SWAPNIL BHADRESHBHAI PATEL vs. STATE OF GUJARAT

C/SCA/5851/2019 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 5851 of 2019

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO

========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== SWAPNIL BHADRESHBHAI PATEL Versus STATE OF GUJARAT ========================================================== Appearance: MR UCHIT N SHETH(7336) for the Petitioner(s) No. 1 MS MAITHILI MEHTA AGP (1) for the Respondent(s) No. 1,2 ========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO

Date : 22/08/2019

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE A.C. RAO) Page 1 of 20

C/SCA/5851/2019 JUDGMENT 1.01. RULE, returnable forthwith. Ms.Maithili Mehta, learned AGP waives service of notice of rule for the respondents. In the facts and circumstances of the case and considering the controversy involved in the present petition, present petition is taken up for final hearing today. 1.01. By way of this petition under Article 226 of the Constitution of India, the petitioner has prayed to issue appropriate writ, order and/or direction directing the respondent authorities to delete / withdraw charge and attachment entered on Bungalow No.27, Asopalav Bungalows Co-operative Housing Society Limited, Thaltej, Ahmedabad (hereinafter referred to as “the property in question”) as imposed by the impugned letter / order dated 13/07/2016 passed by the Commercial Tax Officer (6), Gjatak-5, Ahmedabad, which was intimated to the petitioner vide communication dated 21/7/2016 (Annexure-A collectively). 2.00. As per the case of the petitioner, the petitioner is owner of the aforesaid residential property in question from one Mr.Indravijaysinh Chauhan by way of a registered sale deed on 8/2/2016. The said residential property was originally belonged to Mrs.Bhavnaben Patel, who happens to be the mother of the petitioner. The mother of the petitioner sold the said bungalow by way of registered sale deed on 26/12/2014 to one Mr.Jayram Bharwad and Mr.Suresh Bharwad, who had in turn sold the property to the seller of the petitioner. As per the case of the petitioner, the petitioner purchased the said residential property after verifying the title of the property and after issuing public notice on 19/12/2015 in two local news papers. According to the petitioner one objection was received Page 2 of 20

C/SCA/5851/2019 JUDGMENT in response to the public notice, however, an amicable settlement had arrived at with the said objector – Mr.Bhisambhai Jangiram Ramani. According to the petitioner, the petitioner thereafter has purchased the said residential property by way of registered saled deed dated 8/2/2016 at the consideration of Rs.1.35 Crores. As per the petitioner, the property had been purchased on the basis of the amount of Rs.1.60 Crores received as gift from the father-in-law of the petitioner, as per the Gift Deed dated 1/2/2016. As per the petitioner, the petitioner purchased the property after obtaining Title Clearance Certificate from the advocate on 22/3/2016. As per the petitioner, the petitioner made an application to the society for entering their name in the records of the society and for transfer of share certificate and the society by resolution dated 28/3/2016 accepted the application of the petitioner and resolved to change the records of the society and consequently, share certificate of the bungalow was transferred in the name of the petitioner. 2.01. As per the case of the petitioner, the Commercial Tax Officer made inquiry from the society vide communication dated 9/6/2016 as regared the owner of the bungalow No.27 and the society vide communication dated 20/6/2016 informed that the petitioner is the owner of the said bungalow. As per the petitioner, though it was specifically pointed out to the respondent authority that the petitioner is owner of the property, the respondent authority proceeded to enter the charge and attachment on the property by the impugned order for the alleged dues of proprietorship firm M/s. Swapnil Plastic because the mother of the petitioner Mrs.Bhavnaben Patel, who was erstwhile owner of the property, was proprietor of Page 3 of 20

C/SCA/5851/2019 JUDGMENT M/s.Swapnil Plastic. According to the petitioner, the petitioner raised his objections on 9/8/2016 with the Collector. However, the Mamlatdar vide communication dated 16/8/2016 intimated the petitioner that since the charge had been registered by order of the Commercial Tax authoreity, no objection could be entertained. Thereafter the petitioner addressed a communication dated 19/9/2016 requesting the respondent authority for withdrawal of the charge on the property, on the ground that he is of the property and the alleged dues were of the erstwhile owner. 2.02. The petitioner had filed Appeal under Rule 108 of the Bombay Land Revenue Rules, 1921, however, the same came to be rejected by the Mamlatdar vide order dated 14/12/2016 on the ground that charge was entered on the basis of the order of the Commercial Tax Officer and therefore, revenue court was not competent to remove such charge. Thereafter, the petitioner pursue the matter with the respondent authorities by making communications dated 21/11/2016, 6/12/2016 and 20/6/2017. However, the respondent authorities neither responded the representations made by the petitioner nor have they withdrawn the charge and attachment on the residential property of the petitioner. Hence, this petition. 3.00. Mr.Uchit Sheth, learned counsel appearing for the petitioner has vehemently contended that the petitioner is bonafide purchase, who has purchased the residential proprty in question after making valuable sale consideration from his hard-earned money. He contended that he has purchaed the property by registered sale deed and his name is entered in Page 4 of 20

C/SCA/5851/2019 JUDGMENT the records of the society. He further contended that before purchase of the property, even he had given public notice in news papers and had also obtained Title Clearance Certificate from the Advocate and thus, after due verification and due case, he has purchased the property by way of registered sale deed. He further contended that on the date of the purchase of the property by way of registered sale deed, there was no charge over the property and the charge has been created subsequent to the purchase of the property by the petitioner by way of registered sale deed, knowing fully well that the petitioner is registered owner of the property and admittedly no amount is due and payable by the petitioner. 3.01. Mr.Sheth, further contended that in the impugned order of attachment it has been observed that there was earlier charge registered on the property which was continuing, however, on verification, it is clear that such charge had been withdrawn by the VAT Department and hence on such ground, the property could not have been attached. 3.02. Mr.Sheth further contended that for the alleged recovery of the dues of the erstwhile owner under the VAT Act, the property of the petitioner cannot be attached. He contended that the erstwhile owner had sold the property way back in the year 2014 and thereafter the property has changed hands twice before the petitioner purchased the property. 3.03. In support of his above submissions, Mr.Sheth has relied upon the decision of this Court in the case of Jayesh Vadilal Parekh Vs. Commercial Tax officer, reported in (2015) 78 VST 19 (Gujarat), wherein it is held that the tax Page 5 of 20

C/SCA/5851/2019 JUDGMENT officer does not have power to declare transfer void under section 47 of the VAT Act and the tax officer has to file civil suit if he wants to annul a transfer on the ground that it was made with the intention of defrauding the revenue. He further submitted that provisions of VAT Act and provisions of the Sales Tax Act are analogous. 3.04. Mr.Sheth, learned counsel for the petitioner has also relied upon the decision of the Supreme Court in the case of Recovery Officer Vs. Gangadhar Vishwanath Ranade (Decd), reported in (1998) 234 ITR 188 (SC). 3.05. Mr.Sheth further submitted that the respondent authority cannot sell the property without obtaining declaration from the competent Civil Court that the transaction of purchase of the property by the petitioner is with an intention to defraud the State revenue. It is contended that this Court and the Supreme Court has taken the same view in catena of decisions. Making above submissions and relying upon above decisions, Mr.Sheth requested to allow this petition and quash and set aside the impugned order and attachment over the property of the petitioner. 4.00. Present petition is opposed by Ms.Maithili Mehta, learned AGP appearing for the respondent Nos.1 and 2. She has vehemently contended that the charge has been crated towards the dues to the tune of Rs.21,28,24,427/- for the A.Ys. 1987-1996, which has been accrued qua Swapnil Plastics and mother of the petitioner was one of the partners in the said Page 6 of 20

C/SCA/5851/2019 JUDGMENT Swapnil Plastics. It is contended that the property of the mother of the petitioner Bhavnaben Patel being one of the partners of Swapnil Plastic was attached on 6/3/2003. It is contended that the assessment orders were passed on 16/11/2002 and 5/12/2002 for the A.Ys.1987-1996. She further contended that for the A.Ys. 1987-88, 1988-89 and 1889-90, reassessments were carried out and reassessment orders were passed on 16/11/2002. She further contended that assessment orders dated 16/11/2002 & 5/12/2002 as well as reassessment order dated 16/11/2002 for the A.Ys. 1987-90 were challenged before the appellate authority, however, the same came to be disposed of due to non-payment of the pre-deposit. The said order of the appellate authority dismissing the appeal on the ground of non-payment of pre-deposit was challenged by Bhavnaben and the tribunal remanded the matter back to the first appellate authority for reconsideration and the first appellate authority dismissed the matter on 8/10/2010 on the ground that the partners have not remained present for hearing. 4.01. Ms.Mehta, learned AGP further contended that the property has been transferred by one of the partner of the assessee firm in order to evade the payment of tax. It is contended that the mother of the petitioner transferred the property fraudulently to evade payment of the due tax and the authority has exercised powers under section 47 of the Gujarat Sales Tax Act, 1969 and has created charge over the property of the petitioner. It is contended that as per section 25 of the Act where a firm is liable to pay tax under the Gujarat Sales Tax Act, the firm and each partner of the firm shall jointly and severally liable for such payment. It is contended that in view Page 7 of 20

C/SCA/5851/2019 JUDGMENT of the aforesaid provision, the property of the Bhavnaben Patel has been rightly attached by the authority in exercise of powers conferred under the Gujarat Sales Tax Act. It is contended that Bhavnaben with a view to avoid payment of tax accrued for A.Ys. 1986 to 1996 to the tune of Rs.21,28,24,427/- has transferred property in the name of Swapnil Patel on 16/6/2016. It is contended that said Swapnil Patel was not the partner of Swapnil Plastic during the assessment years in question. It is contended that the transfer of the property is to defraud the government exchequer. 5.00. Heard Mr.Uchit Sheth, learned counsel appearing for the petitioner and Mr.Maithili Mehta, learned AGP appearing for the respondents – State. Considered the material on record and the impugned order. 5.01. The law on the controversy involved in the present petition is as under :- 5.02. Any transfer attempted or made to defeat/defraud Revenue’s interest is deemed void in the Statute. It would be relevant to reproduce section 47 and section 48 of the VAT Act, which read thus : “Section – 47 : Transfer to defraud revenue void. Where a dealer after any tax has become due from him creates a charge on or parts with the possession by way of sale, mortgage, exchange or any other mode of transfer whatsoever of any of any of his property in favour of any other person with the intention of defrauding the government revenue, such charge or Page 8 of 20

C/SCA/5851/2019 JUDGMENT transfer shall be void as against any claim in respect of any tax or any other sum payable by the dealer.” “Section – 48 : Tax to be first charge on property. Notwithstanding anything to the contrary in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case may be, such person.” Thus, section 47 of the Act is concerned with a dealer who creates a charge on or parts with the possession by way of sale, mortgage, exchange or any other mode of transfer, after any tax becomes due from him, and when he so does in favour of any other person with the intention of defrauding the government revenue, this provision states that such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the dealer. Section 48 of the Act creates first charge on the property of the dealer or any other person from whom tax is due. 5.03. It is required to be noted at this juncture that section 47 of the GVAT Act is similarly worded to section 281 of the Income Tax Act, 1961 and therefore, some of the decisions in relation to the provision of section 281 of the Income Tax Act which hold the field deserve consideration at this stage. Page 9 of 20

C/SCA/5851/2019 JUDGMENT 5.04. The Supreme Court in the case of Tax Recovery Officer Versus Gangadhar Viswanath Ranade, (1998) 234 ITR 188, discussed at length section 281 of the Income Tax Act, 1961, which declares as void any transfer made by the assessee during the pendency of proceedings with an intention to defraud the revenue. The Court held that, “The Tax Recovery Officer needs to examine as to who is in possession of the property and in what capacity. He can only attach property in the possession of the assessee in his own right, or in possession of a tenant or a third party on behalf of / for the benefit of the assessee. He cannot declare any transfer made by the assessee in favour of a third party void. If the Department finds that a property of the assessee is transferred by him to a third party with the intention to defraud the Revenue, it will have to file a suit under rule 11(6) to have the transfer declared void under section 281”. The Court further observed that the provisions of rule 11 of the Income Tax Rules are analogous to rules 58 to 61 and 63 of Order 21 of the Code of Civil Procedure, 1908. It is emphatically laid down that such procedure is not meant to decide intricate questions of law as to title to the property. Therefore, where a claim is made to the property attached, by someone claiming to be a transferee from the judgement-debtor and the claim is disallowed, the claimant can institute a suit under Order 21, rule 63, to establish his title to the property. 5.05. The relevant Rules 2, 6 and 11 of Part I, Schedule II of the Income Tax Rules, which speak of the procedure for recovery of tax, read thus : Page 10 of 20

C/SCA/5851/2019 JUDGMENT “2. Issue of notice. When a certificate has been drawn up by the Tax Recovery Officer] for the recovery of arrears under this Schedule, the Tax Recovery Officer shall cause to be served upon the defaulter a notice requiring the defaulter to pay the amount specified in the certificate within fifteen days from the date of service of the notice and intimating that in default steps would be taken to realise the amount under this Schedule. 6. Purchasers title. (1) Where property is sold in execution of a certificate, there shall vest in the purchaser merely the right, title and interest of the defaulter at the time of the sale, even though the property itself be specified. (2) Where immovable property is sold in execution of a certificate, and such sale has become absolute, the purchasers right, title and interest shall be deemed to have vested in him from the time when the property is sold, and not from the time when the sale becomes absolute. 11. Investigation by Tax Recovery Officer. (1) Where any claim is preferred to, or any objection is made to the attachment or sale of, any property in execution of a certificate, on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection : Page 11 of 20

C/SCA/5851/2019 JUDGMENT Provided that no such investigation shall be made where the Tax Recovery Officer considers that the claim or objection was designedly or unnecessarily delayed. (2) Where the property to which the claim or objection applies has been advertised for sale, the Tax Recovery Officer ordering the sale may postpone it pending the investigation of the claim or objection, upon such terms as to security or otherwise as the Tax Recovery Officer shall deem fit. (3) The claimant or objector must adduce evidence to show that - (a) (in the case of immovable property) at the date of the service of the notice issued under this Schedule to pay the arrears, or (b) (in the case of movable property) at the date of the attachment, he had some interest in, or was possessed31 of, the property in question. (4) Where, upon the said investigation, the Tax Recovery Officer is satisfied that, for the reason stated in the claim or objection, such property was not, at the said date, in the possession of the defaulter or of some person in trust for him or in the Page 12 of 20

C/SCA/5851/2019 JUDGMENT occupancy of a tenant or other person paying rent to him, or that, being in the possession of the defaulter at the said date, it was so in his possession, not on his own account or as his own property, but on account of or in trust for some other person, or partly on his own account and partly on account of some other person, the Tax Recovery Officer shall make an order releasing the property, wholly or to such extent as he thinks fit, from attachment or sale. (5) Where the Tax Recovery Officer is satisfied that the property was, at the said date, in the possession of the defaulter as his own property and not on account of any other person, or was in the possession of some other person in trust for him, or in the occupancy of a tenant or other person paying rent to him, the Tax Recovery Officer shall disallow the claim. (6) Where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a civil court to establish the right which he claims to the property in dispute; but, subject to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive.” 5.06. Section 293 of the Income Tax Act bars the suit in civil courts. For either setting aside or modifying any order made Page 13 of 20

C/SCA/5851/2019 JUDGMENT under the Income Tax Act, neither any suit is permissible in any civil court, nor prosecution or any proceeding would lie against the Government or any officer for anything in good faith done or intended to be done under the Act. However, an exception is carved out under sub-rule (6) of rule 11 which permits institution of the suit in a civil court to establish the right by the party against whom an order is made in respect of the property in dispute and subject to the result of such suit, the order made by the Tax Recovery Officer shall be conclusive. There is of course no corresponding provision under the Gujarat Value Added Tax Act. 5.07. Submissions of Mr.Sheth, learned Advocate for the petitioner that because of explicit provisions made under Schedule II and in particular, sub-rule (6) of rule 11 of the Income Tax Act, the civil suit would be permissible and not otherwise, cannot be accepted. 5.08. It is true that there is no explicit provision made under the GVAT Act as is provided under the Second Schedule of the Income Tax Act, however, it is a well settled law that in the event of any dispute in relation to the title of any property, it is the Civil Court which shall have a jurisdiction. This has also been emphatically held and observed by the Apex Court in Tax Recovery Officer v. Gangadhar Viswanath Ranade [1998] 234 ITR 188 (SC) and followed by this Court in the case of Karsanbhai Gandabhai Patel v. Tax Recovery Officer, [2014] 362 ITR 374 (Gujarat) and therefore, there is no reason why the same would have no applicability in the instant case. This Court in the case of Karsanbhai Gandabhai Patel Page 14 of 20

C/SCA/5851/2019 JUDGMENT (supra) had an occasion to deal with section 281 of the Income Tax Act and relying on the judgement of the Apex Court in the case of Gangadhar Viswanath Ranade (supra), struck down the order of attachment, by observing thus: “Section 281 of the Act provides certain transfers to be void. Subsection (1) thereof, which is relevant for our purpose, reads as under: “281 (1) Where, during the pendency of any proceeding under this Act or after the completion thereof, but before the service of notice under rule 2 of the Second Schedule, any assessee 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, such charge or transfer shall be void as against any claim in respect of nay tax or any other sum payable by the assessee 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 or, as the case maybe, without notice of such tax or other sum payable by the assessee; or (ii)with the previous permission of the Assessing Officer.” Page 15 of 20

C/SCA/5851/2019 JUDGMENT Sub-section (1) of section 281 thus provides that where during the pendency of any proceedings under the Act, or after the completion thereof, but before the service of notice under rule 2 of the second schedule, any assessee creates a charge on, or parts with the possession by way of sale, mortgage, gift, exchange or any other mode of transfer any assets in favour of any other person, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee as a result of completion of the said proceedings or otherwise. Proviso to sub-section (1), however, provides that such charge or transfer shall not be void if made for adequate consideration and without notice of pendency of such proceedings or without notice of such tax or other sum payable by the assessee or with the permission of the Assessing Officer. 5.09. Thus, it can be seen that even if the transactions creating a charge or parting of possession has been entered into by the assessee during the pendency of any proceedings under the Act or after completion thereof, the eventuality of such charge or transfer being declared void can be avoided provided one of the two conditions contained in the proviso is satisfied. Under such circumstances, the transferee can demonstrate that the transaction had taken place with the previous permission of the Assessing Officer or that the same was entered into for adequate consideration and without Page 16 of 20

C/SCA/5851/2019 JUDGMENT notice of pendency of such proceedings or without notice of such tax or other sum payable by the assessee. 5.10. This element of the transaction being with adequate consideration and without notice would equally apply to the assessee as well as the transferee. In a given case, it may even be open for the assessee to establish that the transaction was for adequate consideration without notice. In a given case, even if the assessee had notice of the pendency or the outstanding tax or sum payable, the transferee can still take shelter of the transactions having been entered into by him for adequate consideration and without notice. It is, therefore, that the courts have read into this provision the requirement of hearing the transferee also. Quite apart from this, as would be clear from the discussion hereinafter, courts have taken a view that sub-section (1) of section 281 of the Act only provides for the eventuality of the transaction hit by the said provisions as being void. It does not create any machinery for the Revenue authorities to entertain dispute and declare the transaction to be void for which purpose, only a civil suit would lie. 5.11. In the case of Gangadhar Vishwanath Ranade v. T.R.O. 177 [1989] 177 ITR 176, a Division of the Bombay High Court held that under section 281 of the Act, the TRO has no power to declare a transfer as void. This decision of the Bombay High Court was carried in appeal before the Supreme Court. The Apex Court in TRO v. Gangadhar Vishwanath Ranade (Decd) [1998] 234 ITR 188 (SC), confirmed the view of the Bombay High Court and held and observed as under: Page 17 of 20

C/SCA/5851/2019 JUDGMENT “In the light of this discussion about the provisions of Order XXI, Rules 58 to 63, if we examine Rule 11(4)of the Second Schedule to the Income-tax Act, it is clear that the Tax Recovery Officer is required to examine whether the possession of the third party is of a claimant in his own right or in trust for the assessee or on account of the assessee. If he comes to a conclusion that the transferee is in possession in his or her own right, he will have to raise the attachment. If the Department desires to have the transaction of transfer declared void under Section 281, the Department being in the position of a creditor, will have to file a suit for a declaration that the transaction of transfer is void under Section 281 of the Income-tax Act.” 5.12. Later on, once again, the issue came up for consideration before a Division Bench of the Bombay High Court in the case of Ms.Ruchi Mehta [2007] 294 ITR 614 (Bombay). The Bombay High Court followed the decision of the Supreme Court in the case of TRA v. Gangadhar Vishwanath Ranade [1998] 234 ITR 199 (SC) and held that the action of the TRO in declaring the transfer of property to be void was without jurisdiction. The Court also held that the impugned order attaches civil consequences. The authority therefore before passing such order ought to have given an opportunity to the petitioners of being heard. This was not done. This was an additional ground on which the order was Page 18 of 20

C/SCA/5851/2019 JUDGMENT struck down. 5.13. In the case of Sancheti Leasing Company Ltd v. Income Tax Officer, (2000) 246 ITR 814 (Mad) 190, learned Single Judge of the Madras High Court following the decision of the Supreme Court in the case of Gangadhar Vishwanath Ranade, [1998] 234 ITR 188 (SC) held that ITO had no jurisdiction to declare the transaction of sale to the petitioners as void. 5.14. The aforesaid view is also taken by the Co-ordinate Bench of this Court in the case of Jayesh Vadilal Parikh Versus Commercial Tax Officer and others, reported in [2015] 78 VST 19 (Gujarat). 5.15. The issue involved in the present petition is squarely covered by the decision of the Supreme Court in the case of Gangadhar Vishwanath Ranade (supra). 6.00. Applying the ratio of the aforesaid decisions we are of the opinion that the impugned order creating charge over the property of the petitioner does not warrant any interference and the petition is required to be dismissed. However, we found substance in the submission of Mr.Sheth, learned counsel for the petitioner that the respondent authority cannot sell the property without obtaining declaration from the civil court that the transaction of purchase of the property by the petitioner is with an intention to defraud the State revenue. Page 19 of 20

C/SCA/5851/2019 JUDGMENT 7.00. In the result, the present petition is rejected. However, the respondent authority is restrained from selling, disposing of or parting with the property of the petitioner in question in any manner, without obtaining declaration from the competent Civil Court that the transaction of purchase of the property by the petitioner is fraudulent and with an intention to defraud the State revenue and in order to evade the payment of tax liability to the respondents State. Till the appropriate declaration is obtained by the respondent from the competent Civil Court, the attachment and the charge crated by the respondents – revenue over the property of the petitioner shall be continued. Sd/- (J. B. PARDIWALA, J) Sd/- (A. C. RAO, J) RAFIK... Page 20 of 20