IMPORTANT POINT
The Income Tax Department cannot claim properties auctioned under the KGST Act for tax dues, as the KGST Act establishes a first charge on such properties.

JUDGMENT :

Harisankar V. Menon, J.

These connected writ petitions are pertaining to certain properties of an assessee under the provisions of the Income Tax Act, 1961 (for short, the ‘I.T. Act’), presently in the ownership and possession of the petitioners herein, pursuant to an auction sale of those properties for realization of some arrears payable by the original owner (assessee) under the provisions of the Kerala General Sales Tax Act, 1963 (for short, the ‘KGST Act’) and the Cashew Workers Welfare Fund dues.

2. One late P.N.Madhavan Pillai was the proprietor of M/s.Mohandas Cashew Factory, Arakkal, Kollam District. He was an assessee under the provisions of the KGST Act and had arrears in excess of Rs.58 lakhs for the period from 1995 onwards. He was also in arrears with respect to Cashew Workers Welfare Fund dues for the period from 1997 to 2000. For the realization of the afore amounts, revenue recovery proceedings were initiated under the provisions of the Revenue Recovery Act, 1968 (for short, ‘RR Act’), and an extent of 78.30 Ares of his property was attached. Out of the afore property, an extent of 28.32 Ares of land were auctioned on 30.08.2006 in favour of one Smt.Sushamakumari and the sale was confirmed on 09.02.2007. The afore Smt.Sushamakumari assigned the said property to one Sri.Kishore, as per a sale deed dated 04.11.2009. The afore extent of the property and the factory building therein were purchased by the petitioner in W.P(C) No.50 of 2017 from Sri.Kishore, as per the sale deed dated 13.10.2011. He is stated to be conducting the Cashew Factory in the afore property in the factory building thereafter.

3. In the meantime, Ext.P10 communication dated 11.03.2015 was issued by the Regional Provident Fund Commissioner, directing payment of certain arrears payable by M/s.Mohandas Cashew Factory, referred to above. The 2nd respondent herein, in the meantime, had filed O.S.No.6 of 2007 before the Sub-Court, Kottarakkara against the deceased Madhavan Pillai and the Kerala State Financial Corporation alleging that the deceased availed financial assistance from the Corporation after mortgaging the immovable properties which are being independently proceeded against by the Income Tax Department for realization of income tax arrears payable by the deceased for the assessment year 1995-96. During the pendency of the suit, the assessee (Madhavan Pillai) passed away, and therefore, his wife and children were brought on record as additional defendants. The legal heirs who were brought on record filed a written statement pointing out that the property had already been sold in a public auction in 2006, and at present, the properties are in possession of third parties like the petitioners in these writ petitions. The suit instituted as above was disposed of by Ext.P11 judgment dated 31.07.2013 holding as under:

“15. Thus from the discussions made above, it can be concluded that the mortgage/charge created by first defendant in favour of 2nd defendant on 04.05.1998 with respect to the plaint schedule properties is void under Sec.281 of I.T. Act as against Ext.A6 assessment order dated 04.03.1999 with regard to the claim of the plaintiff to realise the amount covered under Ext.A6 from the plaint schedule property.”

On the basis of the afore judgment, the 2nd respondent herein issued Ext.P12 notice to the petitioners in these writ petitions, who are in possession of the properties at present, informing them that the properties concerned are proposed to be sold in public auction for realization of the arrears payable under the I.T. Act. The petitioner in W.P.(C) No.50 of 2017 submitted Ext.P13 objection essentially pointing out that Ext.P11 judgment and decree are not binding on him since he was not made a party in the civil suit, that he came into possession of the property subsequent to the auction sale under the RR Act on account of which his title is not to be disturbed etc. The 2nd respondent, in turn, issued Ext.P14 informing t