Income Tax Department Cannot Recover Tax Arrears from Properties Auctioned Under KGST Act: Kerala HC [Read Order]

The Kerala High Court ruled that the Income Tax Department cannot recover tax arrears from properties that were auctioned under the Kerala General Sales Tax (KGST) Act.

Job G.Oommen,petitioner-assessee,challenged certain actions related to properties that had originally belonged to the late P.N. Madhavan Pillai, who had unpaid dues under the KGST Act and the Cashew Workers Welfare Fund. The properties were seized as part of a recovery process under the Revenue Recovery Act (RR Act), and one of the properties was auctioned in 2006 and later sold to different buyers, including the petitioner.

Madhavan Pillai had owned M/s. Mohandas Cashew Factory, which owed a significant amount in taxes and welfare fund dues. In 2006, the property was auctioned to recover the debts. Eventually, the petitioner bought the property in 2011.

In 2015, the Regional Provident Fund Commissioner sent a notice demanding payment of certain arrears from the factory. Around the same time, the Income Tax Department issued notices based on an earlier ruling about Madhavan Pillai’s tax liabilities. The petitioner argued that since the property had already been legally bought through the auction, the Income Tax Department had no claim on it.

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The case focused on whether the transfer of property could be canceled due to pending tax issues. The Court decided that the property transfer was valid, as it was sold through an auction to recover dues under the KGST Act, and the Income Tax Department had no special claim to the property.

A Single Bench of Judge Harisankar V.Menon  also referred to previous rulings, including one from the Supreme Court, which stated that the Income Tax Department doesn’t get priority over other claims unless clearly stated in law.

The Court ultimately ruled that the Income Tax Department could not take any action against the properties and dismissed their claims.

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