TaxTMI 
TaxTMI 
2020 (4) TMI 687
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....ep.by it's Secretary, Service Tax Wing, New Delhi; the 2nd respondent is the Director General of GST Intelligence, Hyderabad Zonal Unit; the 4th respondent is the Deputy commissioner of Income tax, circle 3 (1), Hyderabad; the 5th respondent is the Regional Provident Fund Commissioner- II & it's Recovery Officer, Regional Office, Hyderabad. 4. The 6th respondent is M/s SEW Infrastructures Limited, Greenlands, Hyderabad, a Company incorporated under the Companies Act,1956. 5. The petitioner Bank in it's banking activity had sanctioned limits of Rs. 820 Crores to the 6th respondent with working capital limits of Rs. 198 crores ( Fund based) and Rs. 622 Crores ( Non Fund based) and the limits were renewed during February,2016 along with consortium Banks. 6. The 6th respondent created a first charge by way of hypothecation of all it's current assets and receivables as primary security and a mortgage over it's immoveable properties as collateral security. 7. The loan accounts of the 6th respondent were classified as 'Non Performing Assets' as on 8.1.2016 as per the Reserve Bank of India norms. The petitioner then initiated proceedings under the SARFAESI Act, 2002 by issuing ....
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....nch, Hyderabad towards it's dues pointing out it has got priority over claims of the respondents 1-3 under Sec.31-B of the Recovery of Debts and Bankruptcy Act,1993. 14. Petitioner also contends that there was a claim lodged by the 5th respondent with it under Sec.8 F of the Employees Provident Fund and Miscellaneous Provisions Act,1952 for the same amount and that it is not possible to pay it to the respondents 1-3. 15. Petitioner also contends that as per sec.88 of the Finance Act,1994, the service tax and government dues have no priority over the secured debts covered by the Recovery of Debts and Bankruptcy Act,1993 and the SARFAESI Act,2002. 16. Petitioner further contends that it is not a party to the adjudication proceedings against the 6th respondent taken by the respondents 1-3 and the very issuance of the notice under sec.87 (b)(i) of the Finance Act,1994 is without jurisdiction and is arbitrary. IA No. 1 of 2019 17. Petitioner had filed IA No. 1 of 2019 in the Writ Petition to suspend the impugned notice issued by the 3rd respondent on 11.6.2019. 18. On 17.9.2019, this court granted interim suspension of the impugned notice. I.A.nos. 2 and 3 of 2019 19. ....
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.... proof of taking possession of the assets of the 6th respondent under Sec. 13(4) of the SARFAESI Act,2002; and that petitioner's claim that it has a first charge or statutory lien on the Income tax refund amount is not a valid claim. 26. It is contended that the Finance act,1994 is still existing even after the commencement of the CGST Act,2017, that it has not been repealed and under Sec.174(2) of the CGST Act r/w Sec.142(8) of the CGST Act , the action of the 3rd respondent is valid in law. The stand of the 6th respondent 27. In the affidavit filed along with IA No.2 of 2019, the 6th respondent Company supported the stand of the respondents 1-3 and contended that petitioner cannot challenge the impugned notice. 28. While admitting that the 6th respondent had borrowed loans from the petitioner, it is stated that it is still a going concern, but is passing through a bad phase financially. It admitted that it has liability towards service tax and also was in default of provident fund contributions. 29. It claimed that it had made a claim under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 in so far as service tax arrears are concerned on 31.10.2019 under ....
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....or loans borrowed by it, Service Tax dues to respondents 1-3 and Provident Fund dues to the 5th respondent. The 6th respondent supports the claim of respondents 1-3. 38. The 6th respondent received an Income Tax refund Order for Rs. 35,75,95,400/- on 20.5.2019 and it was credited into the TRA account of the 6th respondent in the petitioner Bank at it's CCG Branch, Hyderabad. 39. The question is "which of the parties is entitled to take this amount?" Whether the claim of petitioner prevails over the claim of the respondents 1-3? 40. In this regard, we shall first consider the rival claims of the petitioner Bank and the respondents 1-3. 41. Sec.87(b) (i) of the Finance Act,1994 states: " 87. Recovery of any amount due to Central Government.-Where any amount payable by a person to the credit of the Central Government under any of the provisions of this Chapter or of the rules made thereunder is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes mentioned below:- (a) ... the Central Excise Officer may deduct or may require any other Central Excise Officer or any officer of customs to deduct the amount so....
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....other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority. Explanation.- For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code." 46. Sec.26-E of the SARFAESI Act,2002 introduced by Act 44 of 2016 w.e.f 1.9.2016 also contains an identical provision which states: "26-E. Priority to secured creditors.- Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rat....
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.... significant to be noted is that there is no provision in either of these enactments by which first charge has been created in favour of banks, financial institutions or secured creditors qua the property of the borrower. 112. Under Section 13(1) of the Securitisation Act, limited primacy has been given to the right of a secured creditor to enforce security interest vis-àvis Section 69 or Section 69-A of the Transfer of Property Act. In terms of that sub-section, a secured creditor can enforce security interest without intervention of the court or tribunal and if the borrower has created any mortgage of the secured asset, the mortgagee or any person acting on his behalf cannot sell the mortgaged property or appoint a Receiver of the income of the mortgaged property or any part thereof in a manner which may defeat the right of the secured creditor to enforce security interest. This provision was enacted in the backdrop of Chapter VIII of the Narasimham Committee's Second Report in which specific reference was made to the provisions relating to mortgages under the Transfer of Property Act. 113. In an apparent bid to overcome the likely difficulty faced by the....
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....B of the Recovery of Debts and Bankruptcy Act, 1993 or Sec.26E of the SARFAESI Act,2002 were not in existence. 52. Sec.31-B of the Recovery of Debts and Bankruptcy Act, 1993 and Sec.26E of the SARFAESI Act,2002 were introduced in the respective statutes only on 1.9.2016 by Act 44 of 2016. 53. So, in our opinion, after introduction of Sec.31-B of the Recovery of Debts and Bankruptcy Act, 1993 and Sec.26-E of the SARFAESI Act,2002 w.e.f. 1.9.2016, the claim of the petitioner Bank would prevail over that of the respondents 1-3, and the decision in Central Bank of India ( 1 supra) cannot be relied on by the respondents 1-3. 54. But the following discussion in Central Bank of India ( 1 supra) about the interpretation of a non-obstante clause is relevant for our purposes. 55. The Supreme Court explained in Central Bank of India ( 1 supra): "103. A non obstante clause is generally incorporated in a statute to give overriding effect to a particular section or the statute as a whole. While interpreting non obstante clause, the court is required to find out the extent to which the legislature intended to do so and the context in which the non obstante clause is used." ....
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....ent to which any Scheme or the Insurance Scheme] applies in respect of any contribution payable to the Fund or, as the case may be, the Insurance Fund, damages recoverable under Section 14-B, accumulations required to be transferred under sub-section (2) of Section 15 or any charges payable by him under any other provision of this Act or of any provision of the Scheme or the Insurance Scheme; or (b) from the employer in relation to an exempted establishment in respect of any contribution to the Provident Fund or any Insurance Fund (in so far as it relates to exempted employees), under the rules of the Provident Fund or any Insurance Fund any contribution payable by him towards the Pension Fund under sub-section (6) of Section 17, damages recoverable under Section 14-B or any charges payable by him to the appropriate Government under any provision of this Act or under any of the conditions specified under Section 17, shall, where the liability therefor has accrued before the order of adjudication or winding up is made, be deemed to be included among the debts which under Section 49 of the Presidency Towns Insolvency Act, 1909, or under Section 61 of the Provincial ....
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....rovisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act." 8. The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law except to the provisions of the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar non obstante provision is contained in Section 13 of the Special Court Act which reads as follows: "13. Act to have overriding effect.-The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than this Act, or in any decree or order of any court, tribunal o....