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Indra Ganesan Educational and Charitable Trust Versus The Deputy Commissioner Commercial Taxes, The Assistant Commissioner [CT] And Others

2016 (11) TMI 1132 - MADRAS HIGH COURT

Public auction - property on equity mortgage - sales tax arrears - Held that: - as per section 42[2] of the Tamil Nadu Value Added Tax Act, 2002, any tax assessed or amount due under the Act from a dealer or a person, have priority over all other claims against the property of the said dealer or person and the analogous provision under the Tamil Nadu General Sales Tax Act, vis-a-vis, the SARFAESI Act - the State has got priority over the Bank dues. - Whether the petitioner claims to be the b .....

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the entire bid amount and requested the respondents 3 and 4 to execute the Sale Deed free of all encumbrances which include the sales tax arrears. However, the Bank, in their impugned communications dated 25.10.2010 and 24.11.2010, had made a turn around stating that the request/demand made by the petitioner cannot be acted upon as he has purchased the properties knowing pretty well about the attachment from the Sales Tax Department and they are prepared to execute the Sale Deed, subject to the .....

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rs and even in the Auction Sale proceedings also, a positive assurance has been given to the borrower that the said issue will be taken care of by the Bank. Therefore, the respondents 3 and 4 cannot resile from that promise or undertaking. - The respondents 3 and 4 - M/s.Axis Bank, is at liberty to execute the Sale Deed in favour of the petitioner in respect of the auction property free of all encumbrances which include the sales tax arrears claimed by the respondents 1 and 2 ; or in the alt .....

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ts : Mr.R.Karthikeyan, AGP Mr.V.V.Sivakumar ORDER M. Sathyanarayanan, J. The petitioner is an Educational and Charitable Trust and the Chairman of the Trust has sworn to the affidavit filed in support of this writ petition, stating among other things, that the Axis Bank respondents 3 and 4 had issued the Auction-cum-Sale Notice by way of advertisement in Indian Express and Dinamani dated 09.02.2010, indicating that the proposed public auction is to be held on 15.03.2010 in respect of the propert .....

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ities availed from the Axis Bank and since they defaulted in payment of dues, Recovery Proceedings were initiated under the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [SARFAESI Act]. 3 The petitioner in pursuant to the Auction-Sale Notification, had submitted his bid for a sum of ₹ 3,50,25,000/- and in the Offer Letter, has specifically indicated that The Bank should pay the due to the Sales Tax directly as per the Not .....

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n the Bank. The bidder requested that this Sales Tax issue/Settlement to be taken care by the Bank stating that in order to proceed with the sale Transaction and to provide for 25% advance amount today. In response to that, Bank clarified that the Letter/demand from Sales Tax Department has been replied by the Bank stating that the Bank's Dues are paramount and further assured the successful bidder that the sales tax issue would be dealt by the bank and requested the bidder to pay 25% advanc .....

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impression that the issue regarding the sales tax arrears will be dealt with by the Axis Bank with the Sales Tax Authorities, had paid 25% of the bid amount and in the interregnum, the borrower, viz., M/s.Swastika Agro Foods Private Limited, had invoked the jurisdiction of the Debts Recovery Tribunal, Madurai, challenging the Auction-sale proceedings initiated by the Axis Bank under the provisions of SARFAESI Act by filing SA.No.54/2010 and later on, it was dismissed as withdrawn in terms of On .....

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ade free from all encumbrances known to the Axis Bank Ltd ; save and accept the demand of ₹ 1,19,73,498/- raised by Commercial Taxes Department, vide their notice dated 26.02.2010. 7 The petitioner thereafter represented to the respondents 3 and 4 Axis Bank and also to the Regional Director of Reserve Bank of India requesting for execution of Sale Deed without any encumbrance of sales tax arrears and it was also followed by a reminder dated 12.11.2010. 8 Thereafter, the petitioner was cons .....

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er as well as the assurance given by them regarding the priority of claim over the sales tax arrears and pendancy of the writ petition, the respondents 3 and 4 sent the impugned communication dated 24.11.2010 wherein it has been stated that they have never given any assurance either for clearing the encumbrance or registering the Sale Deed without any encumbrance and therefore, requested the petitioner to attend the registration formalities for the purpose of execution of the Sale Deed. The peti .....

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fficials to section 35 of the SARFAESI Act and also to the judgment dated 16.07.2009 passed by a Division Bench of this Court in WA.No.1360/2008 [Indian Bank Vs. CTO] and informed that in the light of the ratio laid down in the above cited decision, the Bank is not liable to pay the sales tax arrears of ₹ 1,19,73,498/- or any other amounts out of the sale proceeds as their claim is paramount and the said stand was also reiterated in their subsequent letter dated 15.04.2010, addressed to th .....

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il over the sales tax dues and requested them t get the Sale Deed registered before the jurisdictional Sub Registrar Offie, at the earliest and despite the promise and assurance, they took a contra stand in the form of the impugned notices dated 25.10.2010 and 24.11.2010 and prays for quashment of the same. 11 Per contra, the learned Special Government Pleader appearing for the 2nd respondent / Revenue, has invited the attention of this Court to the counter affidavit and would submit that M/s.Sw .....

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ommissioner, CT, Trichy Town dated 27.05.2005 and the said concern, vide their Letter dated 22.01.2010, had informed the Sales Tax Authorities about the loss suffered by them in their business and also indicated that they will not be in a position to repay the IFST amount payable under the IFST Deferral Scheme and since they have violated the terms and conditions of IFST Deferral Scheme, the entire tax amount availed by them becomes payable in one lump sum along with penalty u/s.24[3] of the Tam .....

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nd as per section 42[2], any tax assessed on or has become payable by, or any other amount due under this Act from any dealer or person and any fee due from him, shall, subject to the claim of the Government in respect of the land revenue and the claim of the Agricultural and Rural Development Bank in regard to the property mortgaged to it under section 28[2] of the Tamil Nadu Cooperative Societies Act, 1983, have priority over all other claims against the property of the said dealer or person a .....

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affidavit and would submit that at no point of time, the said respondents had agreed or promised to the petitioner that it would pay the alleged sales tax arrears of M/s.Swastika Agro Goods Private Limited and the Auction-Sale is also subject to as is various conditions and even at the time of participating in the Auction-Sale, the petitioner was very well aware of the sales tax arrears and as such, it is not open to them to contend that it is for the Bank to satisfy the sales tax arrears and a .....

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rcle, No.426, P.N.High Road, Maduravoyal, Chennai 600 0095 and others], the writ petitioners therein, claiming to be the bona fide purchasers from the Indian Bank, prayed for quashment of the Auction-Sale Notice at the instance of the Sales Tax Authorities for recovery of arrears of tax of the borrowing Company, whose properties they have purchased. A Division Bench of this Court, while dealing with the said issue, had considered very many decisions including the Judgment of the Hon'ble Supr .....

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39; property cannot be auctioned by the 1st respondent for tax dues of the borrowing company. 21. In view of the above reasonings and on equitable consideration also the Auction Notice dated 24.04.2009 issued by the First and Second Respondent to sell the property at No.300, Poonamallee High Road, Maduravoyal, Chennai- 600 095 for recovery of tax arrears of M/s.Pioneer Cashew Industries Limited is not sustained and the same is quashed. Accordingly, the writ petition is allowed. However, there wi .....

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er all the other debts including prior mortgage and the said decision, in turn, relies upon the judgment of the Hon'ble Supreme Court of India reported in 1974 [2] SCC 799 [Dattatreye Shanker Mote v. Anad Chintama Datar] and concluded that a State has got priority over the Bank dues. However, having found that Auction purchasers were bona fide purchasers, has directed the Sales Tax Authorities, not to auction the properties for the tax dues of the borrowing company. 16 This Court, keeping in .....

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all be borne by the purchaser. The Sales Tax Authorities, on becoming aware of the auction initiated by the Axis Bank under the provisions of SARFAESI Act, has sent them Form-U Notice for recovery of money due to the 4th respondent, informing that a sum of ₹ 1,19,73,498/- is due and payable by M/s.Swastika Agro Foods Private Limited and therefore, calling upon the 4th respondent to remit the said amount in the Government Treasury at Trichy, failing which, the said amount will be a charge o .....

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cheme made with the Department and therefore, directed the original borrower / dealer to pay the IFST loan in one lump sum immediately along with the interest. The 3rd respondent has sent a reply dated 10.03.2010 to the Assistant Commissioner, Commercial Taxes, [FAC], Srirangam Assessment Circle, Trichy-20, the 2nd respondent herein, pointing out their priority in terms of section 35 of the SARFAESI Act as well as the judgment rendered by the Division Bench of this Court in WA.No.1360/2008 [cite .....

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remittance of ₹ 88,00,000/- and calling upon the petitioner to remit the balance amount of ₹ 2,62,25,000/- within fifteen days, i.e., on or before 29.03.2010, for transfer of the assets/properties in their favour. In page No.27 of the typed set of documents filed by the respondents 3 and 4, the Auction Sale proceedings were also enclosed and it is relevant to extract the same:- T.Ganesan, Chairman, Indra Ganesan Educational Charitable Trust, has sought clarification regarding Sales T .....

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sale. 19 In the light of the assurance given by the Axis Bank / 3rd respondent herein, it is the primordial submission put forth by the learned counsell for the petitioner that on account of the said assurance only, it has remitted 25% of the bid amount and M/s.Axis Bank respondents 3 and 4, on more than one occasion, had addressed letters to the Commercial Tax authorities as to the priority over the debt and therefore, they are under obligation to settle the sales tax arrears and execute the Sa .....

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ondents 3 and 4 that even in the Auction-Sale notice, it has been clearly indicated that it is for the look out of the bidder to borne any statutory dues and in Clause No.9, it has been specifically indicated that the property is being sold with the existing encumbrance, whether known or unknown to the Bank and any encumbrance that may arise after the date of notice, will also be borne by the purchaser and the petitioner, while submitting the bid, was also aware of the same as even in his Tender .....

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ng the sales tax arrears was known to the petitioner even at the time of participating in the Auction-Sale, the petitioner has to get it cleared and they cannot execute the Sale Deed free from the said encumbrance. 21 In the decision reported in 2009 [4] SCC 94 [Central Bank of India Vs. State of Kerala and others], the following question arose for consideration:- 2.Whether Section 38-C of the Bombay Sales Tax Act, 1959, [for short the Bombay Act ] and section 26-B of the Kerala General Sales Ta .....

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2002 [for short the Securitisation Act ] for enforcement of security interest and whether by virtue of non obstante clauses contained in Section 34[1] of the DRT Act and section 35 of the Securitisation Act, two Central Legislations will have primacy over State legislations are the questions which arise for determination in these appeals. and the Hon'ble Apex Court, had gone through the relevant provisions of the Recovery of Debts Due to Banks and Financial Institutions Act [DRT Act] and th .....

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dealer or person and the analogous provision under the Tamil Nadu General Sales Tax Act, vis-a-vis, the SARFAESI Act, came for consideration before a Division Bench of this Court in the judgment reported in 2011 [1] CTC 828 [supra], wherein this Court, following the earlier Division Bench judgment reported in 2006 [3] MLJ 919 [Punjab National Bank's case], had held that the State has got priority over the Bank dues and in the light of the statutory provisions as well as the ratio laid down .....

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the relief on the ground that they were bona fide purchasers of the properties for valuable sale consideration, is entitled to the relief of refund/repayment of sale consideration 24 The petitioner while submitting the Tender Form, has indicated that the Bank should pay the demand of sales tax directly as per their notice dated 13.03.2010 published in Daily Thanthi and subject to that, the Tender is filed and the sales tax dues must be paid by the Bank out of the sale proceeds. The Bank, after r .....

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3 and 4 to execute the Sale Deed free of all encumbrances which include the sales tax arrears. However, the Bank, in their impugned communications dated 25.10.2010 and 24.11.2010, had made a turn around stating that the request/demand made by the petitioner cannot be acted upon as he has purchased the properties knowing pretty well about the attachment from the Sales Tax Department and they are prepared to execute the Sale Deed, subject to the incorporation of the clause regarding sales tax arr .....

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