What is "Charge"?
Plaintiff must plead facts which he intends to prove,
without pleading, evidence cannot be considered.
Division bench of Madras High Court referred this matter to
the Full Bench for decision. The petitioner purchased house property from the
persons who were dealers under Tamil Nadu General Sales Tax Act. The Sales Tax
Department noticed that, seller of the property was defaulter in payment of
assessment dues. The Deputy Commissioner, therefore issued notice to plaintiff
calling upon them to pay tax arrears of sum of Rs. 1,01,879.67 The plaintiff
denied his liability, saying that they are bona fide purchasers for value
without notice on any manner of claim by anyone against the same. Not
satisfied with this answer, the Deputy Commissioner initiated recovery
proceedings under Tamil Nadu Revenue Recovery Act, The house is attached and
brought to sale after service of notice of demand, because defaulters have
executed a sale deed in respect of the said properties in favour of the
plaintiff in order to defraud the Dept. According to the Dy. Commissioner the
sale is not binding on the Sales Tax Department. The plaintiff is not
personally liable but the property purchased by them is subject to charge and
is liable for the said arrears.
Against this order, the plaintiff came before the trial
court, who framed the questions, that whether the sale deed in favour of the
plaintiff is true, valid and binding on the defendant? whether charge had been
created by operation of law over the suit properties prior to said sale?,
whether there was no valid notice u/s 80, of CPC? And so on….
The important question was, whether the plaintiffs are bona
fide purchasers of the suit property without notice. Court referred to Sec. 3
of Transfer of Property Act which says, ‘a person is said have notice’ of a
fact when he actually knows that fact, or when, but for wilful abstention from
an enquiry or search which he ought to have made. Or gross negligence, he
would have known it.
Madras High Court, Division Bench in the case of Dy.
Commercial Tax Officer vs. R. K. Steel (1998) 108 STC 161 has observed
that in Ahmedabad Municipal Corporation of the City of Ahmedabad vs. Haji
Abdul Gafur Haji Hussenbhai AIR 1971 SC 1201, unless a provision is made
in any statute contrary to the rule of section 100 of the Transfer of Property
Act, a bona fide purchaser for consideration without notice of the charge is
protected.
Following this court held that, the respondent is bona fide
purchaser without notice of the charge u/s 24(2) of the Sales Tax Act and
therefore, his property cannot be proceeded against for the recovery of sales
tax arrears.
In Shreyas Papers Pvt. Ltd. 144 STC 331 Supreme
Court while considering the enforceability of the charge created u/s 13(2)(i)
of Karnataka Sales Tax Act, 1957 observed that; the expression Charge is not
defined in the KST Act, the concept is well known in property law and has been
defined in Transfer of Property Act, 1882.
Sec. 100 of Transfer of Property Act, defines Charge as,
‘Where immovable property of one person is by act of parties or operation of
law made security for the payment of money to another, and the transaction
does not amount to a mortgage, the latter person is said to have a charge on
te property; and all the provisions herein before contained which apply to a
simple mortgage shall, so far as may be, apply to such charge.
Nothing in this section applies to a charge of a trustee on
the trust property for expenses properly incurred in the execution of his
trust and save as otherwise expressly provided by any law for the time being
in force, no charge shall be enforced against any property in the hands of a
person to whom such property has been transferred for consideration and
without notice of the charge.
Sec. 19 of the Transfer of Property Act, when the firm is
liable to pay tax under the Act, firm and each of the partners of the firm
shall be jointly and separately liable for payment of such tax. Under this
section, for the liability of the firm, the partners are also liable and
therefore their properties cannot escape the tax liability. When such a person
has effected transfer of his property after the assessment proceedings under
the Act are completed it cannot be stated he did not intend to evade the tax
and as such the sale will not be binding on the department. But, at the same
time, the sale will not be binding on the department. But, at the same time,
the Legislature has intended to protect the honest person who had purchased
the property from such a seller, if he had not collided with the seller and he
had no notice of the liability of the vendor. While sub-section (1) of section
create ‘Charge’ on the properties of a defaulter to the extent of his dues,
sub-section(2) states that the dues will have priority over all other claims
against those properties, except land revenue and claims of Land Development
Bank in regard to property mortgaged to it.
The meaning of the term "charge on the property" is to be
found in section 100 of the Transfer of Property Act, in which it has been
equated to "simple mortgage", and it has also been laid down therein that, in
the absence of a specific provision in any law, no charge shall be enforced
against any in the hands of a person to whom such property has been
transferred for consideration and without notice of a charge. Thus while
section 24 (1) of the Act gives the tax dues only the status of a simple
mortgage over the properties of the defaulter, section 24(2) gives these dues
a priority over all other claim against that property except claims for land
revenue and Land Development Bank
A reading of section 3 of the Transfer of Property Act,
1882 leads to the conclusion that, not only a wilful abstention from an
enquiry which a person ought to have made, but the gross negligence to make
enquiry also would amount to notice of fact to him. When the prudence of a
person requires him to make an enquiry, but due to his own negligence he
failed to make enquiry, in falls in the category of a person, with notice. A
purchaser of the property who claims the transaction to be bona fide without
notice, the yardstick to be applied for the "notice" is given in Sec. 3 of the
Transfer of Property Act, 1882 and only by the application of this provision;
a purchaser who seeks protection is to be identified, whether he is purchaser
for value without notice. The necessity of the purchase, the intention of the
transfer, the relationship between the vendee and vendor are all vital factors
to find out the reasonableness of the person in purchasing the property. Some
times unexplained secrecy or the hest in the transaction may also throw some
light on bona fides or mala fides, all facts relating to the
conduct of the parties to the transaction have to be weighed as whole.
U/s 101 of the Evidence Act, 1872 whoever desires any court
to give judgment as to any legal right or liability depending on the existence
of facts which he asserts, must prove, that those facts existed. Therefore, it
is for him to establish that there was no wilful abstention of enquiry or
search of the facts, on his part about the vendor before the sale transaction
was completed.
In this context court referred to Order, Rule 2 of the CPC,
which says "every pleading shall contain only a statement in concise form of
the material facts on which the party pleading relies for his claim or defence,
as the case may be, but not the evidence by which they are to be proved.
On careful reading of the above provisions shows that the
party must plead all material facts on which he means to rely at the trial. If
any one of the material fact is omitted, the statement of claim is bad and it
would mean no pleading and no cause of action for suit. If material facts are
not pleaded, a court cannot permit evidence to be laid. In Udhav Sign vs.
Madhav Rao Scindia (1977) 1 SCC 511; AIR 1976 SC 744, the Supreme Court
has defined the expression "material facts" in the word: "All the primary
facts which must be proved at the trail by the party to establish the
existence of a cause of action or his defence, are material facts."
The distinction between "material facts" and "particulars"
cannot be overlooked. Material facts are primary and basic facts which must be
pleaded by the party in support of the case set up by him, either to establish
his cause of action or defence. Since the object and purpose is to enable the
opposite party to know the case he has to meet, in the absence of pleading , a
party cannot be allowed to lead evidence. Failure to state even a single
material fact, hence, will entail dismissal of the suit. Particulars on the
other hand, are the details of the case. They amplify, refine and embellish
material facts. They give the finishing touch to the basic contours of a
picture already drawn so as to make it full, more clear and more informative.
In this case the defendant submitted that, the defence of
purchase without notice is one which ought to be specifically pleaded and
proved by one plead so and placed his reliance on various decisions of court
viz. Murat Singh vs. Pheku Singh AIR 1928 Patna 587, In this case
division bench of Patna High Court has hele that "If the defendant wished to
avail themselves of the defence that they were purchasers for value without
notice, they should have pleaded it." In Mt. Renukabai W/o Sitaraji
Wankhede vs. Bheosan Hapsaji Junghare AIR 1939 Nagpur 132. it has been
observed that " Whether the matter falls squarely within section 100 or
whether it comes under a more general rule of law, the burden is on the
transferee to establish that he is the bona fide transferee for value without
notice". In the background of these decisions the defendant submitted that as
per section 101 of the Evidence Act, burden of proving the same is on the
plaintiff but they have not discharged that burden, the plaint does not
contain the primary facts which must be proved at the trial by the plaintiff
to establish their case that they are bona fide purchasers for value without
notice. In the absence of specific pleadings in the plaint the plaintiffs are
precluded from letting in any oral evidence on this aspect.
What is wilful abstention? Court referred to Supreme Courts
observation on this, that "Wilful abstention suggest conscious or deliberate
abstention and gross negligence is indicative of higher degree of neglect.
Negligence is ordinarily understood as an omission to take such reasonable
care as under the circumstances it is the duty of a person of ordinary
prudence to take. In other words, it is an omission to do something which a
reasonable man guided by consideration which normally regulate the conduct of
human affairs would do or doing something which normally a prudent and
reasonable man would not do. The question of wilful abstention or gross
negligence and therefore, of constructive notice considered from this point of
view is generally a question of fact or at best mixed question of fact and law
depending primarily on the facts and circumstances of each case and except for
cases directly falling within the three explanations, no inflexible rule can
be laid down to serve as straightjacket covering all possible contingencies.
The question one has to answer in circumstances like the present is not
whether the purchaser had the means of obtaining and might with prudent
caution have obtained knowledge of the charge but whether in not doing so, he
acted with wilful abstention or gross negligence. Being a question depending
on the behaviour of a reasonably prudent man the courts have to consider it in
the background of Indian conditions."
With these observations and findings court dismissed the
petition of plaintiff.
B. Suresh Chand vs. State of Tamil Nadu & Another 148 STC
477 Madras [FB]
The dealer was engaged in the business of manufacture and
sale of paper and packing material. Exemption was granted to him u/s 13-B of
Haryana General Sales Tax Act. While assessing the dealer, assessing authority
calculated notional tax liability, without including turnover of export sales
in gross turnover of sales. The revising authority revised the assessment
order, holding that export sales had to be included in the turnover for the
purpose of calculation of notional tax liability. This view of revision
authority was upheld by the Tribunal in appeal referring to rule 28-A(4)(a)
and observed that "The provision leaves no doubt that the benefit of tax
exemption extend to gross turnover only, which as per the definition in the
Act, includes sales in the course of export also. Therefore while determining
the tax benefit, the gross turnover which also includes export sales has to be
considered and it cannot be excluded while calculating the tax benefit of
finished goods."
In reference before the High Court, the appellant submitted
that; State legislature does not have competence to tax export sales. Once
this is so, even for the purpose of calculation of notional tax liability for
exemption, export sales cannot be included in the turnover. Turnover can
include only sales which can legally be subject tax. On the other hand
submission of revenue was in terms of rule 28-A(4)(a) the benefit of exemption
from payment of tax is available to a unit on its gross turnover and gross
turnover is the total receipt on account of sales made by a dealer. Of
whatever kind it may be, which will certainly include even the export sales.
After elaborate discussion and referring to various
provisions in the Act and Rules, court found that, what is exempted under the
Act and Rules is the payment of tax by a class of dealer who has been
issued eligibility and exemption certificates. As per the scheme of the Act,
stage for payment of tax comes only when either the assessee pays tax on the
basis of self assessment at the time of filing of returns or when the
assessment is framed. The word payment of tax pre suppose that
liability to pay tax under the Act is existing, only then the stage of payment
of tax would arise for exemption from/deferment of which the scheme in the
form of rule 28A has been framed under the Act. Court referred to distinction
between exemption from non payment of tax and non imposition of taxes made by
constitution bench of Supreme Court in the case of A.V.Fernandez vs. State
of Kerala 8 STC 561 in following terms There is a broad distinction
between the provisions contained in the Statute in regard to the exemptions of
tax or refund or rebate of tax on the one hand and in regard to the
non-liability to tax or non-imposition of tax on the other. In the former
case, but for the provisions as regards the exemptions or refund or rebate of
tax, the sales or purchases would have to be included in the gross turnover of
the dealer because they are prima facie liable to tax and the only thing which
the dealer is entitled to in respect thereof is the deduction from the gross
turnover in order to arrive at the net turnover on which the tax can be
imposed. In the latter case, the sales or purchases are exempted from taxation
altogether. The Legislature cannot enact a law imposing or authorising the
imposition of a tax on such sales and they should be excluded from the
calculation of the gross turnover as well as the net turnover on which sales
tax can be levied or imposed.
The issue in this case was whether the turnover of export
of goods outside the territory of India would form part of the turnover on
which notional tax liability is to be calculated so as to adjust the same from
the exemption limit available to the unit. As to whether there is any
liability on the dealer to pay tax on the turnover of export of goods outside
the country so that there may arise need to provide exemption or deferment
from payment of such tax with a view to promote industrialization, need
examination. Article 286 of the Constitution of India clearly debars the State
Legislature to impose tax on the turnover of goods exported outside the
country.
Court also referred to decision of Supreme Court in the
case of Associated Cement Companies Ltd. vs. State of Bihar 137 STC 389
on the question whether the appellant had any ‘liability’ under the Act. Court
also referred to dictionary meaning of word liable in Concise Oxford
Dictionary and in Black’s Law Dictionary.
Then court came principle of purposive construction, and
referred to observations of Supreme Court in Sri Ram Saha vs. State of West
Bengal 11 SCC 497 on interpretation of statues. In this case Supreme Court
has observed that "It is well settled principle of interpretation that a
staute is to be interpreted on its plain reading; in the absence of any doubt
or difficulty arising out of such reading of a statute defeating or
frustrating the object and purpose of an enactment, it must be read and
understood by its plain reading. However, in case of any difficulty or doubt
arising in interpreting a provision of an enactment, court will interpret such
a provision keeping in mind the object sought to achieved and purpose intended
to be served by such a provision so as to advance the cause for which the
enactment is brought into force. If two interpretations are possible, the one
which promotes or favours the object of the Act and purpose it serves is to be
preferred.
With this reference of appellant is allowed.
Kagaz Print N Pack (I) Pvt. Ltd. vs. State of Haryana 5 VST
26
The assessee was engaged in the business of converting
whole betel nuts into sweetened betel nut pieces by cutting the betel nuts
into different sizes and adding essential/non essential oils, menthol,
sweetening agent etc. and marketing the product. The assessee claimed, through
a revised classification, that the product was classifiable under Chapter
Sub-heading No. 0801.00 as against the claim of the Department that it was
classifiable under Chapter Sub-heading No. 2107 of Central Excise Tarrif Act,
1985.
It was the contention of the appellant, that crushing of
betel nuts into smaller pieces with the help of machines and passing them
through different sizes of sieves to obtain goods of different sizes/grades
and sweetening them did not amount to manufacture in view of the fact that
mere crushing of betel nuts into smaller pieces did not bring into existence a
different commodity which had a different character of its own.
The Commissioner upheld the claim of the assessee but the
Customs Excise and Service Tax Appellate Tribunal rejected the claim of the
assessee and held that a new and distinct product known as "supari powder" had
emerged.
Not satisfied with this order appellant knocked the doors
of High Court. The High Court confirmed the view taken by the Tribunal. The
appellant preferred appeal before the Supreme Court.
The assessee referred to note No. 4 in Chapter 21 under
Central Excise Tariff Act, 1985 which reads as "In this chapter ‘Betel nut
powder known as supari’ means any preparation containing betel nuts but not
containing any one or more of the following ingredients, namely lime, katha (cachu)
and tobacco, whether or not containing any other ingredients, such as
cardamom, copra and menthol"
The assessee also referred to chapter notes on Chapter 8,
according to this note fruits and nuts included under the Chapter could be
whole, sliced, chopped, shredded, stoned, pulped, grated, peeled or shelled.
The appellant further urged that the process involving manufacture did not
always result in the creation of a new product. In the instant case
notwithstanding the manufacturing process, it could not be said that a
transformation had taken place resulting in the formation of new product.
In support of this reliance was placed on the judgment of
constitution bench of Supreme Court in the case of Union of India vs. Delhi
Cloth & General Mills Co Ltd. where the change in character of raw oil
after being refined fell for consideration. The process of manufacture
employed by the appellant company did not change the nature of the
end-product, which in the words of the Tribunal, was that in the end-product
the "betel nut remains a betel nut". The said observation of the
Tribunal depicts the status of the product prior to manufacture and
thereafter. In those circumstances, the views expressed in the D.C.M
General Mills Ltd. [1963] Supp. 1 SCR 586 and the passage from the
American judgment (Anheuser-Busch Brewing Association vs. United States 52
L.Ed. 336-338) become meaningful. The observation that manufacture implies
a change, but every change is not manufactured and yet every change of an
article is the result of treatment, labour and manipulation is opposite
situation at hand. The process involved in the manufacture of sweetened betel
nut pieces does not result in the manufacture of as new product as the
end-product continues to retain its original character though in a modified
form.
Crane Betel Nut Powder Works 6 VST 532 (SC)
