1967 (5) TMI 43 - SC - VAT and Sales Tax

Whether the order of distraint dated November 20, 1958, made by the Collector of Aurangabad is legally valid - Held that - The procedure followed by the Collector is justified by the provisions of section 119 and there is nothing in the language or context of the section which prohibits the Collector from making an order of distraint with regard to the movable property in the custody and possession of a Court. We accordingly reject the argument of respondent No. 1 on this aspect of the case. Whether the debt due to the Government in respect of arrears of sales tax has priority over the dues of respondent No. 1. ? - Held that - Section 144 enumerates the nature of taxes in respect of which the provision under the Land Revenue Act could be adopted for recovery. But the language of section 104 makes it clear that the priority specified in that section applies only in respect of land revenue and not in respect of other taxes. In respect of other taxes, we consider that only the procedure for recovery under section 116 applies and not the substantive law of priority under section 104 of the Land Revenue Act. In our opinion, counsel for the appellants has not been able to make good his argument on this aspect of the case. Whether the appellants are entitled to claim priority towards payment of sales tax according to the common law doctrine of priority of Crown debts quite apart from the provisions of the Hyderabad Land Revenue Act? - Held that - Unable to apply the English common law doctrine of priority of Crown debts in this case, because there is no proof that the doctrine was given judicial recognition in the territory of Hyderabad State prior to January 26, 1950, when the Constitution was brought into force. We granted time to counsel for the appellants to ascertain whether there were any reported decisions recognising such a doctrine in the Hyderabad State, but sufficient material has not been placed before us in this case to show that the doctrine was given judicial recognition in the Hyderabad State before its incorporation into the Indian Republic.

Issues Involved:
1. Validity of the Collector's order of distraint.
2. Priority of Government debt over private debt.
3. Applicability of the common law doctrine of "priority of Crown debts."

Detailed Analysis:

1. Validity of the Collector's Order of Distraint

The first question addressed was whether the order of distraint dated November 20, 1958, issued by the Collector of Aurangabad, was legally valid. The order was made under section 13(2) of the Hyderabad General Sales Tax Act read with sections 116 and 119 of the Hyderabad Land Revenue Act. Section 13(2) of the Hyderabad General Sales Tax Act allows for the recovery of unpaid taxes as if they were arrears of land revenue. Section 116 of the Hyderabad Land Revenue Act outlines the measures for recovering arrears of land revenue, including distraint and sale of the defaulter's movable property under section 119.

The High Court had previously held that section 119 applies only to property in the custody and possession of the judgment-debtor, not the Court. However, the Supreme Court found this interpretation incorrect. The language of section 119 is general and does not restrict the power of distraint to property solely in the possession of the judgment-debtor. The Collector's procedure of sending the order of distraint to the Subordinate Judge was deemed justified under section 119, and thus, the argument against the validity of the distraint order was rejected.

2. Priority of Government Debt Over Private Debt

The next issue was whether the debt due to the Government for arrears of sales tax had priority over the dues of the first respondent. The appellants argued that since section 13(2) of the Hyderabad General Sales Tax Act treats unpaid sales tax as arrears of land revenue, the priority for land revenue under the Hyderabad Land Revenue Act should apply. They cited sections 104, 116, 119, and 144 of the Hyderabad Land Revenue Act to support their claim.

Section 104 provides that demands for land revenue have priority over other debts, including those based on a decree or attachment by a Court. Section 144 enumerates various types of government sums recoverable as arrears of land revenue, including taxes. However, the Supreme Court clarified that the priority specified in section 104 applies only to land revenue and not to other taxes. Therefore, the substantive law of priority under section 104 does not extend to sales tax arrears, and the appellants' argument on this point was not upheld.

3. Applicability of the Common Law Doctrine of "Priority of Crown Debts"

The final issue was whether the appellants could claim priority for the sales tax debt based on the common law doctrine of "priority of Crown debts." This doctrine, part of the Crown prerogative in English law, gives the Crown's debts precedence over those of subjects. The doctrine had been judicially recognized in British India and continued to be part of Indian law under Article 372(1) of the Constitution.

However, the Supreme Court noted that there was no evidence that this doctrine had been judicially recognized in the Hyderabad State before its incorporation into the Indian Republic. Without such proof, the Court could not apply the doctrine in this case. Consequently, the argument based on the common law doctrine of "priority of Crown debts" was rejected.

Conclusion

The Supreme Court affirmed the judgment of the Bombay High Court dated December 17, 1962, in Letters Patent Appeal No. 29 of 1960, and dismissed the appeal with costs. The Court held that the Collector's order of distraint was valid, the Government's debt for sales tax did not have priority over the first respondent's debt, and the common law doctrine of "priority of Crown debts" was not applicable in this case.

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