TaxTMI 
TaxTMI 
TaxTMI 
2021 (10) TMI 846
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....rred to as 'assessee-in-default'). Relief has also been sought against the citation dated 26.05.2015, seeking those recoveries from the petitioner. 3. Undisputedly, the 'assessee-in-default' was assessed to tax for the A.Ys. 1992-93 (U.P. and Central), 1993-94 (Central), 2006-07 (Central) and 2006-07 (Entry Tax), under the provisions of U.P. Trade Tax Act, 1948, Central Sales Tax Act, 1956 and The U.P. Entry Tax Act. It was further faced with other demands of tax etc. raised against it for the A.Ys. 1994-95 to 2000-01. Those arrears of tax were stated to be Rs. 17,64,83,574/-, in the impugned recovery citation dated 26.05.2015. 4. Though the revenue authorities deny, yet, upon exchange of affidavits, it appears, the 'assessee-in-default' owed dues to the State Bank of India, against loan facility availed by it. According to the petitioner, amongst others, the 'property-in-dispute' had been mortgaged by the 'assessee-in-default', to the State Bank of India. Thus, a first charge existed over the same which was duly registered with the Registrar of Companies, Kanpur. In this regard, a Certificate dated 06.08.2014, issued by the Registrar of Companies (Annexure 7 to the writ ....
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....etitioner. In that regard, it is submitted, the respondent bank was a secured creditor of the 'assessee-in-default' and undisputedly, full, and fair consideration had been paid; no rights had been reserved in favour of the transferor and the parties to the sale deed were unrelated. Even then, if at all, the only remedy available to the revenue authority was to institute a proper suit proceeding as in any case such a transaction would remain voidable and it is not void ab initio. No suit proceeding having been instituted within limitation, the revenue authorities cannot resist the absolute right and title of the petitioner over the 'property-in-dispute'. 7. Reliance has been placed on two decisions of the Privy Council in Musahar Sahu and another vs Hakim Lal and another reported in AIR 1915 PC 115 and Ma Pwa May and another vs S.R.M.M.A. Chettyar Firm reported in AIR 1929 PC 279. That principle of law was applied and followed by the Supreme Court in Chogmal Bhandari vs Deputy Commissioner Tax Officer reported in (1976) 3 SSC 749 and in Union of India vs Rajeshwari and Co. and others reported in (1986) 3 SCC 426. Still later, this principle was applied by the Supreme Court in Dena ....
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....tal contained in the sale-deed dated 16.07.2014; the letter issued by the Bank dated 15.7.2014 (annexed to the writ petition) and letter dated 01.10.2015. Relying on the same, the learned Standing Counsel has vehemently urged - on 15.07.2014 itself the State Bank of India lifted its charge over the 'property-in-dispute'. Thus, no charge existed on 16.07.2014 when the sale-deed was executed by the 'assessee-in-default'. There is a complete absence of any recital in that sale-deed of any existing charge in favour of the State Bank of India. Also, with equal vehemence, it has been stressed, the sale-deed dated 16.7.2014 was neither executed in favour of nor, it has been executed by the State Bank of India. Instead, it has been executed by the 'assessee-in-default', itself. Hence, the sale-deed dated 16.07.2014 is not protected under Section 34(2) of the Act. 12. Next, relying on a decision of a co-ordinate Bench of this Court in the case of Reflex Industries and another vs. State of U.P. and others reported in 2004 (4) ACC 3471, it has been submitted, in similar circumstances, such a transaction was found to fraudulent and therefore void ab initio. Therefore, there is no requirement ....
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....hts of a transferee in good faith and for consideration. (2) Nothing in sub-section (1) shall apply to a charge or transfer in favour of a banking company as defined in the Banking Regulation Act, 1949, or any other financial institution specified by the State Government by notification in this behalf. 17. Undisputedly, the State Bank of India is a 'banking company' defined under the Banking Act. Therefore, it became open to it to raise a plea based on Section 34(2) of the Act. A plain reading of that provision brings out the existence of a non obstante clause created by the legislature. Thus, nothing contained in Section 34(1) of the Act, 1948 shall apply to (i) a charge created in favour of the State Bank of India or (ii) transfer made 'in favour' of the State Bank of India. 18. Undisputedly, on 15.07.2014, State Bank of India wrote to the 'assessee-in-default', as below: "SAMB/CL-II/693 DT: 15/07/2014 M/S Kanha Vanaspati Ltd. 126, Ayodhya Nagar, Ujhani, Distt. Budaun (U.P.) Dear Sirs, STRESSED ASSETS MANAGEMENT BRANCH M/S KANHA VANASPATI LTD. We advise that the Bank has released the property of M/s. Kanha Vanaspati Ltd. situated at Khasra No.8, 9, 10 & 126,....
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..... It is encumberance upon M/s Kanha Vanaspati Ltd.(seller) to discharge such statutory or other liabilites on the said property and to disclose details any encumbrances or statutory liabilities etc. We reiterate once again that nowhere at any point of time, have we ever represented that there is no charge, liability, encumbrance, and proceedings over the property except our charge. Therefore, the allegations made by you are baseless and we are not responsible for any kind of loss referred by you." 20. Reading the above letters along with the Certificate issued by the Registrar of Companies, Kanpur, dated 06.08.2014, it is clear, a charge was created (on 08.11.2005), in favour of the State Bank of India, over the 'property-in-dispute' i.e., the land bearing Khasra Nos. 8, 9, 10 & 126, Gram Gathona, Ujhani, Distt. Budaun(U.P.). That was done almost nine years before the impugned sale-deed was executed on 16.07.2014, in favour of the petitioner. There is no evidence that the petitioner was in the picture at that stage. Also, the existence of that charge (in the first place), is undisputed by the revenue authorities. Clearly, that charge on the 'property-in-dispute' was created 'in fa....
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....C 85. While dealing with that question, the majority view of the nine-Judge Constitution bench of the Supreme Court, took note of the meaning attached to the word 'charged', under the general law relating to transfer of property. It was thus observed: "122. In support of his contention that by using the expression "charged" in Articles 291 and 112(2) it is only intended to enact that the expenditure is not subject to the vote of the Parliament and that no priority in payment in respect of expenditure is declared, and in any event the expression "charged" creates no obligation enforceable at the instance of the person for whose benefit it is charged, the Attorney-General invited our attention to different provisions of the Constitution in each of which there is both a charge on the Consolidated Fund of an item of expenditure and an express direction for payment of the prescribed sum, and contended that Article 291 which merely recognizes the obligations of the Union Government to abide by the pre-existing covenants, creates no obligation for payment of the Privy Purse to the Rulers. He urged that the word "charge" in the Constitution in dealing with State financial procedure has t....
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....' as defined under the Banking Act. 25. Thus, it cannot be disputed - had the 'charge' created over the 'property-in-dispute', continued to exist till date, the respondent revenue authorities would continue to stand restrained from proceeding against the 'property-in-dispute', for recovery of their dues. Also, that direct consequence of section 34(2) of the Act would have been caused, if the State Bank of India had obtained the sale-deed of the 'property-in-dispute', in its favour, either pursuant to that charge or otherwise, to recover its dues. It is so because, Section 34(2) of the Act completely negates Section 34(1) of the Act by use of the words - "Nothing in sub-section (1) shall apply". That overriding effect may be avoided, only if the revenue were to contend, either that the charge was never created, or it was not created in favour of a 'banking company' as defined under The Banking Act. Clearly, that is not the case here. 26. Undoubtedly, a non obstante clause appearing in sub-Section (2) of Section 34 of the Act, is a legislative device employed to give an overriding effect to that provision of law, over section 34(1) of the Act. In Union of India v. G.M. Kokil, 1984 ....
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....gotiate a sale of such secured asset, to recover its dues, without first obtaining a prior transfer, in its favour. 28. Thus, in absence of any statutory intervention made, if the submission raised by the learned Standing Counsel is accepted, it would introduce an unreasonable restriction on the free play of section 34(2) of the Act. It would, without any legislative intent or purpose shown to exist, dictate a material alteration of the rights of the parties and force a change in the mode and way, a 'banking company' under the Banking Act may conduct itself viz a viz its secured assets. Though the debt of the State Bank of India may remain a secured debt against its charge existing on the 'property-in-dispute' and it may remain entitled to recover its dues upon sale of the 'property-in-dispute', to the exclusion of the Crown/state dues, however, that sale may be obtained only in its own name. 29. There is absolutely no warrant to allow for such an anomalous, uncertain, and therefore undesirable and even absurd result to arise. Plainly, there is nothing in the language of the Act, to allow for such a restrictive condition to be read into the words 'in favour of' prefixed to the wo....
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....iterally, such notice was contented to be mandatory. However, that interpretation was rejected, and the requirement to issue a fresh notice was restricted to refer to any person other than one against whom proceeding had already been conducted. It was reasoned and held: "6. The object of giving notice to a person under the proviso is obviously to give him an opportunity to be heard before a finding is given under Section 99(1)(a)(i) that he has committed a corrupt or illegal practice. This clearly appears from clause (b) of the proviso, which enacts that the person to whom notice is to be given should have an opportunity of cross-examining witnesses who had been examined before and given evidence against him, of calling his own evidence and of being heard. This is in accordance with the rule of natural justice which requires that no one should be condemned without being given an opportunity to be heard. The reason of the rule, therefore, requires that notice should be given to persons who had had no previous opportunity in respect of the matters mentioned in sub-clause (b) to the proviso. Such, for example, would be witnesses and possibly agents of the parties, as observed in Nya....
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....961 require computation of that time, from the date on which such order was passed or from the date when that order was served on the person aggrieved. Departing from the obvious grammatical meaning of the words, the Supreme Court reasoned and held: "16. Placing such a construction, as we propose to, on the provision of Section 48-AA is permitted by well-settled principles of interpretation. Justice G.P. Singh states in Principles of Statutory Interpretation (8th Edn., 2001): "It may look somewhat paradoxical that plain meaning rule is not plain and requires some explanation. The rule, that plain words require no construction, starts with the premise that the words are plain, which is itself a conclusion reached after construing the words. It is not possible to decide whether certain words are plain or ambiguous unless they are studied in their context and construed." (p. 45) The rule of literal interpretation is also not to be read literally. Such flexibility to the rule has to be attributed as is attributable to the English language itself. 17. The learned author states again: "In selecting out of different interpretations 'the court will adopt that which is just, reaso....
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....efined under the Banking Act. 36. Resultantly, by virtue of Section 34(1) of the Act, a partial exception arises to the general principle in law, that exists to the benefit of all secured creditors viz a viz Crown/revenue dues. This principle was clearly laid down in Musahar Sahu (supra) as under: "As a matter of law their Lordships take it to be clear that in a case in which no consideration of the law of bankruptcy or insolvency applies there is nothing to prevent a debtor paying one creditor in full and leaving others unpaid although the result may be that the rest of his assets will be insufficient to provide for the payment of the rest of his debts. The law is, in their Lordships' opinion, rightly stated by Palles C.B. in Inre Moroney(1), where he says: "The right of the creditors, taken as a whole, is that all the property of the debtor should be applied in payment of demands of them or some of them, without any portion of it being parted with without consideration or reserved or retained by the debtor to their prejudice. Now, it follows from this, that security given by a debtor to one creditor upon a portion of or upon all his property, 'although the effect of it....
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....y the High Court or the finding reached by the Court is perverse. 10. A point was sought to be made by learned counsel for the appellant that the transfer of the assets was effected in favour of Rajeswari & Co. which was not one of the creditors. It has been found by the High Court that the sale was effected for the purpose of discharging the debts payable by the Company. Once it is also found that the consideration was not inadequate it is immaterial, as the High Court has observed, that the transfer was effected in favour of a person who was not a creditor. It has been clearly found that the sale proceeds were employed for paying off the creditors of the Company." 38. Besides the above, in The Bank of Bihar vs The State of Bihar and others reported in (1972) 3 SCC 196, in the context of right of a pawnee viz a viz the sovereign's right over the pawned goods, it was held: "6. In our judgment the High Court is in error in considering that the rights of the Pawnee who had parted with money in favour of the pawnor on the security of the goods can be defeated by the goods being lawfully seized by the Government and the money being made available to other creditors of the pawn....
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....t, has prevailed already. In Giles v. Grover 1832 131 ER 563 it has been held that the Crown has no precedence over a pledgee of goods. In Bank of Bihar v. State of Bihar & Ors. AIR 1971 SC 1210, the principle has been recognised by this Court holding that the rights of the pawnee who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. Rashbehary Ghose states in Law of Mortgage (T.L.L., Seventh Edition, p.386) It seems a Government debt in India is not entitled to precedence over a prior secured debt." 40. The above noted principle has been consistently applied by the Supreme Court in M/s Rana Girders Ltd. Vs Union of India reported in (2013) 10 SCC 746 wherein it was observed: "18. In so far dues of the Government in the form of tax or excise etc. are concerned, the Court was of the opinion that rights of the Crown to recover the dues would prevail over the right of the subject. Crown debt means the debts due to the State or the King. Such creditors, however, must be held to mean uns....
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....ave been catalogued above, in our opinion, this is not a fit case In which the sales tax authorities can be allowed to hold that the deed of trust executed by the settlors was hit by section 53 of the Transfer of Property Act. It may be noted that under section 53 of the Transfer of Property Act if a transfer is made with intent to defeat or delay the creditors it is not void but only voidable. If the transfer is voidable, then the ' sales tax authorities cannot ignore or disregard it but have to get it set aside through a properly constituted suit after impleading necessary parties and praying for the desired relief. In Chutterput Singh & ors. v. Maharaj Bahadoor and others, (2) the Privy Council observed as follows: "No issue was stated in this suit whether the transfers were or were not liable to be set aside at the instance of Dhunput under section 53 of the Transfer for Property Act, and no decree has been made for setting them aside. Such an (1) [1974] 2 S.C.R. 655. (2) L.R. 32 I.A. 1. 7-L522SCI/76 issue could be raised and such a decree could be made only in a suit properly constituted either as to parties or other wise." To the same effect is the later decision of....