Commercial Tax Officer cannot enforce liabilities of defaulting company against auction purchasers.

(PRAYER: Writ Appeal under Clause 15 of the Letters Patent against the order of a learned single Judge of this Court dated 17.06.2006 passed in W.P.No.11900 of 2006.)

The Hon’ble Chief Justice:

Admit. The learned Special Government Pleader appearing for the respondents waives service. By consent, the appeal is taken up for hearing.

2. In this appeal filed against the order of a learned single Judge passed in a writ petition under Article 226 of the Constitution of India, the question relates to the liability of an auction purchaser of a property at a public auction towards the arrears of sales tax due under the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as the ‘TNGST Act’), which dues are a statutory charge on the property sold, and of which the purchaser had no actual notice. By the order under appeal, the learned single Judge held that the issue is covered by the judgment of a Division Bench of this Court in the case of N.Padma Coffee Works & Others Vs. Commercial Tax Officer, Rock Fort Assessment Circle, Trichy reported in (1999) 114 S.T.C. 494 and the contention that the appellants are bona fide purchasers has to be established only before a civil court by adducing proper evidence and not in a writ petition filed under Article 226 of the Constitution.

3. The property, which is the subject matter of controversy, has been purchased by the appellants, for a sum of Rs.23,50,000/- pursuant to the sale held by public auction conducted on 10.03.2003. The sale under auction had been conducted in execution of Recovery Certificate Nos.47 of 2001 and 93 of 2001 dated 05.02.2001 and 30.04.2001 respectively in terms of the order passed by the Debts Recovery Tribunal in O.A.Nos.356 of 2000 and 848 of 2000 respectively dated 06.12.2000 for the purpose of recovery of the debts due to the City Union Bank, Erode from M/s.New Fashion Parks and two others.

4. The entire amount had been paid by the appellants on 25.03.2003 and the sale was confirmed on 23.04.2003, as there was no application from any statutory or public authority seeking to set aside the sale. A Sale Certificate has also been issued on 08.07.2003, followed by a letter from the Recovery Officer addressed to the Sub Registrar, Erode, the second respondent herein, requesting him to make the necessary entries in the register maintained by the second respondent. On payment of adequate stamp duty, the entry of the Sale Certificate has been registered by the second respondent and the Encumbrance Certificate has been issued, showing the appellant as the absolute owners of the property.

5. It appears that the property belonged to one S.K. Veerappa Chettiar & Company and others and since the said Company was in arrears of sales tax under the TNGST Act, by letter dated 25.06.2004, the Commercial Tax Officer, Erode, the first respondent herein, required the second respondent herein to create an encumbrance with regard to the property and an entry was made in the register in respect of the encumbrance of the first respondent. Immediately on coming to know about the encumbrance created, a legal notice had been sent on 04.04.2006 by the appellants to the first respondent, but however, no action was taken to rectify the mistake. Since the respondents were not willing to relent, the appellants moved Writ Petition No.11900 of 2006 seeking to issue a writ of certiorarified mandamus to quash the proceedings of the first respondent in Na.Ka.No.1707/2000/A3 dated 25.06.2004 and to direct the respondents to remove the encumbrance of sales tax dues entered in respect of the appellants’ property. The writ petition was dismissed in limine by the learned single Judge holding that the appellants will have to prove that they were bona fide purchasers of the property in a civil suit.

6. Mr. M.M. Sundaresh, learned counsel appearing for the appellants strenuously contended that the appellants are bona fide purchasers of the property for valuable consideration without notice and