Tax charge and mutation entries depend on crystallized liability; infructuous constitutional challenges cannot displace statutory priority rules.

A constitutional challenge to section 16-B of the Himachal Pradesh General Sales Tax Act was not to be decided in an infructuous proceeding, and the provision was treated as valid in the absence of a statutory first charge overriding the State's sales tax claim. The Court also noted that a charging and recovery provision operates only after lawful assessment and crystallisation of tax liability; without completed assessment, notice and demand, adverse red entries, refusal of mutation, or recovery as arrears of land revenue could not be sustained. A recall application styled under section 151 CPC was treated as a misconceived attempt at review and was not entertained.

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Issues: (i) Whether the challenge to section 16-B of the Himachal Pradesh General Sales Tax Act, 1968 could be examined despite dismissal of the special leave petition qua the bank and the subsequent development that the writ petition had become infructuous; (ii) whether section 16-B of the Himachal Pradesh General Sales Tax Act, 1968 was ultra vires the Constitution or the Banking Companies Act; (iii) whether, on the facts, the State had established a first charge or was entitled to insert red entries and refuse mutation in the absence of determination of tax liability; and (iv) whether dismissal of the State's recall application under section 151 of the Code of Civil Procedure, 1908 suffered from legal infirmity.

Issue (i): Whether the challenge to section 16-B of the Himachal Pradesh General Sales Tax Act, 1968 could be examined despite dismissal of the special leave petition qua the bank and the subsequent development that the writ petition had become infructuous?

Analysis: A decision rendered in a competent forum ordinarily attains finality, but the Court may correct its own error where a matter was decided after it had become infructuous. The writ petition, in substance, no longer survived because the contesting bank had already recovered its dues and released the mortgaged property, a fact not brought to the notice of the High Court. The earlier dismissal of the special leave petition against the bank on the ground of infructuousness did not prevent the Court from examining the correctness of the impugned declaration that section 16-B could be invalidated.

Conclusion: Yes. The issue could still be examined.

Issue (ii): Whether section 16-B of the Himachal Pradesh General Sales Tax Act, 1968 was ultra vires the Constitution or the Banking Companies Act?

Analysis: A constitutional challenge should not be decided in vacuum. The Court held that the writ petition had become infructuous and that the High Court ought not to have struck down the provision in that proceeding. On the substantive question also, the reasoning in Central Bank of India showed that, at the relevant time, the DRT Act and the SARFAESI Act did not create a statutory first charge in favour of banks overriding a State's first charge under sales tax legislation. The later amendments introducing sections 31B and 26E only reinforced that such priority was not available earlier unless conferred by statute.

Conclusion: No. Section 16-B was held to be valid and not ultra vires the Constitution or the Banking Companies Act.

Issue (iii): Whether, on the facts, the State had established a first charge or was entitled to insert red entries and refuse mutation in the absence of determination of tax liability?

Analysis: Section 16-B operated only when tax, penalty or interest became payable; that presupposed lawful assessment and determination in accordance with the Act. The record before the High Court did not show that the statutory procedure for assessment, notice and demand had been completed before the adverse entries were made. In the absence of crystallized liability, recourse to recovery as arrears of land revenue and refusal of mutation could not be justified. The Court therefore agreed that the State had not established a basis for the entries or for refusing mutation, while observing that in the other set of appeals it would not reopen the matter after dismissal qua the bank.

Conclusion: The State had not lawfully established an enforceable first charge on the facts as presented for mutation, and the refusal of mutation was unsustainable.

Issue (iv): Whether dismissal of the State's recall application under section 151 of the Code of Civil Procedure, 1908 suffered from legal infirmity?

Analysis: The application styled under section 151 was in substance a belated attempt to seek review without satisfying the requirements for review or showing an error apparent on the face of the record. Section 151 cannot be used where the Code provides a specific remedy, and new factual material that existed earlier but was not produced with due diligence could not justify recall. The High Court was justified in treating the application as misconceived.

Conclusion: No. The dismissal of the recall application was upheld.

Final Conclusion: The Court partially interfered by restoring the validity of section 16-B of the Himachal Pradesh General Sales Tax Act, 1968, while leaving intact the High Court's refusal to grant mutation relief on the facts and its dismissal of the recall application. The civil appeals were disposed of accordingly.

Ratio Decidendi: A tax charging provision operates only after lawful determination of liability, and a constitutional challenge or declaratory relief should not be granted in proceedings that have become infructuous; moreover, statutory priority in favour of a secured creditor cannot be assumed in the absence of express legislative command.

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