TaxTMI 
TaxTMI 
2023 (12) TMI 1236
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....ng 02-34-64 Hectares, situated at Mohal They, Tehsil Haroli, District Una, Himachal Pradesh with the petitioner-Bank. 3. After the mortgage of the property, lien of the petitioner-Bank as per Section 26 D was entered in the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), dated 06.03.2013 (Annexure P-2). 4. Shortly, thereafter in the year, 2014, the loan account of the Unit came to be classified as Non Performing Assets (NPA) and consequently recovery proceedings under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest 2002 (for short, SARFAESI Act) came to be initiated against it. 5. On 30.07.2014, notices under Section 13(2) and 13(4) of the SARFAESI Act were issued to the Unit and vide communication dated 02.01.2015, District Magistrate, granted assistance to the Bank under Section 14 of the SARFAESI Act paving way to take physical possession of the secured assets of the Unit, which was then taken over on 17.07.2015. 6. Just about a week prior thereto, the Excise and Taxation Department got entered a Rapat No. 459, dated 09.07.2015 in the revenue documents over the s....
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....rovided under Section 26 of the HPVAT Act, whereas the petitioner-Bank is denying the claim in the property by virtue of mortgage. It is averred that the charge is wider than mortgage in as much as Section 100 of the Transfer of Property Act, deals with charges on an immovable property, which can be created by either of the parties or by operation of law over the property. Therefore, when first charge is created by operation of law over a property, the charge will have precedence over an existing mortgage as the charge operates on the entire property. 9. Respondent No. 4 i.e. Deputy Commissioner-cum- District Magistrate, Una, in its separate reply, has averred that as per report received from the Tehsildar, Haroli, Rapat No. 459 dated 09.07.2015 had been entered in the relevant revenue record at the instance of the Excise and Taxation Department with bonafide intention by the revenue department, just to safeguard the revenue of the State Government in larger public interest. Similar Rapat No. 173, dated 05.02.2018, had also been entered in the revenue record at the instance of Income Tax Department by the revenue department with bonafide belief. 10. It would be evident from the r....
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....mounting to Crown debt) shall have precedence over the right of the bank to proceed against the property of the borrowers mortgaged in favour of the bank, observed as under: "10. However, the Crowns preferential right of recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right of recovery of its debts over a mortgagee or pledgee of goods or a Secured Creditor." 47. Further, in Central Bank of India Vs. Siriguppa Sugars & Chemicals Ltd. & Ors. (2007) 8 SCC 353, while adjudicating a similar matter, this Court has held as under: "18. Thus, going by the principles governing the matter, propounded by this Court there cannot be any doubt that the rights of the appellant-bank over the pawned sugar had precedence over the claims of the Cane Commissioner and that of the workmen. The High Court was, therefore, in error in passing an interim order to pay parts of the proceeds to the Cane Commissioner and to the Labour Commissioner for disbursal to the cane growers and to the employees. There is no dispute that th....
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....Central Excise Act, 1944 w.e.f. 08.04.2011, there was no provision in the Act of 1944 inter alia, providing for First Charge on the property of the Assessee or any person under the Act of 1944. Therefore, in the event like in the present case, where the land, building, plant machinery, etc. have been mortgaged/hypothecated to a secured creditor, having regard to the provisions contained in section 2(zc) to (zf) of SARFAESI Act,2002, read with provisions contained in Section 13 of the SARFAESI Act, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. 51. Thus, as has been authoritatively established by the aforementioned cases in general and Union of India vs SICOM Ltd. (supra) in particular, the provisions contained in the SARFAESI Act, 2002, even after insertion of Section 11 E in the Central Excise Act, 1944 w.e.f. 08.04.20....
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....s recovery f their dues prior to the afore two provisions being introduced in the SARFAESI Act and in the RDB Act. The conclusions of the Honble Supreme Court are unequivocally worded that, in the absence of these provisions in the respective Statutes, the Banks/Financial Institutions cannot claim any priority over the Revenues First Charge on the properties concerned for recovery of dues of Sales Tax/Value Added Tax. The disposition of the Hon'ble Court in this area is lucid and available in paragraphs 126, 129 and 130 of the said judgment, which requires to be read in full and is, therefore, reproduced as under: "126. While enacting the DRT Act and the Securitization Act, Parliament was aware of the law laid down by this Court wherein priority of the State dues was recognised. If parliament intended to create first charge in favour of banks, financial institutions or other secured creditors on the property of the borrower, then it would have incorporated a provision like Section 529 A of the Companies Act or Section 11(2) of the EPF Act and ensured that notwithstanding series of judicial pronouncements, dues of banks, financial institutions and other secured creditors should h....
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....erefore, the resultant question is whether these provisions would create a better right in favour of the Banks Financial Institutions, which is superior to that enjoyed by the Revenue under the KGST Act/KVAT Act. 39. The learned Additional Advocate General, as I have already seen above has built his entire arguments on the assertion that the statutory First Charge creates a right for the State over the properties and that such right can be extinguished only if the Revenue sells the property and in no other manner. However, as has already been held by me above, the First Charge claimed by the Revenue does not and cannot create any right over the property but only enables it to deal with the same as a simple mortgagee would be entitled to. Obviously, therefore, the contention of the Revenue built on a claim of right over properties fails, without any further requirement for expatiation; corollary, enjoining me to consider if the provisions of the KGST Act/KVAT Act would still grant to the Revenue the First Right to proceed against it for recovery of the tax arrears. 40. It is here that the specific provisions of Section 26E of the SARFAESI Act and Section 31B of the RDB Act bec....
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....Act. It is so declared. 25. At this stage, it is necessary to quote the provisions of Section 38 of the Kerala Value Added Tax Act, 2003 (KVAT Act), which read as under: 26. "Tax payable to be first charge on the property.- Notwithstanding anything to the contrary contained in any other law for the time being in force, any amount of tax, penalty, interest and any other amount, if any, payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer, or such person." A perusal of the provisions of Section 38 of the KVAT Act and Section 26 of the HP VAT Act demonstrates that these provisions are almost pari materia. This Court concurs with the reasoning of the Hon'ble High Court of Kerala that after coming into force of Section 31B of the RDB Act read with Section 26E of the SARFAESI Act, the first charge is created by way of priority in favour of the Banks/ Financial Institutions to recover and satisfy their debts, notwithstanding any local statutory "first charge" in favour of the Revenue. 26. It is also necessary to take note of one fact that though Section 26E of the SARFAESI Act has come into force from 24.01.2020, ye....
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.... or second charge over the properties, would not arise. 43. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the Appellant, on the second issue, hold merit. Evidently, prior to insertion of Section 11E in the Central Excise Act, 1944, w.e.f. 08.04.2011, there was no provision in the Act of 1944 inter alia, providing for First Charge on the property of the Assessee or any person under the Act of 1944. Therefore, in the event like in the present case, where the land building, plant machinery, etc have been mortgaged/ hypothecated to a secured creditor, having regard to the provision contained in Section 2(zc) to (zf) of SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI ACT, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, Section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. 47. To conclude, the Co....
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....over the properties, would not arise. 38-42. ....xxx...xxx... 43. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the Appellant, on the second issue, hold merit. Evidently, prior to insertion of Section 11E in the Central Excise Act, 1944, w.e.f. 08.04.2011, there was no provision in the Act of 1944 inter alia, providing for First Charge on the property of the Assessee or any person under the Act of 1944. Therefore, in the event like in the present case, where the land building, plant machinery, etc. have been mortgaged/ hypothecated to a secured creditor, having regard to the provision contained in Section 2(zc) to (zf) of SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI ACT, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, Section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. 44-46...xxx......