TMI Blog2008 (5) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... Application No. 266 of 2008 is filed by State of Gujarat through Commissioner of Commercial Tax, Ahmedabad praying for review of the order dated 18.01.2008 passed by this Court in Company Application No. 554 of 2007 along with Company Application No. 555 of 2007 in Company Petition No. 261 of 2004 and for reviewing the said order after giving an opportunity of hearing to the Commissioner of Commercial Tax and further praying to hold that the tax dues payable to the Commissioner of Commercial Tax (earlier Sales Tax) have priority over all other dues in view of the said dues being crown dues which would have priority over all creditors including Secured and Unsecured Creditors under the Companies Act, 1956. 3. Company Application No. 83 of 2008 is filed by Triveni Builders, the auction purchaser seeking direction to the respondent Nos. 2 3 i.e. officials of the Commercial Tax Department, State of Gujarat, Ahmedabad, to forthwith remove their attachment from the Property Card in respect of land being open plot situated at 375, Survey No. 78 at Marol Naka, Opp. Mital Industrial estate, Andheri (East), Mumbai, in the interest of justice. The applicant has also prayed for the direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Liquidator has prayed for the direction to the respondent No. 1 i.e. M/s. Keventer Agro Limited to take possession of the assets of the Company from the Official Liquidator and to bear the security expenses being incurred by the Official Liquidator from 15.02.2008 onwards till the date of actual possession by the respondent No. 1. The Official Liquidator has also prayed for the direction to the Sales Tax Department to remove attachments from the property card of the land of the Company in liquidation. The Official Liquidator has further prayed for the direction to the Commercial Tax department (Sales Tax Department) to lodge its claim in the office of the Official Liquidator, which will be dealt with in accordance with the Companies Act, 1956. 6. In Company Application No. 266 of 2008, an affidavit is filed by Shri Chandresh R. Mehta, the Commercial Tax Officer (I), Unit 5, Ahmedabad, in support of the Judge's Summons on 05.04.2008. The said Shri Chandresh R. Mehta has filed further affidavit on 25.04.2008. An affidavit-in-reply is filed by Mr. Satish Trivedi, an Authorised Officer of the respondent No. 2 Company who is the auction purchaser and in whose favour the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of and notwithstanding contained in any other Legislation including the Companies Act, 1956. The taxes were either to be direct or indirect. In every case, the requirement to pay by way of taxable event takes much earlier. In the present case, Sales Tax is an indirect tax and the Sales Tax is leviable on the sale of goods etc. A person / entity / registered or registered Dealer collects tax from the party producing goods from the seller. In other words, the selling party recovers tax from the purchasing party on behalf of the State and as per the provisions, Rules and Regulations, it has to deposit the said tax so collected with the revenue department. Thus, the respondent Company has already collected tax from public at large and it is only to be further transmitted to the State Government. The money collected by way of tax is on behalf of the State Government and it is held by the concerned seller as a Trustee for and on behalf of the appropriate taxing authority. Obviously, such tax so collected invariably will have to be deposited with the State Government. If such money so collected is not deposited with the exchequer, then it would, inter alia, tantamount to not only unjust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited v. Commissioner of Central Excise and Customs 2005(181)ELT328(SC) , and (7) Dena Bank v. Bhikhabhai Prabhudas Parekh Co. and Ors. [2001]247ITR165(SC) . 11. Mr. P.M. Thakkar, learned Senior advocate appearing with Mr. N. K. Pahwa for respondent No. 2 Company has submitted that the application moved by the State Government is not maintainable and is liable to be summarily rejected. There are no legal grounds made out by the applicant warranting any interference from this Court in the order dated 18.01.2008 passed by this Court in Company Applications No. 554 of 2007 and 555 of 2007. He has further submitted that the Company in liquidation is already ordered to be wound up by this Court and it is, therefore, not correct to state that the applicant has any right to recover any dues from the sale proceeds of the assets of the Company in liquidation, subject to and in accordance with the provisions of the Companies Act, 1956. No documentary evidence is produced by the applicant in support of the claims made by it in the present application. As the Company against which the applicant claims certain dues, the applicant may register / lodge its claim in accordance with the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d creditors are settled in accordance with the provisions of Section 529A of the Act. The averments made by the applicant State in the affidavit filed in support of the Judge's Summons is totally misconceived in law. This Court in its order dated 18.01.2008 has considered this aspect and has also referred to various decisions of this Court while holding that attachment of Sales Tax department is illegal in as much as the Sales Tax department can only lodge its claim with the Official Liquidator who in turn is required to settle the same in accordance with the provisions of Section 529A read with Section 530 of the Companies Act. 12. Mr. Thakkar has made an alternative submission to the effect that as far as respondent No. 2 is concerned, the respondent No. 2 is the bonafide purchaser of the subject properties in the auction held before this Court and its relationship of the respondent No. 2 i.e. the Official Liquidator, the vendor of the property is governed by the terms and conditions of the sale as approved by this Court. As per Clause 15 of the terms and conditions of sale, the respondent No. 2 is not liable to pay any pre-liquidation dues of the Company in liquidation an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant is not correct and the provisions of the Act are not in any way derogatory to the sovereign powers of the State. The applicant State, therefore, cannot claim any priority for the taxation dues. He has, therefore, submitted that there is no scope for any review of the order passed by this Court on 18.01.2008 and the present application summarily deserves to be rejected. 14. In support of his submissions, Mr. Thakkar relied on the decisions of (1) Regional Director, E.S.I. Corporation v. Official Liquidator of Prasad Mills Limited (2) Kerala State Financial Enterprises Limited v. Official Liquidator of Kerala High Court AIR2007SC63 , and (3) UTI Bank Limited v. The Deputy Commissioner of Central Excise, Chennai and Anr. 2007(208)ELT3(Mad) . 15. In Company Application No. 83 of 2008, an affidavit is filed by Shri Hasmukh Ratan Shah, Authorized Officer of the applicant auction purchaser in support of the Judge's Summons. Mr. N.K. Pahwa, learned advocate appears for the applicant and he has more or less reiterated the same submissions except the factual data which are given in the affidavit filed in support of the Judge's Summons. On behalf of State of Gujarat, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Deed has also been executed in favour of the applicant purchaser. The Sales Tax department had to recover certain outstanding sales tax dues from the Company in liquidation and for that purpose, it has got a lien on property card of the land in question. It is, therefore, while seeking confirmation of sale in favour of the applicant purchaser, the sales tax department was joined as party respondent No. 14 in OLR No. 117 of 2006 and it was submitted before the Court that the dues of the sales tax department fall in the clause of Preferential Creditors under Section 530(1)(a) of the Companies Act, 1956 and, therefore, the claim of the Sales Tax department would be settled by the Official Liquidator after satisfying the claim of the overriding Preferential Creditors under Section 529A of the Companies Act, 1956. The direction was also sought for the sales tax department to remove attachment from the property card. The sale was accordingly confirmed and this Court, in paragraph 8 of the order dated 15.12.2006 directed that the claim of the Sales Tax Department would be considered as per Section 530(1)(a) of the Companies Act, 1956. The sales tax department was served with a notice o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deed that the vendee / purchaser has become an absolute owner of scheduled immovable property exclusively and absolutely free from any claim, encumbrance of lien and a scheduled property thus now stands transferred / conveyed absolutely upon the vendee / purchaser subject to the terms and conditions mentioned in the Sale Deed. It is, therefore, submitted that in view of execution of the Sale Deed in favour of the present applicant, the claim of the Sales Tax department, if any, must be satisfied by the Official Liquidator in accordance with the provisions contained in Section 530(1) of the Companies Act, 1956 and the applicant shall not be held liable for the said outstanding dues of the Sales Tax department. The attachment and/or encumbrance under the land in question, therefore, deserves to be vacated. 19. In Official Liquidator's report No. 48 of 2008, notice was issued by this Court on 04.03.2008. Parties were heard at length in the matter and same submissions were reiterated by the learned Counsels. 20. After having heard learned advocates appearing for the respective parties and after having gone through the pleadings contained in the memo of applications, affidavit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opened at Calcutta for making fixed deposits according to his instructions on or after the opening date. The money was remitted to Calcutta and a branch was opened there but within a few days and before the customer could give any instructions an Ordinance was issued declaring a moratorium for the Bank prohibiting payments. The High Court sanctioned a scheme by which depositors were to be paid 70.5% of the deposits. On these facts, the Hon'ble Supreme Court held that the Bank was a trustee for transmission of the amount and in the absence of any instructions given by the customer for opening a fixed deposit account in respect of the amount transmitted, the Bank stood in a fiduciary relation to the customer and was liable to refund the full amount. The amount lying with the Bank at Calcutta was not a deposit and was not liable to any reduction. 23. In the case of Baroda Spinning Weaving Mills Company Limited (In Liquidation) v. Baroda Spinning Weaving Mills Co-operative Credit Society Limited and Anr. the Company was ordered to be wound up by an order dated 17.04.1968 and the Official Liquidator was appointed as the Liquidator. On the date of winding up order, the accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d v. Sales Tax Officer, Petlad [1991]189ITR90(SC) , the Hon'ble Supreme Court has held that the legal philosophy which permeates Section 530(1)(a) is that the debts due and payable, so as to claim priority, must be appropriated to the period within 12 months next before the relevant date and their liability for payment must be founded during that period and no other. The State has a priority over debts, liability and obligation of which was born within the time frame of those twelve months and as such due and becoming due and payable within those twelve months next before the relevant date, ascertainable if necessary later, if not already ascertained. The words 'having become due and payable within 12 months next before the relevant date' need be understood to mean putting a restriction or cordoning off the amount for which priority is claimable and not in respect of each and every debt on account of taxes, rates and cesses etc. which may be outstanding at that time and payable. Such priority is in respect only of debts those of which become due and payable because the liability to those is rooted, founded and belonging to that period of twelve months prior to the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l cases. The Court, therefore, held that irrespective of applicability of Section 11B of the Act, the doctrine of unjust enrichment can be invoked to deny the benefit to which a person is not otherwise entitled. Section 11-B of the Act or similar provision merely gives legislative recognition to this doctrine. That, however, does not mean that in absence of statutory provision, a person can claim or retain undue benefit. Before claiming a relief of refund, it is necessary for the petitioner to show that he has paid the amount for which relief is sought, he has not passed on the burden on consumers and if such relief is not granted, he would suffer loss. 27. In the case of Ananta Mills Limited (In Liquidation) v. City Deputy Collector, Ahmedabad and Ors. (1972) 42 Comp Cas 476, this Court held that in order to give full effect to the principle underlying the winding up provisions of the Companies Act, the only approach to the problem would be that an attachment simpliciter of the properties of a Company, which was subsequently ordered to be wound up without any further action being taken, would be of no consequence or effect against the Official Liquidator and the property could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt further held that in absence of Section 529A, the answers certainly could be in favour of the E.S.I. Corporation. Since, after introduction of Section 529A and amendment to Section 530 of the Companies Act, the legal position is changed. When the Official Liquidator acquires or possesses the securities mortgaged with the Secured Creditors, then the Official Liquidator would be obliged to serve the provisions of Section 529A and Section 530 of the Companies Act. The question of equity would not arise because in a case where the securities / properties / assets are not sufficient to discharge the liability of the creditors described under Section 529A of the Companies Act, the question of payment under Section 530 of the Act would not arise. Section 530 of the Companies Act would come into operation only after the liability under Section 529A is discharged and some money is still left. 29. Mr. Shah's argument of Salex Tax dues being trust money do not form part of the assets of the Company in liquidation has no bearing so far as the present case is concerned. Dinshaw and Co. (Bankers) Limited's case does not render much assistance to the State. In that case, the Officia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les Tax department which was required to be passed on to the purchasers / customers as a result of cessation of any liability. None of the arguments canvassed by Mr. Shah could impress upon the Court to take any different view from the view already taken by the Court earlier. 31. On the basis of the judgment of the Hon'ble Supreme Court in the case of Dena Bank v. Bhikhabhai Parekh Company and Ors. (supra), it was strenuously urged before the Court that the sales tax dues shall have precedence over any other debt, demand or claim whatsoever including in respect of mortgage. It is further contended that the provisions contained in Section 158(1) of the Karnataka Land Revenue Act and the provisions contained in Section 137 of the Bombay Land Revenue Code are more or less similar. Section 137 states that the claim of the State Government to any monies recoverable under the provisions of this Chapter shall have precedence over any other debt, demand or claim whatsoever, whether in respect of mortgage, judgment - decree, execution or attachment or otherwise howsoever against any land or the holder thereof. 32. It is, however, seen that the applicability of Section 137 is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of attachment, no decree is passed. It is further held that save and except certain special Statutes in relation to recovery of debts, from the properties of a Company which has been directed to be wound up, the provisions of the Companies Act shall apply. The Court further held that it may be treated if there exists a statute like SICA, the provisions thereof may prevail over the Companies Act, 1956. But in absence of a clear provision, the Companies Act cannot be held to give way to another Act providing for recovery only leaving the rights and liabilities of the parties to be dealt with under a general law. 34. In the case of UTI Bank Limited v. The Deputy Commissioner of Central Excise, Chennai and Anr. 2007(208)ELT3(Mad) , the Full Bench of the Madras High Court was concerned with the claim of UTI Bank being a Secured Creditor, seeking precedence over the recovery of dues of the Central Excise Department. The Court held that generally, the dues to Government i.e. tax, duties, etc. (crown debts) get priority over ordinary debts only. When there is a specific provision in the Statute claiming first charge over the property, the crown debt is entitled to have priority over the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led under law to priority of payment over debts due to Government on the date of liquidation or for meeting such costs and expenses of the winding up of the Company. Thus, this proviso also makes it clear that the dues of the Secured Creditors shall have precedence or priority over the debts due to Government. 37. Taking any view of the matter, there is no substance in the arguments canvassed on behalf of the State Government and apart from the issue regarding maintainability of the review application, even on merits, the claim of the State Government is not sustainable. The Court has discussed this issue at length only because in other two Company Applications, the same issue has arisen. In view of this discussion and applying the law to the questions posed before the Court, the Court in its humble opinion takes the view that the applicants - auction purchasers and the Official Liquidator are right in their perception that the auction purchasers are not liable to discharge any of the liabilities pertaining to the pre-liquidation period of the Company in liquidation and all these attachments which are made on the assets of the Company in liquidation are required to be removed an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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