TaxTMI 
TaxTMI 
2010 (4) TMI 982
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....institution or instrumentality, falls for consideration. This issue arises in the context of the provisions contained in section 16C of the Act, which reads: "16C. Liability under this Act to be the first charge.-Notwithstanding anything contrary contained in any law for the time being in force, any amount of tax, penalty, interest and any other sum, if any, payable by a dealer or any other person under this Act, shall be the first charge on the property of dealer, or such person." The above provision was introduced into the principal Act by Amendment Act 9 of 1999 with effect from April 6, 1999. The vires of section 16C of the Act are challenged only in W.P. No. 21865 of 1999 by the A.P. State Financial Corporation ("the Corporation") on several grounds: (a) That the right of the Corporation under section 29 of the State Financial Corporations Act, 1951 ("the 1951 Act") to take over the management or possession of the industrial concern and the right to transfer the property secured in its favour, creates an overriding charge over the assets of the industrial concern and would have precedence in view of the non obstante clause in section 46B of this Act; (b) Th....
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....allenge by the Corporation to the notice of attachment of the property of the sixth respondent for tax arrears. The property was attached by the third respondent. The 6th respondent had also defaulted on repayments of a loan advanced by the Corporation. (B) W.P. Nos. 4625 of 2004, 24489 of 2005, 459 of 2006, 25305 of 2007, 5322 of 2008 are filed by the Revenue. In W.P. No. 4625 of 2004 auction of the specified property by the Recovery Officer of the Debts Recovery Tribunal ("the DRT") is challenged. Despite being notified of attachment of the property by the Revenue under the provisions of section 17C of the Act the Recovery Officer of the DRT pursuant to an order of the Tribunal in RP No. 168 of 2003 in O.A. No. 626 of 2002 had conducted auction for recovery of the amounts due to the first respondent-bank. W.P. No. 24489 of 2005 assails the action of the respondent-bank proposing auction of the property under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("the Securitisation Act"), in view of the primacy accorded to tax arrears due by the first respondent-dealer, under the provisions of section 16C of th....
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....ion of the Revenue in attaching the specified property under the provisions of the RR Act even while the petitioner's application before the DRT, Hyderabad for recovery of the amounts due to it from the borrower/dealer is pending. Vires of section 16(c) of the APGST Act, 1957 The policy justification for the impugned provision is the well entrenched common law doctrine of priority of crown debts. The common law doctrine postulates that the State is entitled to claim, for the recovery of the amount of tax due to it from a citizen precedence and priority over unsecured debts due from the said citizen to his other private creditors. The basic justification for such claim of priority rests on the well recognized principle that the State is entitled to raise money by taxation, otherwise it will not be able to function as a sovereign Government at all. This consideration emphasizes the necessity and wisdom of conceding to the State the right to claim priority in respect of its tax dues-Builders Supply Corporation v. Union of India [1965] 65 ITR 91 (SC); AIR 1965 SC 1061, Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. [2000] 120 STC 610 (SC); [2000] 5 SCC 694. Central Bank of India....
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.... to the right of the secured creditors to enforce security interest vis-a-vis section 69 or 69A of the Transfer of Property Act without the intervention of a court or Tribunal. However, the primacy conferred under section 13(1) does not extend to other provisions like sections 38C and 26B of the Bombay and Kerala Acts by which first charge has been created in favour of the State over the property of the dealer or any person liable to pay the dues of sales tax, etc., section 13(7) of the Securitisation Act envisages application of the money received by the secured creditors, it does not create a first charge in favour of secured creditors; (D) Section 13(9) of the Securitisation Act merely reiterates the priority of the claim of the workers of a company in liquidation spelt out in section 529A of the Companies Act, 1956 vis-a-vis the secured creditors under this Act. However no first charge is created in favour of worker of a company-in-liquidation for the first time; also companies which are not in liquidation or are not being wound up, are not covered by the provisions of sub-section (9). (E) The non obstante clause in section 34(1) of the DRT Act or section 35 of the Securitisa....
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.... of Property Act as a transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced as set out therein. The distinction between a mortgage and a charge was considered by this court in the case of Dattatreya Shanker Mote v. Anand Chintaman Datar [1974] 2 SCC 799. The court has observed (at SCC pages 806 and 807) that a charge is a wider term as it includes also a mortgage, in that, every mortgage is a charge, but every charge is not a mortgage. The court has then considered the application of the second part of section 100 of the Transfer of Property Act which, inter alia, deals with a charge not being enforceable against a bona fide transferee of the property for value without notice of the charge. It has held that the phrase 'transferee of property' refers to the transferee of the entire interest in the property and it does not cover the transfer of only an interest in the property by way of a mortgage. 8.. . . . The argument, though ingenious, will have to be rejected. Where a mortgage is created in respect of any property, undoubtedly, an interest in the property is carved out in favour of the mortga....
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....99 and the propositions laid down therein do not call for reconsideration. At the cost of repetition, we consider it appropriate to observe that in Dattatreya's case [1974] 2 SCC 799 the court was not dealing with the statutory first charge created in favour of the State." (I) Applying the several ratios above referred to, the court held that the first charge created by the State Sales Tax Act will have primacy and would prevail even over a decree obtained by a bank. (C.A. No. 3973 of 2006, Bank of Baroda v. State of Kerala). (J) In another appeal (C.A. No. 4174 of 2006 Ahmad Koya v. District Collector, Kollam), the judgment of the Division Bench of the Kerala High Court was affirmed and thus the view that the statutory first charge created under the Kerala General Sales Tax Act would not only prevail over a prior mortgage in favour of a bank but would also nullify a sale of the property effected at the instance of the bank through the DRT process and even where the property was in possession of the auction purchaser, consequent on a sale of the mortgaged property in his favour through judicial process. As a result of the above analysis the writ petitions are disposed of as ....
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.... to the Revenue. This writ petition is disposed of as above. (iii) In W.P. No. 24334 of 2001 the Corporation has questioned the attachment ordered by the Revenue of the property of the dealer towards realization of sales tax dues under the provisions of the Act. The liability of the second respondent dealer to the Revenue is Rs. 23,88,850. Pending the writ petition and in exercise of its power under section 29 of the 1951 Act, the petitioner-Corporation sold the mortgaged assets of the defaulting dealer including the land, buildings, plant and machinery and realized an amount of Rs. 19,50,000. By interim orders of this court dated November 27, 2001 the petitioner was directed to deposit the amount equivalent to the tax liability of the defaulting dealer in an interest yielding deposit and to maintain a separate account for this purpose. The relief sought in this writ petition is rejected as unsustainable and the writ petitioner is declared liable to make over to the Revenue the sale proceeds deposited by it as directed together with the interest accrued thereon. The writ petition is disposed of accordingly. (iv) In W.P. No. 24097 of 2003 the fifth respondent defaulted on tax arre....
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....ted dealers was also notified. While so the Debts Recovery Officer, DRT, Visakhapatnam conducted auction and sold the property mortgaged to the first respondent-bank with a view to recover the liability of the defaulted dealer to the said bank. The Revenue therefore filed this writ petition to declare the auction of the property conducted on February 26, 2004 by the second respondent-the Debts Recovery Officer as invalid and for a declaration that the Revenue is entitled to recover the arrears of tax by auctioning the properties of the respondent Nos. 3 to 5 in view of the provisions of section 16C of the Act. By an interim order this court directed that the amount of Rs. 8,61,354 (amount due to the Revenue as on February 15, 2004) realized by the second respondent on the sale of the property shall be set apart by the second respondent. Accordingly the second respondent deposited Rs. 8,61,354 with the first respondent-bank on April 1, 2005. The present liability of respondent Nos. 3 to 5 together with interest is stated to be of the order of Rs. 16,12,736 (as on March 31, 2010). As the amount directed to be deposited under the interim order of this court, i.e., Rs. 8,61,354 was o....
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....terim order of this court, the second respondent deposited Rs. 40,21,558 with a nationalized bank on May 17, 2006, but the Corporation did not deposit the balance amount of the Revenue dues (owed by the first respondent) out of the sale proceeds appropriated by it on a pro rata basis. In the facts and circumstances, the writ petition is allowed as prayed for. The second respondent and the Corporation are declared liable to make over to the Revenue the sale proceeds appropriated by them on pro rata basis, to the extent of the liability of the first respondent to the Revenue up-to-date; and if any balance amount is available after discharging the liability to the Revenue as above, such balance amount may be retained by the second respondent and the Corporation in accordance with their respective entitlement. This writ petition is allowed as above. (iv) W.P. No. 25305 of 2007 is by the Revenue for a declaration that the orders of the first respondent-Recovery Officer, DRT, Visakhapatnam, dated April 26, 2006 rejecting/dismissing I.A. No. 12 of 2006 in R.P. No. 7 of 2003 in O.A. No. 902 of 2002 is unsustainable; that the Revenue has a first charge over the property of the third respon....