2023 (8) TMI 6 - HC - VAT and Sales Tax

Contempt petition dismissed over sales tax dues priority dispute.

The Court dismissed the contempt petition regarding breach of court order and priority of dues between a secured creditor and the State Government under ... Lien on property on account of sales tax dues - dues of a secured debtor rank above the dues of the State Government or not - Seeking initiation of contempt action against the respondents for having committed a breach of the order passed by a Co-ordinate Bench of this Court - HELD THAT:- In so far as the petitioners’ case that a letter dated 16 March 2021 issued by the respondent to petitioner No. 3 would amount to breach of the order dated 10 January 2020 passed by the Division Bench, is totally untenable. This for the reason that such a communication did not in any manner obstruct the sale of the property by the petitioners to realise its dues by exercising its first charge as per the orders dated 10 January 2020 passed by the Division Bench. Secondly, the petitioners in alleging breach have totally overlooked that petitioner No. 3 taking the benefit of the order dated 10 January 2020 had already proceeded to issue an auction proclamation on 11 February 2021 under which petitioner Nos. 1 and 2 had submitted their bids which came to be considered by petitioner No. 3. Petitioner Nos.1 and 2 were declared to be successful bidders by issuance of a communication by petitioner No. 3 titled as “Successful Bid Confirmation Letter”. Thereafter, on 5 March 2020 petitioner Nos. 1 and 2 had made part payment/consideration in purchasing the auctioned property, from petitioner No. 3. All this has happened prior to the respondent issuing letter dated 16 March 2021. Thus, to infer any intentional disobedience to defeat an order dated 10 January 2020, is unacceptable. It may be observed that once the Court recognizes the first charge of petitioner No. 3 and in pursuance thereto actions were taken by petitioner No. 3 to auction the mortgaged property, it cannot be said that the issuance of the letter / Notice dated 16 March 2021 and 9 April 2021 respectively by the respondents alleged to be issued in breach of the orders, would even remotely amount to any intentional disobedience of the orders passed by this Court. The Court considering the position in law has held that apart from recognizing the first charge of petitioner No. 3, the charge of the Sales Tax Department on the mortgage property had continued to operate even on transfer of the said property in the hands of petitioner Nos. 1 and 2 as auction purchasers, as it was on the very terms and conditions of “as is where is basis”, “as is what is basis” and “whatever is there is basis”, the petitioner Nos. 1 and 2 had purchased the property. The present contempt petition appears to be not bonafide and is dismissed. Issues involved:The issues involved in the judgment are breach of court order, priority of dues between a secured creditor and the State Government under sales tax laws, and the validity of notices issued by the Sales Tax Department demanding payment of dues.Breach of Court Order:The petitioners sought contempt action against the respondents for allegedly breaching an order dated 10th January 2020 passed by the Court. The order held that the dues of a secured creditor rank above the dues of the State Government under sales tax laws. Despite this, the Sales Tax Department issued notices demanding payment of sales tax dues from the secured creditor, leading to the contempt petition.Priority of Dues - Secured Creditor vs. State Government:The order clarified that the secured creditor had the first charge on the mortgaged property, not the Sales Tax Department. The notices issued by the Sales Tax Department demanding payment from the secured creditor were deemed to be in breach of the court order recognizing the priority of dues.Validity of Notices by Sales Tax Department:The notices dated 16th March 2021 and 9th April 2021 issued by the Sales Tax Department demanded payment of sales tax dues from the secured creditor. The Court found that these notices, although in the form of a garnishee notice, did not amount to intentional disobedience of the court order. The Court emphasized that the secured creditor had already initiated actions to auction the property before the notices were issued.Separate Judgment:In a separate judgment on Writ Petition No. 4365 of 2023, the Court considered the implications of the order dated 10 January 2020. It held that the Sales Tax Department's charge on the mortgaged property continued to operate even after its transfer to auction purchasers, alongside the first charge of the secured creditor.Conclusion:The Court dismissed the contempt petition, stating that the notices by the Sales Tax Department did not constitute intentional disobedience of the court order. It also criticized the petitioners for filing the contempt petition, suggesting it was not bona fide and highlighting that the petitioners were not directly involved in the initial court order. The judgment concluded that the contempt petition was thoroughly misconceived and no costs were awarded.