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Judgment
P.R. Shiva Kumar, J.—The plaintiff in the original suit is the appellant in the second appeal. One G. Annamalai Chettiyar, the husband of the
appellant/plaintiff was doing the business of purchasing of oil seeds from various traders and selling oil extracted from them. While so, during the
year 1979, to put it precisely, on 03.11.1979, when the Enforcement Wing Officers of the Tamilnadu Commercial Tax Department inspected the
place of business and house of one Tvl. Swami Jayakrishna Mundi, Kumbakonam, they were able to secure certain documents evidencing
purchase of groundnut kernel and gingelly seeds from the said Mundi by Annamalai Chettiyar and sale of the oil extracted from them during the
year 1976-1977 in the market without bills. While the department was contemplating re-assessment of tax under TNGST Act for the year 1976-
1977, the said Annamalai Chettiyar, transferred the property by way of a sale deed in favour of his mother-in-law Dhanabakiyathammal. The
certified copy of the said sale deed is Ex. A.1. Dhanabakiyathammal in turn settled the property in favour of her daughter, who is the appellant
herein. Thus, according to the respondents, in an indirect manner, the above said Annamalai Chettiyar had caused the property to be transferred to
his wife, the appellant herein.
Claiming that the transfer was made fradulently to put the property beyond the reach of the department and thereby evade the tax liability and
relying on Section 24(A) of T.N.G.S.T. Act, a notice was issued on 26.02.1987, calling upon the appellant/plaintiff to pay a sum of Rs. 13,498/-
being the arrears of tax and penalty payable by her husband Annamalai Chettiyar. It was also stated in the said notice that action would be taken
under the Revenue Recovery Act against the appellant in case the demand made in the notice was not met with within 15 days from the date of
receipt thereof. Aggrieved by the said notice, the appellant approached the trial Court, namely the District Munsif Court, Kumbakonam for a
declaration that the said notice dated 26.02.1987 of the Assistant Commercial Tax, Kumbakonam passed in his proceedings N.K.S. 991/86-A3
was void and for a consequential relief of permanent injunction restraining the respondents herein/defendants from taking any further action against
the plaintiff based on the impugned communication dated 26.02.1987.
The said suit was resisted by the respondents herein/defendants by filing a written statement contending therein that the evasion of tax was found
out on 03.11.1979 itself, that the sale transaction made to Dhanabakiyathammal was made subsequent to the said date with a fradulent intention of
evading the tax due to the state; that the purchaser under the sale deed was none other than the mother-in-law of Annamalai Chettiar and that as
the helm of the said attempt the property was again settled by Dhanabakiyathammal in favour of the appellant/plaintiff who is the wife of the above
said Annamalai Chettiar; that the said settlement deed by Dhanabakiyathammal in favour of the appellant/plaintiff was made in order to evade the
tax liability of Annamalai Chettiar and that hence, the appellant/plaintiff, being the beneficiary of the said transaction is liable to discharge the tax
liability of Annamalai Chettiar u/s 24(A) of T.N.G.S.T. Act.
The plaintiff examined herself as the sole witness (P.W. 1) and relied on documents 11 documents marked as Exs. A.1 to A.11 on the side of
the plaintiff, whereas one Natarajan, the Inspector of Commercial Tax Department was examined as the sole witness (D.W. 1) on the side of
defendants. No document was marked on the side of the defendants.
After conclusion of trial, on an appreciation of evidence, the learned District Munsif, Kumbakonam took a view that application of Section
24(A) of T.N.G.S.T. Act should be ruled out for two reasons:
a) The alleged transaction took place prior to the introduction of Section 24(A); and
b) No proceedings for assessment was pending as on the date of sale transaction in favour of Dhanabakiyathammal.
Based on the above said finding, the trial Court held that the appellant herein/plaintiff was entitled to the relief of the declaration and injunction as
prayed for and thus, decreed the suit.
The first Appellate Court namely the Sub Court, Kumbakonam in the appeal, A.S. No. 73 of 1994 preferred against the judgment of the trial
Court, came to a conclusion that the suit itself was not maintainable and hence, allowed the appeal and set aside the decree passed by the trial
court. Hence, the second appeal has been filed before this Court at the instance of the plaintiff.
This Court heard the arguments advanced on either side and paid its anxious consideration to the same.
At the time of the admission of the second appeal, the following substantial questions of law were framed:
Whether there is a bar u/s 51(a) and (b) of the Tamil Nadu General Sales Tax Act in filing suit by the plaintiff claiming declaration and injunction
in respect of the suit schedule mentioned property?
Whether Section 24(a) of the TNGST Act, effective from 05.09.1980 is applicable to the sale deed executed by Annamalai Chettiar under Ex.
A1 on 21.03.1980?
Is the plaintiff perfected her title by document Ex. A.1 sale deed dated 21.03.1980 and Ex. A.11 dated 12.08.1983?
Out of the above three questions, the third one seems to be unnecessary and the same cannot be construed as a substantial question of law, for
the simple reason that the vesting of title on the plaintiff by virtue of the settlement deed dated 12.08.1983, executed by her mother
Dhanabakiyathammal, has not been either disputed or challenged. The said document was marked as Ex. A.11. Even the title of the settlor
Dhanabakiyathammal by virtue of the sale deed dated 21.03.1980, a certified copy which has been marked as Ex. A.1, is also not under
challenge. The only contention raised by the respondents is that the said transfers having been made with a view to evade the tax liability, of
Annamalai Chettiar, the said liability got transferred to the present holder of the property by virtue of Section 24(A) of T.N.G.S.T. Act and that
hence, the appellant/the plaintiff is liable to pay the amount specified in the impugned notice.
Learned Counsel for the appellant/plaintiff taking the Court through the relevant provisions of T.N.G.S.T. Act, contended that the application
of Section 24(A) of the T.N.G.S.T. Act to the case of the plaintiff was not appropriate. According to him, the said section was not retrospective in
its application and the reference made by the lower Appellate Court to Section 51(a) of T.N.G.S.T. Act to non suit the appellant/the plaintiff was
erroneous. The reasons assigned by the learned Counsel for the appellant are: that Section 24(A) of TNGST Act was introduced on 05.09.1980;
that the sale transaction in favour of Dhanabakiyathammal had taken place even prior to the said date; that no specific provision was made giving
the section retrospective application and that hence, the act of the respondents in making an attempt to shift the tax liability on the appellant/plaintiff
should be held not in accordance with the provisions of the Act. Learned Counsel has contended that the lower appellate court committed an error
in holding that the suit itself was not maintainable under a mis-conception that the bar provided u/s 51(a) of the Act, will be applicable to any
proceedings, whereas the fact remains that only as against the assessment order, the civil Court''s jurisdiction stands ousted. In support of his
contention, the learned Counsel relied on judgment reported in 1998 STC Vol. 114 494 N. Padma Coffee Works v. C.T.O. (T.N.T.S.T.). In the
said judgment, the following observation has been made:
...18. On a thorough consideration of all these circumstances, as a full fledged enquiry cannot be made in these proceedings with regard to the
claim of the petitioners/purchasers to substantiate their version of bona fide purchase, they are directed to initiate civil suit to establish their title to
the properties purchased by them. Therefore, these petitions are not sustainable and are liable to be dismissed and accordingly they are dismissed
subject to their right of filing, the civil suits.
This Court is able to find substance and force in the above said contention of the learned Counsel for the appellant. Sub-clause (a) of Section
51 of the T.N.G.S.T. Act bars any suit or proceedings to set aside or modify any assessment made under the Act except as expressly provided
under the Act. Sub-clause (b) of Section 51 says that no injunction shall be granted by any Court in respect of any assessment made, or to be
made, or any action taken, or to be taken, in pursuance of any of the provisions of the Act. If the said clause is read in isolation it may give an
impression that no Civil court can take cognizance of any case for injunction in respect of any demand made under any of the provisions of the Act.
When it is read in conjunction with Clause (a) one can come to the conclusion that the action taken in pursuance of any of the provisions of the Act
should be with reference to the assessment made under the Act referred to in Sub-clause (a) of Section 51. In the instant case, admittedly, the
appellant was not the assesee and her husband Annamalai Chettiar alone was the assessee. The action sought to be taken against the appellant was
not in pursuance of any assesment made against her. In these circumstances, this Court is of the considered view that the observation made in the
judgment (cited supra) and relied on by the learned Counsel for the appellant shall apply to the instant case and that the learned Appellate judge
has committed an error in non suiting the appellant.
Coming to the question of the casting of the liability on the appellant u/s 24(A) of the Act, this Court accepts the contention of the learned
Counsel for the appellant that Section 24(A) cannot be applied to a transaction which took place prior to the date of its introduction in the statute.
Even assuming that it shall have retrospective application as it is intended to counter fradulent transfers in order to evade the payment of tax, the
condition precedent for applying the said section has not been fulfilled in the case of the appellant. In order to fix the tax liability of Annamalai
Chettiyar on his transferee, namely Dhanabakiyathammal, proceedings for assessment or reassessment should have been pending as on the date of
sale made in her favour. When the first transaction in favour of Dhanabakiyathammal can not be assailed as fradulent transfer because by then no
proceeding for assessment or reassessment of the tax liability of the trader/transferor Annamalai Chettiar was pending, there is no scope for
challenging the transfer of the property made by Dhanabakiyathammal to the appellant/plaintiff. Such a proceeding should have been pending
against the transferor as on the date of transfer. In the instant case, proceeding for assessment/reassemssment was not even proved to be pending
against Annamalai Chettiyar on 12.08.1983, the date of transfer of the property in favour of the appellant/plaintiff. Reference has been made to
proceedings jehghtptr 173347/78,77 dated 19.02.1986 in the impugned notice. It gives an indication that the re-assessment was sought to be
made only in the year 1986. On the other hand, the learned Additional Government pleader placing reliance on the plaint averment in paragraph
No.2 contended the appellant/plaintiff herself admitted that the orders were issued to Annamalai Chettiyar for assessing the escaped sale
transaction in the year 1982. Respondents have not chosen to produce any document to show that the proceedings for re-assessment of tax for the
year 1976-1977 was either initiated in the year 1982 or that such proceedings were pending as on the date of transfer of the property in favour of
the appellant/the plaintiff, namely 12.08.1983. It is pertinent to note that it is not even the case of the respondents that the proceedings were
pending as on 12.08.1983 as against Dhanabakiyathammal. No document has been produced by the respondents to evidence pendency of any
proceedings against Dhanabakiyathammal as on 12.08.1983.
Similarly, there is no iota of evidence to prove that the proceedings against Annamalali Chettiyar was pending as on the date of sale in favour of
the Dhanabakiyathammal namely 21.03.1980. On both the grounds, the respondents have failed. Hence, the notice issued by the respondents to
the appellant/plaintiff, demanding payment of sales tax and penalty payable by Annamalai Chettiar suffers from legal infirmity. The well considered
judgment of the trial court should not have been disturbed by the learned subordinate judge. The learned Subordinate Judge has committed an
error in non suiting the appellant holding the suit filed by the appellant barred by Section 51 of T.N.G.S.T. Act. and not maintainable. Hence, both
the questions are answered, accordingly in favour of the appellant herein.
In the result, the second appeal succeeds and the same is allowed. The judgment of the lower appellate court is set aside, restoring the decree
passed by the trial court. However, there shall be no order as to costs.