TMI Blog2021 (9) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... re also almost on the same line. It was held in the case that 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. Petition disposed off. - W.P.No.12534 of 2017 And W.M.P.No.13323 of 2017 - - - Dated:- 23-8-2021 - Honourable Mr.Justice S.M.Subramaniam For the Petitioner : Mr.M.L.Ganesh For the Respondents : Mr.V.Veluchamy Government Advocate [For R1 R3], R2 No appearance ORDER The Writ of Mandamus is filed, directing the first respondent to remove the to remove the attachment effected with the office of the third respondent in respect of the mortgaged property of the second respondent situate at Kalanipakkam Village, Vellore Taluk and District, comprised in old survey No.455/2B, Re Survey No.455/2B1 measuring an extent of 2.08 Acre and Old Survey No.455/2B, Re Survey No.455/2B2 measuring an extent of 1.00 Acre in the light of amended Section 26E of SARFAESI Act so as to enable the petitioner bank or its successors to register the sale certificate/sale deed in favour of auction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these circumstances, this Court considered the provisions of the Tamil Nadu Value Added Tax Act, 2006 and the claim made by the petitioner and in yet another case, the similar priority provision under the Income Tax Act was also considered by this Court elaborately and based on the two judgments of this Court in W.P.No.15437 of 2014 dated 19.07.2021 and W.P.No.15938 of 2009 dated 12.08.2021, the present case is also to be decided as the issues are one and the same and the factual aspects are also almost on the same line. The relevant paragraphs of the judgment dated 12.08.2021 in W.P.No.15938 of 2009 are extracted hereunder: 6. The issue of priority over the charge with reference to various enactments are elaborately considered by this Court and judgment was delivered on 19.07.2021 in W.P.No.15437 of 2014. In the said writ petition, the priority over charge claimed by the Income Tax Department was considered. However, the provisions of TNVAT Act also contains a similar provision that of the Income Tax Act and the provisions in TNVAT Act, are in pari materia with the provisions in the Income Tax Act. However, this Court has to consider the provisions of the TNVAT Act, for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeding under this Act or, as the case may be, without notice of such tax or other sum payable by the dealer; or (b) with the previous permission of the assessing authority. 10. The above section 43 clearly stipulates that if during the pendency of any proceedings under the TNVAT 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 proceedings or otherwise. 11. The proviso clause states that such charge or transfer shall not be void, if it is made with the previous permission of the authority or for adequate consideration and without notice of the pendency of such proceedings under the Act or, as the case may be without notice of such tax or other sum payable by the dealer. 12. Perusal of the above provisions would reveal that the TNVAT Act also contemplates priority regarding recovery o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not on account of any other person, or was in the possession of some other person in trust for him, or in the occupancy of a tenant or other person paying rent to him, the Tax Recovery Officer shall disallow the claim. (6) Where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a civil court to establish the right which he claims to the property in dispute; but, subject, to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive. 33.A perusal of the entire Rule would reveal that it is not an appeal or Revision. It is an investigation by the Tax Recovery Officer, which is contemplated. Therefore, any third person if involved in such transfer of property, which is declared as void under Section 281 of the Income Tax Act may submit an application for investigation by Tax Recovery Officer. Therefore, the statute does not assume that every third person is liable under the Income Tax Act. Schedule II Rule 11 of the Income Tax Act is a beneficial provision in respect of the person, who was otherwise cheated by any of the defaulter of tax arrears, who in turn can submit an application for furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee creates a charge on or parts with the possession by way of mortgage, sale, etc. Shall be void against any claim in respect of any tax. So also, the SARFAESI Act states that Section 26E contemplates that the secured creditors 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. Therefore, equal weightage is given in respect of the secured creditors. So also Section 31B of Recovery of Debts and Bunkruptcy Act, 1993 states that 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. 38.Thus, conflicting provisions in these three independent statutes are creating heart burning issues between the secured creditors as well as the Tax Department. Some of the decisions are in favour of the Tax Department and some of the decisions are in favour of the Banks. With reference to Section 26E of the SARFAESI Act and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r otherwise. Thus, the void transfers or transactions made during the pendency of the Income tax proceedings cannot be the subject matter for any mortgage or further transfers or transactions etc., This being the possible perceptions, the Courts are bound to consider, which transaction will prevail over and which Act would be applicable with reference to the facts and circumstances. 39.More elaborately the facts at the first instance to be considered and then the application of law which is to be applied at the first instance also to be considered. For instance in the case where the income tax proceedings are pending under the Income Tax Act and if a mortgage is entered into by the tax defaulter with any Bank, then it is the duty of the Bank to ensure that no other proceedings are pending and it is the duty of the person who is borrowing loan to inform the same to the Bankers. Under these circumstances, the Income Tax Department is alien to the transaction of mortgage between the bank and the tax defaulter and therefore, the Act will automatically come to the rescue of the Income Tax Department declaring such transfers as void under Section 281 of the Income Tax Act. 40.Where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Co. vs. United Commercial Syndicate and others [(1886) ILR 7 Mad. 434], wherein the Madras High Court has held that it is a settled principle of constitutional law that as between creditors of the same rank the Government is entitled to priority and the republican character of the Constitution of India has not abrogated this general doctrine of priority of State debts. In dealing with this question, Justice Ramamurti has referred to the relevant decisions in relation to the arrears of income tax due to the Government and has pointed out there is a consensus of judicial opinion on the question that the arrears of tax due to the State can claim priority over private debts. This position has not been seriously disputed. 45.Similarly, the basic justification for the claim of priority made by the Income Tax Department in the present case rests on the well recognised principle that the State is entitled to raise money by taxation, because unless adequate revenue is received by the State, it would not be able to function as sovereign Government at all. It is essential that as a sovereign the Sate should be able to discharge its primary governmental functions and in order to able to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Central Bank of India vs. State of Kerala and others [Civil Appeal No.95 of 2005 dated 27.02.2009], wherein the Apex Court considered the provisions of the DRT Act and SARFAESI Act and the following observations are made: ?33.The non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act give overriding effect to the provisions of those Acts only if there is anything inconsistent contained in any other law or instrument having effect by virtue of any other law. In other words, if there is no provision in the other enactments which are inconsistent with the DRT Act or Securitisation Act, the provisions contained in those Acts cannot override other legislations. Section 38C of the Bombay Act and Section 26B of the Kerala Act also contain non obstante clauses and give statutory recognition to the priority of State-s charge over other debts, which was recognized by Indian High Courts even before 1950. In other words, these sections and similar provisions contained in other State legislations not only create first charge on the property of the dealer or any other person liable to pay sales tax, etc. but also give them overriding effect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Dena Bank v. Bhikhabhai Prabhudas Parekh Co. and others [(2000) 5 SCC 694], the Court reviewed case law on the subject and observed: The principle of priority of government debts is founded on the rule of necessity and of public policy. The basic justification for the claim for priority of State debts rests on the well~recognised principle that the State is entitled to raise money by taxation because unless adequate revenue is received by the State, it would not be able to function as a sovereign Government at all. It is essential that as a sovereign, the State should be able to discharge its primary governmental functions and in order to be able to discharge such functions efficiently, it must be in possession of necessary funds and this consideration emphasises the necessity and the wisdom of conceding to the State, the right to claim priority in respect of its tax dues (see Builders Supply Corpn.). In the same case the Constitution Bench has noticed a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts and that this rule of common law amounts to law in force in the territory of British India at the relevant time w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secured creditors. The 1st respondent/revenue equally claims the priority over all other charges as it is arrears of tax and State revenue. Further, the 1st respondent-Commercial Tax department claims that actions for recovery of arrears of tax was initiated long back and during the pendency of the proceedings under the taxation law, the bank has dealt with the property and therefore, they cannot claim any priority over the property, as far as the tax arrears are concerned. 14. However, such disputed fact cannot be adjudicated by the High Court in a writ petition under Article 226 of the Constitution of India. Which are all the proceedings initiated at the first instance and which proceedings has to be construed as an initial 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. 15. This being the factum and considering the judgment of the Hon'ble three Judges bench of Hon'ble Supreme Court of India, in the case of Central Bank of India (cited supra), this Court is of the opinion that such disputes are to be adjudicated before the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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