15% VAT on immovable property bought at auction illegal: HC

The High Court has declared illegal the imposition of 15 per cent value-added tax (VAT) on immovable property sold through auctions conducted by Artha Rin Adalats, ruling that there is no legal basis for collecting the tax from auction buyers.

A High Court bench of Justice Sardar Rashid Jahangir and Justice Ziaul Haque passed the order on September 1, declaring a rule and supplementary rule in the case absolute.

Barrister Sakib Mahbub, a lawyer for the auction buyers, confirmed the order to the media on Thursday (September 3).

According to case documents, a bank had filed a suit with an Artha Rin Adalat after a company failed to repay a working-capital loan. The mortgaged property was subsequently put up for auction under Section 33(1) of the Artha Rin Adalat Ain, 2003.

The petitioners purchased the property at the auction with the highest bid of Tk 24 crore and deposited the full amount with the court after the bid was approved.

The court later directed them to pay 15 per cent VAT on the auction price along with applicable stamp duty, after accepting the auction money and poundage fee. Both the auction buyers and the decree-holder bank challenged the legality of the order.

The bank was later exempted from the VAT liability based on earlier court rulings, but the auction buyers’ application was rejected and the direction to collect VAT and stamp duty from them remained in force.

The buyers then moved the High Court. On April 8, another High Court bench issued a rule and stayed the effectiveness of the Artha Rin Adalat’s order until disposal of the rule.

In its judgment, the court held that the direction to collect 15 per cent VAT at source from auction buyers was issued without lawful authority and therefore had no legal effect.

The court also declared unlawful the portion of the disputed statutory regulatory order (SRO) that classified buyers of immovable property as “auction buyers of goods” for VAT purposes.

Lawyers for the petitioners said the judgment means buyers of immovable property through judicial auctions conducted by Artha Rin Adalats are no longer required to pay 15 per cent VAT on the auction price.

They also said the court clarified that where Parliament exempts the sale or transfer of a property from VAT through legislation, a VAT liability cannot subsequently be imposed on that property through subordinate or delegated legislation.

The lawyers said the judgment is likely to serve as an important precedent for judicial auctions conducted to execute decrees in Artha Rin Adalats and for purchases of immovable property through such auctions.