TaxTMI 
TaxTMI 
2015 (11) TMI 97
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.... the second Petitioner is its Managing Director. Respondent No. 1 is the State of Maharashtra through the Commissioner of Sales Tax and his associate officers who are exercising powers under the Bombay Sales Tax Act, 1959 ("BST Act" for short). In exercise of the powers that are delegated to him, the second Respondent is seeking to enforce the attachment levied on the immovable properties, which shall be more particularly described in the following paragraphs. 6. The Respondent No. 3 is a company incorporated and registered under the Indian Companies Act, 1956, having its office at the address mentioned in the cause title. 7. The fourth Respondent carried on business as manufacturer of Aluminum castings. During the course of such business, it obtained financial assistance from financial institutions and banks. These were secured creditors. For securing the debt, the Respondent No. 4 had created an interest in favour of these financial institutions and within the meaning of this term (secured interest) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'SARFAESI Act'). The Petitioners point out that....
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....rtificate. 8. The Petitioners were desirous of putting up a unit at the immovable properties so purchased, but there was an attachment levied on the same by the 2nd Respondent on 11th March, 2013. The attachment was levied because the 4th Respondent had defaulted in payment of Sales Tax for the period 1996-97 to 2001-02. The attachment order was issued in the name of 4th Respondent, without noticing that the properties were already transferred in favour of the Petitioners in 2011 itself. 9. In such circumstances, the Petitioners addressed a communication/letter, through their Chartered Accountant, bringing to the notice of the Sales Tax authorities that the properties have been purchased and acquired by the Petitioners and in the circumstances aforestated and narrated. In the light of this communication from the Chartered Accountant dated 17th May, 2013, the 2nd Respondent directed the Tahsildar to remove the attachment. Annexures 'F', 'G' and 'H' are the relevant documents. 10. Thereafter on 16th July, 2013, 2nd Respondent intimated the Petitioners that the dues of this 4th Respondent are recoverable in view of the sale certificate and on the assum....
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...."whether any power vests in the 2nd Respondent or the authorities under the BST Act to levy any attachment on the Petitioners' movable and immovable properties?" If that power is not to be found in the scheme of the BST Act, then, the attachment order is ex-facie bad in law and deserves to be set aside. Mr. Joshi thereafter elaborated his submissions by inviting our attention to the public notice issued by 3rd Respondent after it exercised its powers under the SARFAESI Act. The possession of the properties was taken over by the 3rd Respondent. In terms of the powers conferred in the 3rd Respondent by virtue of the SARFAESI Act, it became entitled to sell all the properties. That is how the sale had been announced and offers were invited for purchasing the immovable properties. That sale was concluded. The borrower Respondent No. 4 never questioned the sale. In such circumstances, by virtue of the sale certificate and its registration, the Petitioners have become owners of the immovable properties and equally the movables. After nearly two years and more of this ownership, the attachment has been levied. That attachment proceeds on the footings that the properties continue to be....
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.... Respondent No. 4. They are not the successors in interest in any manner of Respondent No. 4. In these circumstances, the attachment is bad in law. 15. Reliance is placed upon the Judgments of the Hon'ble Supreme Court in the case of state of Karnataka and Anr. vs. Shreyas Papers Pvt. Ltd. and Others reported in (2006) Vol. 144 STC 331. Our attention is also invited to the Judgment of a Division Bench of this Court in the case of Krishna Lifestyle technologies Ltd. vs. Union of India reported in 2008(229) ELT 173. Our attention is then invited to the Judgment of the Hon'ble Supreme Court in the case of Rana Girders Ltd. vs. Union of India reported in 2013(295) ELT 12 (SC). For these reasons, it is submitted that the Writ Petition be allowed. 16. On the other hand, the contesting Respondents and particularly Respondent Nos. 1 and 2 would submit that the attachment was justified. Mr. Sethna, learned Special Counsel appearing for Respondent Nos. 1 and 2 submits that the definition of the term "capital asset" as appearing in section 2(14) of the Income Tax Act, 1961 is a relevant definition. The Petitioners have acquired a capital asset. The definition of the term "busine....
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....ake note of the admitted facts and circumstances. Earlier, the stand of Respondent No. 3 is that the sale certificate refers to the liabilities of the financial institutions and those are admitted by the Petitioners and Respondent No. 4. They cannot be disputed and the sale cannot be challenged on that ground. The arguments of the Petitioners therefore are restricted to other taxes and dues, including statutory. After appreciating them, this Court may pass appropriate orders. Later on, however, this stand was changed. The Respondent No. 4 was carrying out manufacturing activities from the immovable properties. It had obtained finance from various banks and institutions and against the subject properties. After it ceased to carry out the manufacturing activities, the two secured creditors, who had to recover considerable sums from this entity, assigned their debts to Respondent No. 3. The secured creditors are State Bank of India (SBI) and Industrial Credit and Investment Corporation of India (ICICI). On 10th November, 2004 the 3rd Respondent issued a notice under section 13(2) of the SARFAESI Act. The valuation report was obtained and thereafter, a public notice was issued notifyin....
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.... report, which is dated 10th January, 2008, does not mention any reference to proceedings which were stated to be initiated and taken up before the Board for Industrial and Finance Reconstruction (BIFR). That is under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). 22. The SARFAESI Act is an Act which enables regulation of securitisation and reconstruction of financial assets and enforcement of security interest or matters incidental thereto. The term 'debt' is defined in section 2(ha). The term 'property' is defined under section 2(t) and the term 'security interest' is defined under section 2(zf). That means, right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes a mortgage, charge, hypothecation, assignment other than those specified in section 31. The term 'secured asset' means the property on which the security interest is created and the word 'secured debt' means a debt which is secured by any security interest. The term 'secured creditor' is defined in section 2(zd). The words and expressions used and not defined in the SARFAESI Act, but def....
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....fidavit in reply. The reliance therefore is placed on section 2(5A) of BST Act. That section reads as under:- 2(5A) "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not such trade, or profit and whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern; and any transaction in connection with or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern; and any transaction in connection with, or incidental or ancillary to, the commencement or closure of such trade, commerce, manufacture, adventure or concern; Explanation-For the purpose of this clause,:- (i) the activities of raising of man-made forests or rearing of seedings or plants shall be deemed to be business. (ii) any transaction of sale or purchase of capital assets pertaining to such trade, commerce, manufacture, adventure or concern shall be deemed to be business and expression "capital assets" shall have the same meaning as assigned to it in the Income Tax Act, 1961 (iii) purchases of any goods, the price of which i....
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.... relied upon and also of the document creating title in favour of the Petitioners to indicate that all liabilities, dues of authorities and departments, statutory or otherwise, any other dues, if any, in respect of the scheduled property and if payable in law/attachable to the schedule property/sale proceeds by reason of the proposed sale of the scheduled property, shall be the sole responsibility of and to the account of the purchaser. Similar terms are to be found in the sale certificate as well. 26. Then reliance is placed on section 19 of the BST, which reads as under:- S. 19. Special provision regarding liability to pay tax in certain cases.:- (1) Where a dealer, liable to pay tax under this Act, dies then,:- (a) if the business carried on by the dealer is continued after his death by his legal representative or any other person, such legal representative or other person shall be liable to pay the tax including any penalty and interest due from such dealer under this Act or under any earlier law, in the like manner and to the same extent as the deceased dealer, and (b) if the business carried on by the dealer is discontinued whether before or a....
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....essed thereafter. (5) Where the dealer, liable to pay tax under this Act:- (a) is a guardian of a ward on whose behalf the business is carried on by the guardian, or (b) are trustees who carry on the business under a trust for a beneficiary, then, if the guardianship or trust is terminated, the ward or, as the case may be, the beneficiary shall be liable to pay the tax (including any penalty and interest) due, from the dealer up to the time of the termination of the guardianship or trust whether such tax (including any penalty and interest) has been assessed before the termination of the guardianship or trust, but has remained unpaid, or is assessed thereafter. (6) Where a dealer, liable to pay tax under this Act, is succeeded in the business by any person in the manner described in clause (a) of sub-section (1) or in sub-section (4), then, such person shall, notwithstanding anything contained in section 3, be liable to pay tax on the sales or purchases of goods made by him on and after the date of such succession, and shall (unless he already holds a certificate of registration) within sixty days thereof apply for registration:- Provide....
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....ance to them. 29. We find that Mr. Joshi's reliance on the Judgment in the case of Shreyas Papers Pvt. Ltd. (supra) is well placed. 30. Somewhat similar question fell for consideration of the Hon'ble Supreme Court. There was a company and in the State of Karnataka. The Karnataka State Industrial Investment and Development Corporation had extended financial assistance to this company, which defaulted in repayment of the loan granted to it. Therefore, the Corporation, which was a State Financial Corporation within the meaning of State Financial Corporations Act, 1951, initiated somewhat identical measures as are initiated by Respondent No. 3 to this Petition but in terms of section 29(1) of the State Financial Corporations Act, 1951. They took over the assets of the defaulter, advertised sale thereof and that is how after rounds of negotiations, the Respondent before the Hon'ble Supreme Court, whose offer was on record, came to be notified as a auction purchaser. True it is that in the clause which was brought to the notice of the Hon'ble Supreme Court, the auction purchaser had not taken over any liability of the defaulting unit, but, what one finds is that the....
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....n erroneous view of the matter. In Karnataka State Industrial Investment and Development Corporation Ltd. v. Assistant Commissioner of Commercial Taxes, Bangalore (2001) 121 STC 520 (Kar), the High Court held that when section 29 of the SFC Act was read with section 15 of the KST Act, the transferee would be jointly liable with the State Finance Corporation concerned. As we have already held, section 15 operates only in a situation where the ownership of the business is transferred. The learned single Judge, however, did not notice this point. Similarly, we are unable to accept the correctness of the judgment in Alpha Silicones v. Assistant Commercial Tax Officer (Recovery), Gulbarga (1990) 77 STC 68 (Kar) as it held that even the mere transfer of assets would amount to transfer of ownership of the business. We overrule these two judgments to the extent that they conflict with the views expressed therein. 13. In the present case, since it is not a matter of dispute that there was only the transfer of individual assets of the defaulting company, rather than the defaulting company being sold as a going concern, in the light of our expressed views, section 15 of the KST Act i....
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....med to be notice issued or an order passed under the said Act. S. 38C. Liability under this Act to be first charge.:- Notwithstanding anything contained in any contract to the contrary but subject to any provision regarding first charge in any Central Act for the time being in force, any amount of tax, penalty, interest or any other sum, payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer, or, as the case may be, person. 32. A bare perusal of these provisions would indicate as to how special powers of Sales Tax Authorities for recovery of tax as arrears of land revenue are created and conferred in the officers of the Sales Tax Department. For the purposes of the Maharashtra Land Revenue Code, 1966 such of the officers who have been named in the clauses of sub-section (1) of section 38B would be the Revenue Officers. They are conferred with similar powers. 33. There is no dispute about this and therefore Mr. Joshi rightly did not challenge the competence or authority of the 2nd Respondent in resorting to this special provision. It is the legality and authority of the action thereunder which is in issue bef....
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.... submit that the Petitioners cannot derive any assistance from the Judgment of the Hon'ble Supreme Court in the case of Shreyas Papers Pvt. Ltd. (supra). The second limb of the argument before the Hon'ble Supreme Court was that there was a statutory charge on the property of the defaulting company and that continues on the properties even if the same changes hands or there is a transfer thereof. That is how the Hon'ble Supreme Court referred to section 100 of the Transfer of Property Act, 1982 and relied upon definition of the term 'charge' appearing therein. It is in these circumstances that the Hon'ble Supreme Court concluded in paras 16, 17 and 18 as under:- 16. As the section itself unambiguously indicates, a charge may not be enforced against a transferee if s/he has had no notice of the same, unless by law, the requirement of such notice has been waived. This position has long been accepted by this Court in Dattatreya Shanker Mote v. Anand Chintaman Datari (1974) 2 SCC 799, and in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai AIR 1971 SC 1201 (hereinafter "Ahmedabad Municipal Corporation"). In thi....
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....any statutory liabilities, including sales tax. This offer was accepted by the Corporation on July 15, 1992. Even at that stage, there was no mention of any sales tax arrears. The sale of the assets took place pursuant to the agreement dated August 12, 1992 in which a specific clause was inserted that the first respondent would be liable to pay all property taxes, other taxes, electricity bills, water taxes and rents from the date of the agreement (i.e. August 12, 1992). For the first time, by letter dated January 8, 1993 of the second appellant to the Mandal Panchayat, Aloor Taluk, the issue of sales tax dues of the defaulting company was brought to the surface. This is further borne out by the correspondence between the first respondent and the Corporation. Thus, it is evident that the first respondent had no actual notice of the charge prior to the transfer. As to whether the first respondent had constructive notice of the charge, no substantive argument on this issue was made, either before the High Court or at any rate before us. Hence, we cannot hold that the first appellant had constructive notice of the charge. 36. We are of the opinion that in the light of the uncontrov....
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.... Supreme Court's attention was invited to the Judgment in the case of Shreyas Papers Pvt. Ltd. (supra) and that is clear from para 16 equally a provision as is to be found in the SARFAESI Act and section 34 thereof particularly was relied upon. That act has been given an overriding effect. The overriding effect is in the following terms:- 34. Civil Court not to have jurisdiction.-No Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any Court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993). 38. The Hon'ble Supreme Court considered these arguments and eventually held as under:- ...... 17. Learned counsel for the respondents, heavily relied on the judgment of this Court in M/s. Macson (supra), reference to which is also made in the notice dated 25-2-1984 that was served upon the appellant by the ....
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....evail over the Crown debt which is an unsecured one. On this reasoning, the debt payable to secured creditor like the Financial Corporation was priortised vis-a-vis the Central Excise Dues. 19. For this principle, the Court referred to its earlier judgment in Dena Bank v. Bhikhabhai Prabhudas Parekh and Co. and Ors. (2000) 5 SCC 694 explaining the doctrine of priority to Crown Debts, thus:- What is common law doctrine of priority or precedence of Crown debts/Halsbury, dealing with general rights of the Crown in relation to property, states that where the Crown's right and that of a subject meet at one and the same time, that of the Crown is in general preferred, the rule being "detur digniori (Laws of England, 4th Edn., Vol. 8, para 1076, at p. 666). Herbert Broom States:- Quando jus domini regis et subditi concurrunt jus regis praegerri debat.-Where the title of the kind and the file of a subject concur, the king's title must be preferred. In this case detur digniori is the rule..... where the titles of the kind and of a subject concur, the kind takes the whole..... where the king's title and that of a subject concur, or are in conflict, the ....
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.... has also been placed by Ms. Rao on Macson Marbles Pvt. Ltd. (supra) wherein the dues under Central Excise Act was held to be recoverable from an auction purchaser, stating:- We are not impressed with the argument that the State Act is a special enactment and the same would prevail over the Central Excise Act. Each of them is a special enactment and unless in the operation of the same any conflict arises this aspect need not be examined. In this case, no such conflict arises between the corporation and the Excise Department. Hence it is necessary to examine this aspect of the matter. The Department having initiated the proceedings under Section 11A of this Act adjudicated liability of respondent No. 4 and held that respondent No. 4 is also liable to pay penalty in a sum of Rs. 3 lakhs while the Excise dues liable would be in the order of a lakh or so. It is difficult to conceive that the appellant had any opportunity to participate in the adjudication proceedings and contend against the levy of the penalty. Therefore, in the facts and circumstances of this case, we think it appropriate to direct that the said amount, if already paid, shall be refunded within a period of....
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....and vendor shall not be held responsible in the Agreement of Sale." As per the High Court, these statutory liabilities would include excise dues. We find that the High Court has missed the true intent and purport of this clause. The expressions in the Sale Deed as well as in the Agreement for purchase of plant and machinery talks of statutory liabilities "arising out of the land" or statutory liabilities "arising out of the said properties" (i.e. the machinery). Thus, it is only that statutory liability which arises out of the land and building or out of plant and machinery which is to be discharged by the purchaser. Excise dues are not the statutory liabilities which arise out of the land and building or the plant and machinery. Statutory liabilities arising out of the land and building could be in the form of the property tax or other types of cess relating to property etc. Likewise, statutory liability arising out of the plant and machinery could be the sales tax etc. payable on the said machinery. As far as dues of the Central Excise are concerned, they were not related to the said plant and machinery or the land and building and thus did not arise out of those properties. Dues....
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....inding contract and obligation thereunder, if incurred voluntarily. However, in the present case, we do not find how the general stipulation in the agreement and sale certificate would enable the authorities to levy attachment and on the properties, which are no longer belonging to the dealer. The Petitioners are not the defaulters nor they are successor in interest. In these circumstances, the attempt to foist the liability of the defaulting dealer on the Petitioners and proceed against their properties is in issue before us. The legality and validity of the attachment order dated 24th December, 2013 is the question before us. That cannot be answered by relying on a general stipulation or clause in a contract or sale deed. It is a pure legal question and that is how even the Sales Tax Authorities approach it. 42. As a result of the above discussion, this Writ Petition succeeds. Rule is made absolute in terms of prarer clauses (a) and (b) of the Writ Petition. The attachment order impugned in this Writ Petition is quashed and aside. However, our order and direction does not mean that Respondent Nos. 1 and 2 cannot proceed against the borrower/defaulter Respondent No. 4. Pertinen....