Geetha.S vs. The State Tax Officer

Facts

The petitioner, S. Geetha, challenged an order of attachment and sale dated 27.05.2024, issued by the State Tax Officer, Madurai Rural (West). The petitioner had purchased two parcels of land on 03.08.2022 from a partnership firm, M/S. Om Namashivaya Paper and Boards, and its partners. The firm and its partners were in arrears of GST amounting to Rs.9,81,867/-. A demand order was served on them on 23.08.2021, and a recovery notice was issued on 03.12.2021. The petitioner contended that the attachment order violated principles of natural justice as no notice was issued to her and that she was a bona fide purchaser without any encumbrance at the time of purchase.

Held

The Court held that the impugned order of attachment and sale could not be interfered with at that stage. It noted that Section 81 of the GST enactment prohibits assessees in default from transferring or alienating assets to defeat government revenue, with a proviso for exceptions. The Court found that the sale consideration of Rs.3,96,600/- for 1.25 acres of land appeared to be significantly low, raising doubts about the petitioner's bona fide purchase. The Court reasoned that establishing bona fide in such a situation requires more than just relying on an encumbrance certificate and necessitates a proper legal proceeding. Therefore, the petitioner was directed to file a civil suit within 30 days to establish that she was a bona fide purchaser and that the purchase was not intended to defeat government revenue. The Court also directed the respondents to keep recovery proceedings in abeyance for three months, subject to the petitioner filing the suit. The Court explicitly left undecided any other opinion at this stage.

Key Issues

1. Whether the attachment and sale order dated 27.05.2024, issued by the State Tax Officer, is illegal and in violation of the principles of natural justice concerning the petitioner, a subsequent purchaser of property from a GST defaulter? Petitioner's arguments: The petitioner argued that the attachment order was illegal as it was passed without issuing any prior notice to her, thus violating the principles of natural justice. She further contended that she was a bona fide purchaser of the property, as evidenced by the absence of any encumbrance on the property at the time of purchase on 03.08.2022. Revenue's arguments: The Revenue contended that the writ petition was devoid of merits and liable for dismissal. It argued that the sale of property by the defaulter firm to the petitioner was hit by Section 81 of the respective GST enactment, which prohibits alienation of assets to defeat government revenue. The Revenue further submitted that the petitioner's claim of being a bona fide purchaser could not be determined in a summary proceeding under Article 226 of the Constitution.