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BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT

RESERVED ON : 01.02.2018
DELIVERED ON: 21.02.2018
CORAM:
THE HONOURABLE MR.JUSTICE M.SATHYANARAYANAN
AND
THE HONOURABLE MRS.JUSTICE R.HEMALATHA
W.A(MD)No.866 of 2015
and
M.P.(MD)No.1 of 2015
and
W.P(MD)No.7482 of 2015
and
M.P.(MD)Nos.1 and 2 of 2015

W.A(MD)No.866 of 2015:
M.Thirumaran : Appellant
Vs.

1.The Commercial Tax officer,

Sengottai Assessment Circle,
Sengottai.

2.The Sub Registrar,

Tenkasi II Sub Registration District,
Tenkasi. : Respondents

PRAYER: Appeal filed under Clause 15 of the Letters Patent,

praying to set aside the order passed by a Single Judge in M.P.

(MD)No.1 of 2014 om W.P.(MD)No.7482 of 2015 dated 30.04.2015.

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For Appellant : Mr.N.Sudalaimuthu

for Mr.S.Karunakar
For Respondents : Mr.A.Muthukaruppan
Additional Government Pleader
******
W.P(MD)No.7482 of 2015:
M.Thirumaran : Petitioner
Vs.
1.The Commercial Tax Officer,
Sengottai Assessment Circle,
Sengottai.

2.The Sub Registrar,

Tenkasi II Sub Registration District,
Tenkasi. : Respondents

PRAYER: Petition filed under Article 226 of the Constitution of

India, to issue a Writ of Certiorarified Mandamus, calling for the

records in Na.Ka.A3/2350/02 dated 02.03.2015 and

Na.Ka.A3/2350/2002 dated 20.04.2015 and to quash the same as

illegal arbitrary and against the provisions of Tamil Nadu General

Sales Tax Act and direct the respondents to raise the charge

created over the subject property.

For Petitioner : Mr.N.Sudalaimuthu

for Mr.S.Karunakar
For Respondents : Mr.A.Muthukaruppan
Additional Government Pleader
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COMMON JUDGMENT

(Judgment of the Court was delivered by R.HEMALATHA, J.)

The appellant herein filed a writ petition in W.P.(MD)No.7482

of 2015 before the learned Single Judge for issuance of Writ of

Certiorarified Mandamus, calling for the records in

Na.Ka.A3/2350/02 dated 02.03.2015 and Na.Ka.A3/2350/2002

dated 20.04.2015 and to quash the same and direct the

respondents to raise the charge created over the property. Along

with the said writ petition, he filed M.P.(MD)No.1 of 2015 in which

an interim order of stay was granted by the learned Single Judge

on condition that the appellant should deposit 25% of the tax

amount within a period of six weeks. The present appeal is filed

against the said order and this Court took up both W.A.(MD)No.866

of 2015 as well as W.P(MD)No.7482 of 2015 for final disposal.

2.The facts of the case as stated in the supporting affidavit

are as follows;

2.1.The appellant / writ petitioner purchased 1 acre and 42

cents in Survey No.49/1, 49/2, 49/3 and 49/4 of Kunnakudi village

from one Mr.Dinesh N.Patel, through a registered sale deed dated

05.07.2004, for a sale consideration of Rs.1,25,000/- and he is a

bona fide purchaser for value. According to him, he verified the

encumbrance certificate with regard to the property he purchased

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in the office of the Sub-registrar, Tenkasi II Sub Registration

District, Tenkasi and satisfied himself that there was no

encumbrance and that ever since the date of purchase, he has been

in continuous possession and enjoyment over the said property.

2.2.However, on 25.09.2009, he was served with a notice

dated 25.09.2009 by the Commercial Tax Officer, Sengottai

Assessment Circle, Sengottai, Tirunelveli District, the first

respondent herein, directing him to pay a sum of Rs.8,53,373/-

being arrears of tax payable by his vendor Mr.Dinesh N.Patel, in

respect of the property in Survey No.49 measuring 1 acre 42 cents.

The appellant / writ petitioner sent a reply dated 12.11.2009,

contending that he is a bona fide purchaser for value and that he

has purchased the property after due verification of the

encumbrance certificate in the office of the Sub Registrar, Tenkasi.

He also explained that he was not aware of any of the proceedings

initiated by the first respondent or the arrears of tax payable by his

vendor Mr.Dinesh N.Patel.

2.3.The first respondent, without considering the reply sent

by him, sent demand notices dated 25.01.2010, 01.06.2010 and

10.11.2010, calling upon the appellant / writ petitioner herein to

pay a sum of Rs.8,53,373/-. The appellant / writ petitioner also

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Sub-Registrar, Tenkasi II Sub Registration District, Tenkasi, dated

10.11.2010, requesting him to enter the encumbrance created in

respect of the property in Survey No.49, in order to avoid further

alienation by the appellant / writ petitioner. Thereafter, the first

respondent issued another notice dated 16.05.2014, contending

that the properties would be brought for sale in public auction

under the Revenue Recovery Act, after creating a charge over the

property. The appellant / writ petitioner sent a written objection

dated 02.07.2014, not to conduct the public auction and the first

respondent without considering the objection made by the

appellant / petitioner, fixed the date of auction as 05.05.2015.

3.The specific contention of the appellant / writ petitioner is

that since he is a bona fide purchaser for value, there is no

justification for the first respondent in making a claim against him.

4.Assailing the correctness of the proceedings dated

16.05.2014, and by inviting the attention of this Court to Proviso to

Section 24 (A) of Tamil Nadu General Sales Tax Act, 1959

(hereinafter referred to as “the Act”), Mr.N.Sudalaimuthu, learned

Counsel appearing on behalf of Mr.S.Karunakar, learned Counsel

for the appellant / writ petitioner would submit that no doubt,

during the pendency of any proceedings under the Act or after the

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parts with the possession (by way of sale, mortgage, gift, exchange

or any other mode of transfer whatsoever) of any of his assets in

favour of any other person, with an 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 dealer as a

result of the completion of the said proceeding or otherwise, but a

sale or transfer shall not be void, if it is made for adequate

consideration and without notice of the pendency of such

proceeding under the Act or, as the case may be, without notice of

such tax or other sum payable by the dealer.

5.The learned Counsel appearing for the appellant / writ

petitioner would also contend that the property which is sought to

be attached, is for the arrears of tax payable for the assessment

years 1999 – 2000, 2000 – 2001 and 2001 – 2002, by the said

Mr.Dinesh N.Patel, who was running a business dealing in wood at

Sengottai. The contentions of the appellant / writ petitioner are;

i)The property had been purchased in the year 2004 by him

from Mr.Dinesh N.Patel and he was unaware of the pendency of any

proceedings by the first respondent under the Act.

ii)He is a bona fide purchaser of the aforesaid property and

therefore, a charge over his property cannot be created by the first

respondent.

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iii)The respondent has committed an error in passing a

distraint order, under Section 8 of the Revenue Recovery Act, when

a bona fide purchaser is protected under the Proviso to Section 24

(A) of the Act.

6.Placing reliance on the judgments of the Division Bench of

this Court in Deputy Commercial Tax Officer, Thudiyalur

Assessment Circle, Coimbatore and another Vs. R.K.Steels

reported in (1998) 108 STC 161 (Mad) and D.Senthilkumar

and others Vs. Commercial Tax Officer, Erode, reported in

(2006) 148 STC 204 (Mad), the learned Counsel appearing for

the appellant / writ petitioner would submit that the appellant

cannot be said to have actual or constructive notice of the charge,

prior to the transfer of the property and therefore, he must be

treated as a bona fide purchaser for value. According to him, the

Commercial Tax Officer cannot direct the appellant / writ petitioner

to pay tax.

7.The learned Counsel appearing for the appellant / writ

petitioner would also contend that in D.Senthilkumar's case

(cited supra), it has been held that a bona fide purchaser for value

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bona fides, if he has no actual or constructive notice of the charge

prior to the transfer of the property. His specific contention is that

when the appellant / writ petitioner verified the encumbrance

certificate from the office of the Sub-Registrar, Tenkasi II Sub

Registration District, Tenkasi, (the second respondent's office), no

encumbrance was marked with regard to the property which he

had purchased. It is the specific contention of the learned Counsel

appearing for the appellant / writ petitioner that in none of the

proceedings passed by the first respondent, it has been specifically

mentioned that the vendor of the appellant / writ petitioner has

transferred the property in favour of the appellant / writ petitioner

with an intention to defraud payment of arrears of sales tax.

8.Per contra, Mr.A.Muthukaruppan, learned Additional

Government Pleader appearing for the first respondent would

contend that the Commercial Tax Officer, can proceed against the

property of the dealer, if such a dealer with an intention to defraud

the revenue, had sold the property to some other person. Placing

reliance upon an unreported decision in the State of Tamil Nadu

and another Vs. M.Cauvery Ammal, in S.A.No.21/87 of this

Court, the learned Additional Government Pleader appearing for

the first respondent would contend that there would be a statutory

charge relating to the property of the assessee and any sale of the
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property by the assessee would be subject to payment of sales tax
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amount. He would further contend that although, the term “first

charge” is not seen under Section 24 of the Act, it is evidently clear

that a statutory charge has been created as per records and the

final order of assessment had been made by the competent

authority and under such circumstances, the appellant / writ

petitioner is not entitled to get any relief in the present writ

petition. At this juncture, it is relevant to extract Section 24 and 24

(A) of the Act, which reads as follows;

“24.Payment and recovery of tax: (1) Save as

otherwise provided for in sub-section (2) of Section
13, the tax assessed or has become payable under
this Act from a dealer or person and any other
amount due from him under this Act shall be paid in
such manner and in such instalments, if any, and
within such time as may be specified in the notice of
assessment, not being less than twenty-one days from
the date of service of the notice. The tax under sub-
section (2) of Section 13 shall be paid without any
notice of demand. In default of such payments the
whole of the amount outstanding on the date of
default shall become immediately due and shall be a
charge on the properties of the person or persons
liable to pay the tax or interest under this Act.

(2)Any tax assessed on or has become payable

by, or any other amount due under this Act from a
dealer or person and any fee due from him under this
Act, shall, subject to the claim of the Government in
respect of land revenue and the claim of the Land
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Development Bank in regard to the property
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mortgaged to it under Section 28 (2) of the Tamil

Nadu Cooperative Land Development Banks Act,
1934 (Tamil Nadu Act X of 1934), have priority over
all other claims against the property of the said
dealer or person and the same may without prejudice
to any other mode of collection be recovered,

(a)as land revenue; or

(b)on application to any Magistrate by such

Magistrate as if it were a fine imposed by him;

Provided that no proceedings for such recovery

shall be taken or continued as long as he has, in
regard to the payment of such tax, other amount of
fee, as the case may be, complied with an order by
any of the authorities to whom the dealer or person
has appealed or applied for revision, under Sections
31, 31-A, 33, 35, 36, 37 or 38.

(3)On any amount remaining unpaid after the

date specified for its payment as referred to in sub-
section (1) or in the order permitting payment in
instalments, the dealer or person shall pay, in
addition to the amount due, interest at [one and a
half percent per month of such amount for the first
three months of default and two per cent per month
of such amount for the subsequent period of default]:

Provided that if the amount remaining unpaid is

less than one hundred rupees and the period of
default is not more than a month, no interest shall be
paid:

Provided further that where a dealer or person

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of assessment or revision of assessment under this

Act, the interest payable under this sub-section, in
respect of the amount in dispute in the appeal or
revision, shall be calculated on the amount that
becomes due in accordance with the final order
passed on the appeal or revision as if such amount
had been specified in the order of assessment or
revision of assessment as the case may be.

(3-A)Where a dealer submits the prescribed

return within ten days after the expiry of the
prescribed period, he shall also pay, in addition to the
amount of tax due as per his return, interest at two
per cent of the tax payable for every month or part
thereof.

(4)Where the tax paid under this Act is found to

be in excess on final assessment or revision of
assessment, or as a result of an order passed in
appeal, revision or review, the excess amount shall be
refunded to the dealer after adjustment of arrears of
tax, if any, due from him. Where the excess amount is
not refunded to the dealer within a period of ninety
days from the date of the order of assessment or
revision or review, within a period of ninety days from
the date of receipt of the order, the Government shall
pay by way of interest, where the amount refundable
is not less than one hundred rupees, a sum equal to a
sum calculated at the rate of one per cent or part
thereof of such amount for each month or part
thereof after the expiry of the said period of ninety
days.

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24-A. Transfers to defraud revenue void:

Where during the pendency of any proceedings under
this Act or after the completion thereof, any dealer
creates, a charge on, or parts with the possession (by
way of sale, mortgage, gift, 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 dealer as a result of the
completion of the said proceeding or otherwise:

Provided that, such charge or transfer shall not

be void if it is made-

(i)for adequate consideration and without

notice of the pendency of such proceeding under this
Act or, as the case may be, without notice of such tax
or other sum payable by the dealer; or

(ii)with the previous permission of the assessing

authority.”

9.The only point to be considered in the writ petition is as to

whether the writ petitioner is a bona fide purchaser of the property

and would be protected from the proceedings under the Revenue

Recovery Act, and under Section 24 (A) of the Tamil Nadu General

Sales Tax Act, 1959. In the present case, the encumbrance

certificate does not reveal the charge created over the property

and there is nothing to infer that the appellant / writ petitioner and
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his vendor with an intention to defraud the tax payable to the first
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respondent colluded with each other and effected transfer of the

property. The business conducted by the vendor of the writ

petitioner was actually closed on 01.04.2002 and the property had

been purchased by the writ petitioner only in the year 2004.

Therefore, it cannot be said that he had actual or constructive

notice of the charge created over the property for payment of

arrears of sales tax in respect of the business conducted by his

vendor.

10.A bona fide purchaser takes the property he buys free of

all charges of which he has no notice either actual or constructive.

He is said to have constructive notice when ordinary prudence or

care would have impelled him to undertake an enquiry which would

have disclosed a charge. If for instance, the charge is created by a

registered document, then the purchaser would be held to have

constructive notice of that charge inasmuch as a prudent purchaser

would in ordinary course search the Registers before effecting the

purchase. In the instant case, the encumbrance certificate did not

disclose any charge created over the property. A reading of Section

3 of the Transfer of Property Act, 1882, shows that a person is said

to have notice of a fact when he actually knows that fact or when,

but for willful abstention from an enquiry or search which he ought

to have made or gross negligence, he would have known it. This

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presumption is known as constructive notice.
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11.The correctness of a notice of recovery issued to a specific

purchaser came up for consideration before the Division Bench of

this Court in D.Senthilkumar's case, in which it has been held

that the appellant therein was a bona fide purchaser for valuable

consideration and therefore, he would be covered within the

exempted category, as provided under Section 24 (A) of the Act. It

is further held in the said judgment that under Section 100 of the

Transfer of Property Act, 1882, a charge may not be enforced

against a transferee, if he had notice there of, unless by law, the

requirement of such notice had been waived.

12.The learned Counsel appearing for the petitioner also

relied on the decision in P.Kannamba and others Vs. The Board

of Revenue (C.T.)., Madras reported in (1967) 19 STC 456. In

that case, a house property was sold by an assessee on 18 th April,

1958. Even on the date of sale, there were arrears of sales tax due

by the assessee and in seeking to recover the tax arrears, the said

property was brought for sale under the Act. The learned Judge

held that the transferee of the property is not a defaulter in respect

of the sales tax due by the transferrer.

13.In fact, the Provisions of Section 100 of the Transfer of

Property Act was considered by the Honourable Supreme Court in

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Ahmedabad Municipal Corporation of the City of Ahmedabad

Vs. Haji Abdulgafur Haji Hussenbhai reported in (1971) 1

SCC 757. In that case, the Ahmedabad Municipal Corporation

created a charge over the property of the defaulter though the

property was sold in execution of a mortgage decree in Court

auction. When the Municipal Corporation purported to exercise

the charge over the property, the purchaser filed a suit for

declaration that he was the owner of the property and that the

Municipal tax which fell in arrears cannot be recovered from him

by proceeding against his property. The main contention of the

Municipal Corporation was that where the law provided for the

creation of a charge against a property for which municipal taxes

were due, transferees of such properties were imputed with

constructive notice. This argument was however, rejected by the

Honourable Supreme Court. The Court held that, while the

constructive notice was sufficient to satisfy the notice as per

Proviso to Section 100 of the Transfer of Property Act, whether the

transferee had constructive notice of the charge, had got to be

determined on the facts and circumstances of the case. The

Honourable Supreme Court has also held that it cannot be

presumed that the transferee had constructive notice of the charge

against the property. In the present case, as already observed, the

encumbrance certificate does not reveal the charge created over

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14.In the light of the above judgments, it can been seen that

even though a charge is created on the properties on the

finalisation of the assessment of tax and a demand is raised, the

same would not preclude the bona fide purchaser from seeking

protection under Section 24 (A) of the Act. The specific contention

of the appellant / writ petitioner is that prior to the purchase of the

property in the year 2004, he had verified the encumbrance details

in the Registration Department and finding that there was no

encumbrance over the property, he had purchased the same. This

would show that the appellant / writ petitioner had made sincere

efforts to find out whether there was an encumbrance over the

property. A perusal of the encumbrance certificate dated

06.04.2015, reveals that nothing has been mentioned about the

charge created over the property. The learned counsel appearing

for the first respondent has not averred any mala fides on the part

of the appellant / writ petitioner. The first respondent did not also

file any materials before this Court to show that steps have been

taken by them under the Provisions of the Revenue Recovery Act,

against the defaulter from whom the appellant / writ petitioner had

purchased the property in the year 2004.

15.In the instant case, it cannot be said that there was willful

abstention or gross negligence in making any enquiry that would

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tantamount to a notice under Section 3 of the Transfer of Property
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Act, and the appellant / writ petitioner is a bona fide purchaser for

value. Therefore, this Court holds that the proceedings in

Na.Ka.A3/2350/02 dated 02.03.2015 and in Na.Ka.A3/2350/2002

dated 20.04.2015 and the order of the learned Single Judge passed

in M.P.(MD)No.1 of 2014 in W.P.(MD)No.7482 of 2015 dated

30.04.2015 are liable to be set aside.

16.In the result, both the writ appeal and the writ petition are

allowed. No costs. Consequently, connected miscellaneous

petitions are closed.

(M.S.N.,J) (R.H.,J.)
21.02.2018
Index :Yes/No
Internet :Yes/No
MR

To
1.The Commercial Tax officer,
Sengottai Assessment Circle,
Sengottai.

2.The Sub Registrar,

Tenkasi II Sub Registration District,
Tenkasi.

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M.SATHYANARAYANAN,J.

AND
R.HEMALATHA,J.

MR

JUDGMENT MADE IN
W.A(MD)No.866 of 2015
and
W.P(MD)No.7482 of 2015

21.02.2018

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