2018 (1) TMI 1220 - HC - Service Tax

Attachment of immovable property - recovery of service tax was not done - Held that - It is seen that, notice of demand to the defaulter/third respondent was issued only on 15.10.2012, from which, it is appears that the property was yet to be attached, and it was stated that steps would be taken to realize the amount by attaching the property. However, much prior to the said date, i.e., 20.07.2012, the property has been sold to the petitioner. Therefore, the respondents 1 and 2 could not be proceeded further, pursuant to the notice of demand, dated 15.10.2012. There is a circular issued by Central Board of Excise and Customs (CBEC), bearing No.103/06/2008-ST, dated 01.07.2008, which gives instructions, regarding provisional attachment of property under Section 73 (C) of the Finance Act, 1994, and in paragraph No.2 (ix), it is stated that the personal property of a sole proprietor or partners shall not be attached, and personal property means any movable property or immovable property, which is in personal use of the sole proprietor or partner. Petition allowed - decided in favor of petitioner.

Summary

Issues:
Petition for Writ of Certiorarified Mandamus to quash proceedings leading to property attachment.

Analysis:
The petitioner sought to quash proceedings resulting in the notice of attachment of immovable property by the second respondent. The key issue revolved around whether the property owned by the third respondent, a service provider in default of service tax payment, could be proceeded against by the respondents. The petitioner had purchased a residential flat from the third respondent, which was settled in her favor through a Deed of Settlement and subsequently sold to the petitioner via a registered Sale Deed. The notice of demand to the third respondent was issued after the property had been sold to the petitioner, rendering the attachment invalid. Additionally, the property served as security for a loan with a bank, making the bank a secured creditor with precedence over the tax recovery proceedings.

The judgment referred to a previous Full Bench decision regarding the priority of a secured creditor over government dues, emphasizing the rights of secured creditors to realize debts by sale of assets created under security interest. The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, established the priority of secured creditors over government dues. The judgment clarified that the rights of secured creditors to realize debts due and payable by selling secured assets take precedence over all other debts and government dues, including taxes and revenues. The Act, effective from September 1, 2016, governs the rights of parties even in pending cases.

Furthermore, a circular issued by the Central Board of Excise and Customs (CBEC) prohibited the attachment of personal property of sole proprietors or partners, defining personal property as movable or immovable property for personal use. The property in question, being used by the defaulter and his family as per the Settlement Deed, was exempt from attachment. Consequently, the impugned proceedings were deemed legally unsustainable, leading to the allowance of the Writ Petition and setting aside of the proceedings. The judgment allowed for the refund of the deposited amount by the petitioner and permitted the respondents to proceed against the defaulter or other commercial properties, if any. No costs were awarded, and the connected Miscellaneous Petition was closed as per the judgment.