The Andhra Pradesh High Court has held that the alienation of property took place in the year 2000 and the proceedings declaring the alienation, as void, took place in the year 2007. No steps have been taken for fixing tax liability on the respondent-company. In the absence of fixation of liability, passing an order under Section 17-A of the Andhra Pradesh Goods and Service Tax Act (APGST Act) is not a reasonable exercise of power.
The bench of Justice R. Raghunandan Rao and Justice Harinath. N has observed that though the company is admitted to be in liquidation, no steps have been taken against the respondent-seller by issuance of a notice calling upon him to pay the tax dues of the respondent Private Limited Company nor was the respondent-seller given an opportunity of hearing to demonstrate that there was no liability to pay such taxes. In the absence of an opportunity being given to the respondent, tax liability cannot be fastened upon the respondent.
Background
The petitioner had purchased a portion of a property from respondent in the year 2000, by way of a registered deed of sale, for a sum of Rs.3.51 lakhs. Out of this amount, a sum of Rs.2 lakhs was paid to a Finance Company to redeem the mortgage of the property and the balance amount was paid to the respondent. The respondent is the father-in-law of the petitioner.
The Department by proceedings under Section 17-A of APGST Act read with Section 80 of the APGST Act had declared the purchase of the property, by the petitioner, as void on the ground that the transaction had been conducted for the purposes of evading payment of tax under the APGST Act.
The background for the order was that, respondent seller was one of the directors of the respondent company, which was a private limited company. The respondent-Company had fallen into arrears of A.P. Sales Tax, under the APGST Act, to the tune of Rs.63,19,981, for the period 1992-93 to 1998-99.
By the time of the passing of the order, the respondent seller was under liquidation. Under section 16B of the Andhra Pradesh General Sales Tax Act, 1957, every director of a private limited company, which goes into liquidation, is liable to pay the tax dues, provided that he can deny such liability if he can show that non-payment of dues, by the private limited company was not on account of the director’s gross negligence, misfeasance or breach of duty.
The department took the view that the respondent seller to evade payment had alienated his property in favour of the petitioner, who is none other than his son-in-law and, by another transaction, to his daughter.
The petitioner has approached this Court. It may also be noted that the petitioner, in the affidavit filed in support of the writ petition, also states that the 6th respondent was under the liquidation and that the State Finance Corporation had auctioned the property of the 6th respondent company, under Section 29 of the SFC Act.
Arguments
The petitioner contended that Section 17-A of the Andhra Pradesh General Sales Tax Act, 1957 does not specify the authority who can exercise the power set out under that provision. The department cannot arrogate such power to himself and pass the proceeding. The proceeding were without jurisdiction. The sale of the property had taken place in the year 2000 and the proceeding, declaring such sale void, was passed on 14.09.2007, that is 7 years after the sale. Though, no period of limitation has been prescribed for exercise of power, the inordinate delay of seven years clearly bars exercise of power.
The petitioner contended that the provision of Section 17-A ought to be invoked only where there are dues of a private limited company and the private limited company goes into liquidation. A notice would have to be issued to the Directors, calling upon them to pay the arrears of tax of the Private Limited Company and upon notice, every Director of the company would be entitled to demonstrate that nonpayment of such tax was not on account of his negligence or misfeasance or breach of duty. In the event of any representation made by the Director, the authority under the APGST Act would have to determine whether such a defense is available to the Director and thereafter initiate proceedings for recovery of tax from the said Director. In the absence of proceedings taking place, an order under Section 17-A of APGST Act cannot be passed.
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The department contended that the petitioner is no other than the son-in-law of the respondent seller and was fully aware of the difficulties of the respondent company in paying its taxes and other dues. The payment of sale consideration of Rs.3.51 lakhs included payment of about Rs.2 lakhs for clearing the mortgage on the property. This would mean that the sale consideration was essentially used to clear the charge over the property so that the property can be transferred to the petitioner. There is neither adequate consideration nor was the purchase a bona fide purchase without notice of the pending dues. The proceedings itself record that various notices had been issued to the respondent-company to clear its dues and failure of the respondent to clear the tax dues resulted in the passing of the order.
The department argued that though no authority has been prescribed under Section 17-A, such powers would clearly be attributable to the assessing authority or officers who are superior to such assessing authority. As the Deputy Commissioner (CT) who is superior to the assessing authority, the Deputy Commissioner (CT) has jurisdiction or authority to pass the proceedings.
Relevant Provisions
Section 17-A provides the commercial tax department with a provision to safeguard recovery of revenue by permitting an authority under the Act to declare any transaction which takes away an asset out of the reach of the department. Needless to say, this provision would be available only where it is shown that such property had been alienated for adequate consideration and the purchaser was unaware of the liability of the vendor in alienating such property.
There could be a situation where a dealer, who is aware of the financial position of the dealer, takes steps to alienate property to evade payment of taxes, even before any assessment of the taxes is made or even before the assessing authority wakes up to the fact that the dealer had not paid the taxes declared under the periodic returns filed by the dealer.
The power to declare an alienation of property as void, need not be only after the tax liability has been fixed. Any other view would render this provision otiose.
Section 16-B states that the Director of a Private Limited Company, under liquidation, would be liable to clear sales tax dues of such company. However, the Director can get out of the said liability by demonstrating that non-payment of tax was not on account of his negligence, misfeasance or breach of duty. It is only after the Director is given an opportunity to demonstrate that non-payment of tax by the Private Limited Company was not on account of his negligence, misfeasance or breach of duty and after rejecting any such representation by the Director, that the tax authority can recover the tax dues of the liquidated private company from its Directors.
Conclusion
The court held that the proceedings of the department would have to be set aside, subject to the condition that such proceedings can again be issued, provided steps are taken to fix liability of payment of tax dues of the respondent company on the respondent seller (director of the company) and thereafter steps are taken for recovery of tax dues.
Case Title: Manikonda Rama Rao Versus The Deputy Commissioner (CT)
Case No.: Writ Petition No.23004 Of 2007
Date: 09.09.2024
Counsel For Petitioner: S. Dwarakanath
Counsel For Respondent: Dantu Srinivas