HC: Attachment cannot be made on Petitioner's property to recover dues of erstwhile owner

Facts:

M/s Choksi TexlenPvt. 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 R/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.'