S.81 CGST Act Can't Be Invoked To Declare Transfer Of Property Void Without Determining 'Nature Of Transaction' As Being Sham: Andhra Pradesh HC
The Andhra Pradesh High Court has prima facie held that Section 81 of the Central Goods and Services Tax Act, 2017 cannot be invoked to declare transfer of property void, unless there is a specific finding regarding sham nature of transaction.
Section 81 provides that where a person parts with his/her property after any amount has become due from him under the Act, with the intention of defrauding the Government revenue, such transfer shall be void.
In the case at hand, Petitioner was purchaser of the disputed property and was aggrieved by Department's decision to auction the same to recover dues from the vendor.
Petitioner claimed the property was purchased by way of registered deeds. It contended that the Department's action is arbitrary and a violation of his right to property protected under Article 300-A of the Constitution.
The Department on the other hand relied upon Section 81 of CGST Act to contend that the transactions relied upon by the petitioner are sham, done for the purposes of evading payment of taxes by the vendor. It contended that such transactions would have to be treated as void transactions, which do not give title to the petitioners.
At the outset, the High Court bench of Justices R Raghunandan Rao and Harinath N noted that the provision merely provides for declaration of certain transactions to be void.
“However, there is no machinery available for determination of the question as to whether the transactions in question are sham transactions falling within the ambit of Section 81 of the Act,” it observed.
Court also noted that the proviso to Section 81 contains certain safeguards. It states that the transfer shall not be void if it is made for adequate consideration, in good faith and without notice of tax dues.
Thus, prima facie, the Court was of the opinion that Section 81 cannot be pressed into service unless there is a finding as to the nature of the transactions in question by a competent authority, authorized under the Act or the Rules.
Accordingly, it stayed the provisional attachment order issued against the Petitioner and posted the matter to October 23. Meanwhile, the Petitioners are also restrained from alienating the property.
Case title: Velagala Lakshmi and Others v. State of Andhra Pradesh & Others
Case no.: WRIT PETITION NO: 22596/2024