A bona fide purchaser for value without notice of the sales tax arrears is protected under section 100 of the Transfer of Property Act, and this protection extends even against revenue arrears.

Headnote:
REVENUE RECOVERY ACT - SALES TAX ARREARS - RECOVERY FROM BONA FIDE PURCHASER - SECTION 100 OF THE TRANSFER OF PROPERTY ACT - APPLICABILITY - Held, that a bona fide purchaser for value without notice of the sales tax arrears is protected under section 100 of the Transfer of Property Act, and this protection extends even against revenue arrears. In the absence of a provision in the Tamil Nadu General Sales Tax Act, 1959 or the Central Sales Tax Act, 1956 requiring a tax clearance certificate or no objection certificate before registering a conveyance, the property of a bona fide purchaser cannot be proceeded against for the recovery of sales tax arrears.
Fact of the Case:

The respondent, a partnership firm, purchased a property from Ramkumar Gogia, who had been assessed for sales tax arrears under the Tamil Nadu General Sales Tax Act and the Central Sales Tax Act. The appellants, revenue authorities, issued notices under the Tamil Nadu Revenue Recovery Act to recover the arrears from the respondent, claiming that the property was subject to a charge for the arrears. The respondent filed a writ petition challenging the recovery proceedings, which was allowed by the single Judge.
Finding of the Court:

The court held that the respondent was a bona fide purchaser for value without notice of the sales tax arrears, and therefore, his property could not be proceeded against for the recovery of the arrears. The court relied on section 100 of the Transfer of Property Act, which protects bona fide purchasers from charges on property unless there is an express provision to the contrary in the relevant statute. The court also noted that there was no provision in the Tamil Nadu General Sales Tax Act or the Central Sales Tax Act requiring a tax clearance certificate or no objection certificate before registering a conveyance, and therefore, the respondent could not be held to have constructive notice of the charge.
Issues: 1. Whether a bona fide purchaser for value without notice of the sales tax arrears is protected under section 100 of the Transfer of Property Act. 2. Whether the property of a bona fide purchaser can be proceeded against for the recovery of sales tax arrears in the absence of a provision in the relevant statute requiring a tax clearance certificate or no objection certificate before registering a conveyance.
Ratio Decidendi: The court held that section 100 of the Transfer of Property Act protects bona fide purchasers from charges on property unless there is an express provision to the contrary in the relevant statute. In the absence of such a provision in the Tamil Nadu General Sales Tax Act or the Central Sales Tax Act, the respondent, as a bona fide purchaser for value without notice of the sales tax arrears, was protected from the recovery proceedings.
Final Decision: The court dismissed the writ appeal filed by the revenue authorities, confirming the judgment of the single Judge.

Judgment :-

J. KANAKARAJ, J.

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 latter 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 38.80 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 notices 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 has taken place long prior to the date of sale by Ramkumar Gogia on December 30, 1981. The first appellant had 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 from No. 7 notice issued under section36 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 section59 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 sectio

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1997 Supreme(Mad) 945

High Court of Judicature at MadrasTHE HONOURABLE MR. JUSTICE J. KANAKARAJDeputy Commercial Tax Officer, Thudiyalur Assessment Circle, Coimbatore and Another - AppellantVersusR. K. Steels - RespondentsW.A. No. 900 of 1993Decided On : 01 September 1997

A bona fide purchaser for value without notice of the sales tax arrears is protected under section 100 of the Transfer of Property Act, and this protection extends even against revenue arrears.

High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE J. KANAKARAJ
Deputy Commercial Tax Officer, Thudiyalur Assessment Circle, Coimbatore and Another - Appellant
Versus
R. K. Steels - Respondents
W.A. No. 900 of 1993
Decided On : 01 September 1997