TMI Blog2014 (5) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors - The basic justification for such claim of priority rests on the well recognized principle that the State is entitled to raise money by taxation, otherwise it will not be able to function as a sovereign Government at all - This consideration emphasizes the necessity and wisdom of conceding to the State the right to claim priority in respect of its tax dues. The object of insertion of Section 16-C as explained in the Statement of Objects and Reasons of Act 9 of 1999 - the property attached under Revenue Recovery Act could not be disposed of as it was hypothecated to either financial institutions or to others - In order to have a definite claim on the property, it is now proposed that the liability under the Sales Tax Act shall be the first charge on the property - Similar provision is available in the Rajasthan Sales Tax Act and it was upheld by the Court - It is no doubt true that Section 17-A appears to have diluted the absolute precedence given to the arrears of tax under Section 16-C - the principles of statutory interpretation require that the Court in such circumstances must have regard to consequences and has to reject a construction that results in hardship, absu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed in Nalgonda District Extraordinary No.392, dated 25.01.2008 attaching the property of the respondent Bank is arbitrary and illegal. The 1st respondent filed a counter contending that the respondent No.3 did business under the name and style of M/s. Pabba Bixamaiah General Merchants and Commission Agent and fell in arrears of tax of ₹ 1,74,530/- during the years 1995-96 to 2000-01. In spite of repeated demands, the said dealer failed to clear the above arrears and therefore the action was taken under the provisions of the Revenue Recovery Act and the dealer's house property was attached and the same was brought to sale in public auction on 26.03.2008 after giving wide publicity in the area. The auction proceedings were conducted in the presence of two employees of Suryapet Municipality and the respondent No.4 herein was declared as the highest bidder for a sum of ₹ 5,87,000/-. Accordingly, the respondent No.4 deposited the bid amount on 23.4.2008 and 24.4.2008 i.e., within 30 days as prescribed under Section 36 of the Revenue Recovery Act. It is also stated that the Sub-Registrar, Suryapet issued a certificate stating that the market value of the property is & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 25.1.2008. Subsequently the sale notice was issued on 15.02.2008 and the sale was held on 26.03.2008 in which the respondent No.4 emerged as the successful bidder. From the above, it is clear that the preliminary decree dated 3.4.2006 was granted in favour of the petitioner Bank much prior to attachment effected by the 1st respondent on 22.1.2008. However, the question that requires consideration is whether the 1st respondent is entitled to have precedence over the secured debt created by the 3rd respondent in favour of the petitioner Bank. Section 16-C has been inserted into APGST Act, 1957 by Amendment Act 9 of 1999 w.e.f. 6.4.1999 providing for an absolute precedence to the arrears of tax under the APGST Act. For ready reference, Section 16-C may be reproduced hereunder: 16-C. Liability under this Act to be the first charge:- Notwithstanding anything to the contrary contained in any law for the time being in force, any amount of tax, penalty, interest and any other sum, if any, payable by a dealer or any other person under this Act, shall be the first charge on the property of dealer, or such person. A plain reading of the above provision shows that any amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the Bank in respect of the loan taken by the 2nd respondent irrespective of the fact that Section 33-C was inserted w.e.f. 19.01.1976, since section 33-C operated in respect of all charges that were then in force and gave sales tax dues precedence over them. In STATE BANK OF BIKANER JAIPUR v. NATIONAL IRON STEEL ROLLING CORPORATION (1995) 2 SCC 19 also the Apex Court considered a similar provision i.e., Section 11AAAA of the Rajasthan Sales Tax Act, 1954 providing for the first charge of the State on the property of the dealer and it was held that charge includes mortgage and therefore a statutory first charge has precedence over an existing mortgage. Rejecting the contention on behalf of the Bank that its dues will have priority because at the time when the statutory first charge came into existence there was already a mortgage in respect of the same property, it was held in STATE BANK OF BIKANER JAIPUR v. NATIONAL IRON STEEL ROLLING CORPORATION ((1995) 2 SCC 19 supra): 8. ... The argument though ingenious, will have to be rejected. Where a mortgage is created in respect of any property, undoubtedly, an interest in the property is carved out in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat Section 16-C of the APGST Act has to be read with Section 17-A and if so read, Section 17-A operates as an exception to the first charge created under Section 16-C in favour of the State. It is to be noticed that Section 17-A was inserted by Act 18 of 1985 w.e.f. 1.7.1985 and the same reads as under: 17-A. Transfer to defraud revenue void:- Where during the pendency of any proceeding under this Act, or after the completion thereof any dealer creates, a charge on, or parts with the possession by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever of any of his assets in favour of any other person, with the intention to defraud the revenue, such charge or transfer shall be void as against any claim in respect of any tax, or any other sum payable by the dealer as a result of the completion of the said proceeding or otherwise. Provided that, such charge or transfer shall not be void, if it is made,-- (i) for adequate consideration and without notice of the pendency of such proceeding under this Act or, as the case may be, without notice of such tax or other sum payable by the dealer; or (ii) with the previous permission of the assessing aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 34 (1) of the DRT Act and Section 35 of the SARFAESI Act can have overriding effect over Section 38-C of the Bombay Sales Tax Act, 1959 and Section 26-B of the Kerala General Sales Tax Act which also contained non-obstante clauses and gave statutory recognition to the priority of the State's charge over the other debts. After an elaborate discussion, it was concluded that the DRT Act and SARFAESI Act did not create first charge in favour of the Banks, Financial Institutions and other secured creditors and the provisions contained in Section 38-C of the Bombay Sales Tax Act, 1959 and Section 26-B of the Kerala General Sales Tax Act are not inconsistent with the provisions of DRT Act and SARFAESI Act so as to attract non-obstante clauses contained in Section 34(1) of the DRT Act or Section 35 of the SARFAESI Act. In the light of the legal position noticed above, we are unable to accept the contention of the learned counsel for the petitioner that Section 17-A should be read as an exception to Section 16-C of the APGST Act. If the contention of the learned counsel for the petitioner is to be accepted the very purpose of insertion of Section 16-C would be defeated and it would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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