Property Sold Despite Sales Tax Arrears: Madras HC Allows Commercial Tax Dept to Declare Sale Void [Read Order]

The Madurai bench of Madras High Court has permitted the Commercial Tax Department to declare a property sale as void under Section 53 of the Transfer of Property Act, 1882, in light of long-standing sales tax arrears owed by the original owner.

The petitioner, a purchaser of certain immovable properties through a registered sale deed dated 26.10.2016, approached the Court challenging a communication issued by the Commercial Tax Department.

This communication sought to register a charge and create an encumbrance over the property on account of tax dues pertaining to the proprietary concern of one Julia Maran, the proprietrix of M/s. Bravo Enterprises, which had accumulated arrears under the Tamil Nadu General Sales Tax Act for the assessment years 1991-92 and 1992-93, amounting to over ₹90 lakh.

The petitioner contended that the purchase was bona fide and without knowledge of any pending dues and relied on a previous High Court decision in M. Karpagam v. The Assistant Commissioner of Commercial Taxes, wherein similar encumbrance actions were quashed.

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However, the State, represented by Additional Government Pleaders Mr. R. Suresh Kumar and Mr. D. Sasikumar cited recent Division Bench judgments in D.K. Sadasivam and T. Palanisamy, asserting the Department’s right to proceed under Section 53 of the Transfer of Property Act.

Justice C. Saravanan observed that under Section 53(1) of the Act, any transfer of immovable property made with the intent to defeat or delay creditors is voidable at the option of such creditors. In this context, the Commercial Tax Department qualifies as a creditor and is therefore legally entitled to seek the declaration of the sale as void, if such intent is established.

While granting liberty to the Department to take necessary steps to declare the sale deed dated 26.10.2016 as null and void, the Court also clarified that the petitioner retains the right to defend their position as a bona fide purchaser for value.

Additionally, the Court directed that unless the Commercial Tax Department initiates action, no encumbrance shall be registered against the property.

The petitioner was also granted the liberty to file a civil suit seeking appropriate reliefs, including declaration of title or injunction. Until such proceedings are initiated or concluded, the Court ordered that the status quo regarding the property be maintained. Accordingly, the writ petitions were disposed of.

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