime, the petitioners also filed an application under the Right to Information Act, 2005 for getting information of the assessment order for the year 2006-07 passed in the case of the erstwhile owner of the subject property based on which the impugned attachment and charge had been entered by order dated 9.9.2011. Pursuant thereto, the petitioners were served with a copy of the assessment order dated 3.5.2014 for the year 2006-07. On scrutiny of the said order, the petitioners found that the assessment order, on the basis of which the impugned charge and attachment had been made on the subject property, had been quashed and set aside in appeal and the matter had been remanded for fresh assessment. Thus, the assessment order in respect of which the impugned charge and attachment had been made was no longer in existence. The petitioners further noticed that the order for the year 2006-07 as well as assessment orders for the years 2009-10 and 2011-12 in the case of Varun Filaments Private Limited were passed years after the purchase of the property was made by the petitioners. The petitioners, therefore, filed an application before the Grievance Cell of the Value Added Tax Department complaining about the charge and attachment of their property not being removed even though the alleged dues of the erstwhile owner were raised much after the purchase of the property of the petitioner. However, the Grievance Cell, by communication dated 22.2.2019, informed the petitioners that they can approach the Revenue Department for resolution of their grievance. Since the Value Added Tax Department did not take any steps for removal of the charge and attachment over the subject property, the petitioners have approached this court seeking the relief noted here in above.
7. Mr. Uchit Sheth, learned advocate for the petitioners, submitted that entering the charge and attachment on the property of the petitioners for the alleged dues under the GVAT Act of the erstwhile owner of the property is wholly without jurisdiction and illegal. It was submitted that the petitioners had purchased the subject property before the charge came to be entered on the property by the Value Added Tax Department and that no charge was registered in respect of the alleged value added tax dues of the previous seller prior to registration of the sale deed. It was submitted that the assessment order, on the basis of which the attachment was made, was passed on 31.3.2011; however, such order came to be set aside in appeal and the matter was remanded to the adjudicating authority and that the order in respect of the said year as well as subsequent years were all made long after the subject property came to be transferred to the petitioners. It was contended that in the absence of any charge having been registered over the property, the petitioner had no means of knowing about the dues and that the petitioners are bona fide purchasers for consideration.
7.1 It was submitted that in any case, the dues of the erstwhile owners have arisen after the subject property was purchased by the petitioners and hence, it is not permissible for the respondents to attach the subject property and create any charge over it. It was pointed out that the respondents have placed reliance upon section 47 of the GVAT Act to contend that the transfer is a fraudulent transfer, to submit that if that be so, the respondents are required to approach the civil court to get the transfer set aside, if the transfer is void. However, they cannot seek to recover the dues of the erstwhile owner of the subject property, from the petitioners. It was, accordingly, urged that the petition deserves to be allowed by granting the reliefs noted hereinabove.
8. Opposing the petition, Ms. Maithili Mehta, learned Assistant Government Pleader placed reliance on the averments made in the affidavit-in-reply filed on behalf of the respondent No.2, wherein it has been stated that the dues of Varun Filaments Private Limited, namely the erstwhile owner, are to the tune of Rs.1,99,98,219/- and that the company has been assessed for assessment years 2006-07, 2009-10 and 2011-12. It was submitted that the assessment notice for assessment year 2006-07 was issued on 19.12.2008 and pursuant thereto, assessment order was made on 31.3.2011 whereby Varun Filaments Private Limited was also liable to pay dues of Rs.1,70,67,925/- under the GVAT Act. It was submitted that Varun Filaments Private Limited challenged the said assessment order before the Gujarat Value Added Tax Tribunal (hereinafter referred to as “the Tribunal”) which, by its order dated 7.5.2012 remanded the matter to the Assessing Officer for reconsideration. It was submitted that the Assessing Officer issued notices for assessment under section 34 of the GVAT Act for assessment years 2006-07, 2009-10, 2011-12. It was submitted that thereafter, vide order dated 3.5.2014, Varun Filaments Private Limited was held liable to pay tax of Rs.1,48,35,312/- for assessment year 2006-07; vide order dated 31.3.2014, it was held liable to pay tax of Rs.28,47,276/- for assessment year 2009-10; whereas by an order dated 28.3.2016, Varun Filaments Private Limited was held liable to pay tax of Rs.23,15,631/- for assessment year 2011-12.
8.1 It was submitted that in the light of the provisions of section 44 of the GVAT Act, the respondent authorities had created a charge over the property in question on 12.9.2011, which came to be certified on 16.6.2012. It was submitted that Varun Filaments Private Limited was well aware of its liability under the GVAT Act as it had participated in all the assessment proceedings and was fully conversant with the fact that the assessment proceedings were initiated way back in the year 2008, despite which, Varun Filaments Private Limited sold the subject property to the present petitioners on 14.7.2011. It was submitted that Varun Filaments Private Limited has sold its property with a view to defraud the Government revenue and hence, the transaction between Varun Filaments Private Limited and the petitioners is void as the transaction is with a view to defraud the Government exchequer.
8.2 The attention of the court was invited to the provisions of section 47 of the GVAT Act, to submit that in view thereof, the transaction between Varun Filaments Private Limited and the petitioners can be termed as a void transfer as the same was made with a specific intention at the end of Varun Filaments Private Limited to defraud the Government. It was, accordingly, urged that there being no infirmity in the action taken by the respondent authority, there is no warrant for interference by this court and that the petition being devoid of merits, deserves to be dismissed.
9. The facts are not in dispute. The petitioners purchased the subject property by way of a registered sale deed dated 13.7.2011. Thereafter, the petitioners had also obtained a title clearance certificate, which revealed that there was no encumbrance on the subject property. Undisputedly, prior to purchase of the property by the petitioners, no charge had been registered by the respondents in respect of the subject property and vide order dated 9.9.2011, the attachment came to be made subsequent to the purchase of the subject property.
10. After the petitioners purchased the subject property and were put in possession thereof, the second respondent passed the attachment order dated 9.9.2011 and a corresponding entry came to be made in the revenue record. The above attachment was made on the basis of an assessment order dated 31.3.2011, whereby Varun Filaments Private Limited was held to be liable to pay dues of Rs.1,70,67,925/- under the GVAT Act. However, by an order dated 7.5.2012, the Tribunal set aside the assessment order and remanded the matter for reconsideration. Thus, the very substratum of the attachment order dated 9.9.2011, disappeared. Subsequently, assessment orders came to be passed holding Varun Filaments Private Limited to pay an amount of Rs.1,48,35,312/- for assessment year 2006-07; Rs.28,47,276/- for assessment year 2009-10 and Rs.23,15,631/- for assessment year 2011-12.
11. The impugned action of the respondents of attaching the subject property and creating a charge over it, it required to be tested in the above backdrop.
12. As noticed earlier, in this case no charge was created prior to the subject property being transferred in favour of the petitioners. Section 48 of the GVAT Act bears the heading “Tax to be first charge on property” and which lays down that notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case may be, such person, would not come into play. Thus, the section envisages a first charge on the property of the dealer on account of tax, interest or penalty which he is liable to pay to the Government. In the present case, the petitioners are not liable to pay any tax, interest or penalty to the Government and therefore, would not fall within the ambit of the expression “any other person” as contemplated in section 48 of the GVAT Act. The subject property was transferred in favour of the petitioner, prior to the order of attachment and creation of a charge thereon. Therefore, as on the date when the subject property came to be attached and a charge came to be created thereon, it did not belong to the dealer viz. Varun Filaments Pvt. Ltd. The provisions of section 48 of the GVAT Act, therefore, would clearly not be attracted in the facts of the present case.
13. As is evident from the facts noted hereinabove, the order of attachment was made after the property came to be transferred in favour of the petitioners. The attachment order dated 9.9.2011 has been passed in exercise of powers under section 154/155 of the Gujarat Land Revenue Code (hereinafter referred to as “the Code”). Section 154 of the Code provides for distraint and sale of defaulter’s moveable property, whereas section 155 provides for sale of defaulter’s immoveable property. Since the subject property is an immoveable property, it appears that the provisions of section 155 of the Code are sought to be invoked which postulate that the Collector may also cause the right, title and interest of the defaulter in any immoveable property other than the land on which the arrears is due, to be sold. Thus, section 155 of the Code would empower the concerned officer to sell the right, title and interest of the defaulter, namely, Varun Filaments Private Limited in any immoveable property. However, on the date when the order dated 9.9.2011 came to be made, Varun Filaments Private Limited had no right, title or interest in the subject property and hence, the question of resorting to the provisions of section 155 of the Code qua the subject property did not arise.
14. Apart from the fact that the impugned order dated 9.9.2011 is invalid as it has been passed in respect of property in which the defaulter had no right, title or interest; as noticed earlier, the assessment order, which formed the basis for passing the impugned order came to be set aside by the Tribunal and the matter was remanded. Therefore, the very substratum of the order dated 9.9.2011 was lost and hence, such order was rendered ineffective.
15. On behalf of the respondents, reliance has been placed on section 47 of the GVAT Act, which bears the heading “Transfer to defraud revenue void” and provides that where a dealer after any tax has become due from him creates a charge on or parts with the possession by way of sale, mortgage, exchange or any other mode of transfer whatsoever of any of his property in favour of any other person with the intention of defrauding the government 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. According to the respondents, since Varun Filaments Private Limited was aware that the tax has become due and payable by it and despite such position, it had parted with the possession of the subject property by way of sale in favour of the petitioner with the intention of defrauding the Government revenue, the transfer in favour of the petitioner is void as against the claim of the Department for the sum payable by Varun Filaments Private Limited.
16. In this regard, it may be germane to refer to the decision of the Supreme Court in the case of Tax Recovery Officer II v. Gangadhar Vishwanath Ranade, (1998) 6 SCC 658, wherein the court, in the context of section 281 of the Income Tax Act, 1961, which is in pari materia with section 47 of the GVAT Act, held thus:-
“7. The question which is now required to be answered is whether in a proceeding under Rule 11 of the Second Schedule to the Income-tax Act, the Tax Recovery Officer can declare a transfer as void under Section 281. Section 281, as it stood at the relevant time provided as follows:-
“Section 281: Where, during the pendency of any proceeding under this Act, any assessee creates a charge on or parts with the possession by way of sale, mortgage, 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 assessee as a result of the completion of the said proceeding;
Provided that such charge or transfer shall not be void if made for valuable consideration and without notice of the pendency of the proceeding under this Act.”
Section 281 declares as void any transfer made by the assessee during the pendency of proceedings under the Act, with the intention to defraud the Revenue. The powers of the Tax Recovery Officer, however, under Rule 11 of the Second Schedule to the Income-tax Act are somewhat different. Under Rule 11(1) where any claim is preferred to or any objection is made to the attachment or sale of any property in execution of a certificate on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection. Under Rule 11(4), (5) and (6) it is provided as follows:-
Rule 11(4) : Where, upon the said investigation, the Tax Recovery Officer is satisfied that, for the reason stated in the claim or objection, such property was not, at the said date, in possession of the defaulter or of some person in trust for him or in the occupancy of a tenant or other person paying rent to him, or that, being in the possession of the defaulter at the said date, it was so in his possession, not on his own account or as his own property, but on account of or in trust for some other person, or partly on his own account and partly on account of some other person, the Tax Recovery Officer shall make an order releasing the property, wholly or to such extent as he thinks fit, from attachment or sale.
Rule 11(5) : Where the Tax Recovery Officer is satisfied that the property was, at the said date, in the possession of the defaulter as his own property and not on account of any other person, or was in the possession of some other person in trust for him, or in the occupancy of a tenant or other person paying rent to him, the Tax Recovery Officer shall disallow the claim.
Rule 11(6) : Where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a civil court to establish the right which he claims to the property in dispute; but subject to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive.”
[emphasis ours]
9. The Tax Recovery Officer, therefore, has to examine who is in possession of the property and in what capacity. He can only attach property in possession of the assessee in his own right, or in possession of a tenant or a third party on behalf of/for the benefit of the assessee. He cannot declare any transfer made by the assessee in favour of a third party as void. If the Department finds that a property of the assessee is transferred by him to a third party with the intention to defraud the Revenue, it will have to file a suit under Rule 11(6) to have the transfer declared void under Section 281.”
“13. In the present case the Tax Recovery Officer could not have examined whether the transfer was void under Section 281 of the Income-tax Act. His adjudication of the transfer as void under Section 281 is without jurisdiction. The Tax Recovery Officer has relied upon the earlier order of the Income Tax Officer dated 9.5.1974 declaring that the transaction is void under Section 281 of the Income-tax Act. In the earlier proceedings, however, although the High Court has not set aside this order of the Income Tax Officer, the High Court has expressly held that the order amounted only to an intention of declaration on the part of the Department to treat the transaction as void under Section 281. Such a declaration cannot affect the legal rights of the parties affected under Rule 11. The High Court expressly held that the rights of the parties under Rule 11 were not affected in any way by this declaration. The Department, therefore, cannot proceed on the assumption that the transaction is void under Section 281, nor can the Tax Recovery Officer, while proceeding under Rule 11, declare a transaction of transfer as void under Section 281 by relying on the Order of 9.5.1974 or otherwise. His jurisdiction relates to examining possession, and only incidentally, any question of right to possession as claimed by the Objector. The High Court has, therefore, rightly set aside the order of the Tax Recovery Officer.
14. However, the right of the Department to have the transfer declared as void under Section 281 of the Income-tax Act, as it stood at the relevant time, is not thereby taken away. We are informed that the property continues to be under attachment by virtue of interim orders passed in this appeal. The Department may, if it so desires, take appropriate proceedings in accordance with law for having the transfer declared as void under Section 281 of the Income-tax Act.”
17. Thus, the Supreme Court, in the above decision, has held that the Tax Recovery Officer has to examine who is in possession of the property and in what capacity. He can only attach property in possession of the assessee in his own right, or in possession of a tenant or a third party on behalf of/for the benefit of the assessee. He cannot declare any transfer made by the assessee in favour of a third party as void. If the Department finds that a property of the assessee is transferred by him to a third party with the intention to defraud the revenue, it will have to file a suit under rule 11(6) to have the transfer declared void under section 281.
18. In the opinion of this court, the above decision would be squarely applicable to the facts of the present case and if it is the case of the department that the transfer in favour of the petitioner is void on the ground that Varun Filaments Private Limited has transferred the same to the petitioner with the intention of defrauding the Government revenue, then the respondents are required to approach the civil court for a declaration that the transfer is void. Moreover, this court in the case of Chetna Vijay Shah v. State of Gujarat, rendered on 25.1.2018 in Special Civil Application No.14823 of 2017, has, in the context of the provisions of section 47 of the GVAT Act, held that the only recourse available to the VAT authority under section 47 of the Act is to approach the civil court to annul the transfer on the ground that it was made with an intention to defraud the Government. It is in the light of the above factual and legal position that the impugned order of attachment dated 9.9.2011, made by the second respondent cannot be sustained. However, the right of the department to have the transfer declared as void under section 47 of the GVAT Act is not thereby taken away. If at all the respondents seek such a declaration, it is always open for them to approach the civil court by instituting appropriate proceedings
19. In the light of the above discussion, the petition succeeds and is, accordingly, allowed. The respondents are directed to withdraw the charge and attachment on property located at Plot No.4/C, Block No.211, Survey No.133/2, Village Karanj, Taluka Mandvi, District Surat, in respect of alleged dues of the erstwhile owner of the property, that is, Varun Filaments Private Limited under the Gujarat Value Added Tax Act, 2003. Rule is made absolute accordingly, with no order as to costs.
DISCLAIMER: The views expressed are strictly of the author and A2Z Taxcorp LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.
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