TMI Blog2021 (8) TMI 1077X X X X Extracts X X X X X X X X Extracts X X X X ..... ial proceedings, are the disputed facts which are all to be adjudicated by scrutinising the original documents and evidences made available. An enquiry has to be conducted in this regard. The TNVAT Act contemplates appeals to the authority. The appellate authority under the said Act are exercising the power of the Quasi judicial authorities. Therefore, they have to adjudicate the issue, by affording opportunity to all the parties concerned and take a decision in respect of such claims. As far as the tax laws are concerned, both the assessee and the revenue are preferring appeal before the appellate authorities and before the tribunal. Similarly, the bank being aggrieved from and out of the action initiated by the 1 st respondent, Commercial Tax department, is entitled to file an appeal before the appellate authority for adjudication of complete facts and circumstances. The appellate authorities are the final fact finding authority - Petition dismissed. - WP No.15938 of 2009 and MP Nos.1 & 2 of 2009 and 2 of 2012 - - - Dated:- 12-8-2021 - MR. S.M.SUBRAMANIAM, J. For Petitioner : Mrs.Mallika Srinivasan For Respondents : Mr.V.Veluchamy (for R1 and R5) Not ready in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness and left the place. M/s.Arrow Pack Pvt. Ltd., Chennai, was having own factory and machinery at Ariyalur Village, Vellore Taluk, No.1/1-D M.G.Road; land and building bearing S.No.791/1, 791/2, 792/1, 792/2 and 790 measuring 2.79 acres. 4. Learned Government Counsel further contended that action under Revenue Recovery Act was initiated by the office of the Assistant Commissioner (ST). The auction sale was also fixed on various dates. However, there were no bidders and the department was unable to conduct auction sale. Subsequently, the department came to understand that the subject property was sold through auction sale by the Debts Recovery Tribunal, Chennai on 13.02.2003. 5. It is contended that the original auction sale of the Commercial Tax department was notified on 06.09.2001, but the property was auctioned on 13.02.2003. The property was purchased by M/s.Om Sakthi Narayani Sidder Peedam, Vellore, for a consideration of ₹ 50,10,000/- and got registered in Document No.2323 of 2003 dated 03.04.2003. Therefore, under the provisions of the Revenue Recovery Act, the 1 st respondent initiated action against M/s.Om Sakthi Narayani Sidder Peedam, Ariyur, Vellore, who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee, as the case may be, complied with an order by any of the authorities to whom the dealer or person has appealed or applied for revision, under sections 51,52,54,57,58,59 or 60. 8. The above sub section 2 enumerates that any other amount due under the TNVAT Act from a dealer or person or any fee due from him under the Act, have priority over all other claims of the such dealer or person. 9. Section 43 denotes transfers to defraud revenue void and the said provision reads as under: 43.Transfers to defraud revenue void.-- Where, during the pendency of any proceedings 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 - (a) for adequate consideration and without notice o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on would reveal that where during the pendency of any proceedings under this Act or after the completion thereof, but before service of notice under rule 2 of the Second Schedule, if any charge is created by an assessee in favour of any other person shall be void as against any claim in respect of any tax or any other some payable by the assessee. Therefore, it is unambiguous that, during pendency of the proceedings if any charge is created, then such charge created by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever shall be void. 31. Schedule II Rule 11 of the Income Tax Act which contemplates investigation by Tax Recovery Officer. Sub-Clause (1) to Rule 11 states that where any claim is preferred to, or any objection is made to the attachment or sale of, any property in execution of a certificate, on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection . 32. Sub-clauses (5) and (6) to Rule 11 of the Income Tax Act reads as under: (5) Where the Tax Recovery Officer is satisfied that the property was, at the said date, in the possession o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the registration of security interest, the debts due to any Secured Creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government of State Government or local authority . 35. Let us now consider Section 31B of the Recovery of Debts and Bunkruptcy Act, 1993 and the said section Section 31B was inserted by Act 44 of 2016 with effect from 01.09.2016. The said provision also deals with priority to secured creditors, which reads that notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority . 36. It is necessary to consider the conflicting provisions of the Income Tax Act, SARFAESI Act and Recovery of Debts and Bunkruptcy Act, 1993. 37. On the one hand, the Income Tax Act states that, where during the pendency of any proceedings under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o service and the transactions or transfers became void, any mortgage, transfer etc., thereafter would be of no validity. In other words, the transfer or transactions made against the void transactions under the Income Tax Act are invalid in the eye of law. Therefore, even before invoking the provisions of the SARFAESI Act and DRT Act, Section 281 of the Income Tax Act intervenes and declares the transactions or transfers as void, if any such transactions or transfers are made during the pendency of the Income Tax proceedings. In such circumstances, invoking the provisions of the SARFAESI Act or DRT Act for the purpose of claiming priority would not arise at all. Law expects that the parties to be prudent and careful. Before mortgage, transfer or transactions, an enquiry is required by the respective parties as the buyer must beware (caveat emptor) of the encumbrances or the statutory implications or the genuinity of the title etc., Thus, the principles of caveat emptor would be applicable in such circumstances, where a transactions or transfers are made during the pendency of the Income tax proceedings. In such cases, the Income tax proceedings are known only to the tax defaulter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRT Act provides priority to secured creditors, i.e. the banks hold priority. The Income Tax Act contemplates any such mortgage or sale during the pendency of any proceedings under the Income Tax Act shall be void. Thus, this Court has to test the supremacy on the basis of the constitutional recognition, which is supreme than the statutes enacted under the constitution. The taxation laws are constitutionally recognised with reference to the sovereignty and the policies of the Government. Thus the supremacy of the Constitution overtakes the statutes enacted and such enactments constitutionally recognised directly takes precedence over the other statutes. 43. The principles of -doctrine of constitutional priority- is to be defined as, in the event of the similar provisions of priority under various enactments, then the statute which is recognised directly by the Constitution for the purpose of upholding the sovereignty and integrity of the Nation is to be considered as holding precedence over the other statutes providing priority. 44. The Constitutional Bench of the Hon-ble Supreme Court of India in the case of Builders Supply Corporation vs. Union of India [1965 AIR 1061 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dly, tax is the backbone of our Nation-s economy and it holds top priority. In this context, the tax collected goes to the welfare of the people in general, however the mortgage or sale transaction between the bank and the tax defaulter can be at no circumstances be compared with the constitutional importance of tax being collected from the people for the purpose of achieving the constitutional goals and perspectives. Therefore, the provisions of various Acts if there are conflicting provisions or grant of priority to various institutions, then the Constitution of India will be the guiding factor to form an opinion and confer priority. The nature of transaction, the implications, Constitutional importance and the other principles enunciated under the Constitution of India are the principal factors to be considered to form an opinion that, which claim shall be given priority over the other claims as various statutes enacted by the Parliament gives priority to such institutions irrespective of the fact that the other Acts are also providing similar priority to other institutions. 47. In support of the said observation, this Court would like to draw the attention with reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been applied and upheld in that part of India which was known as `British India- prior to the Constitution. The rules of Common Law relating to substantive rights which had been adopted by this country and enforced by judicial decisions, amount to `law in force- in the territory of India at the relevant time within the meaning of Art. 372(1). In that view of the matter, the contention of the appellant that after the Constitution was adopted the position of the Union of India in regard to its claim for priority in the present proceedings had been alerted could not be upheld. (iii) The basic justification for the claim for priority of Government debts rests on the well~recognised 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. 34. In State Bank of Bikaner and Jaipur v. National Iron and Steel Rolling Corporation and others [(1995) 2 SCC 19], the Court again recognized the priority of the State-s statutory first charge under Section 11~AAAA o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority in respect of its tax dues. 2. 4. The doctrine may not apply in respect of debts due to the State if they are contracted by citizens in relation to commercial activities which may be undertaken by the State for achieving socio~economic good. In other words, where the welfare State enters into commercial fields which cannot be regarded as an essential and integral part of the basic government functions of the State and seeks to recover debts from its debtors arising out of such commercial activities the applicability of the doctrine of priority shall be open for consideration. 48.One of the principles, which is impressive in the judgment cited supra is that the basic justification for the claim for priority of Government dues rests on the well recognized principles that the State is entitled to raise money by taxation otherwise it will not be able to function as sovereign Government at all. This consideration emphasises the necessity and wisdom of conceding to the State, the right to claim priority in respect of its tax dues. The importance of the above reading is to be considered regarding the present facts and circumstances. 13. As far as the disputes ra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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