1997 (8) TMI 497 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of Section 24(2) of the Tamil Nadu General Sales Tax Act, 1959.
2. Priority of secured creditors versus government dues.
3. Applicability of the Tamil Nadu General Sales Tax Act, 1959 to existing mortgages.
4. Validity of amendments introduced by Tamil Nadu Act 78 of 1986.

Summary:

1. Constitutionality of Section 24(2) of the Tamil Nadu General Sales Tax Act, 1959:
The appellant-bank contended that Section 24(2) of the Tamil Nadu General Sales Tax Act, 1959, as amended by Tamil Nadu Act 78 of 1986, is unconstitutional and invalid. The court rejected this argument, stating that the amendments do not violate the Constitution. The court held that the legislative powers under entry 54 of List II and entry 43 of List III of the Seventh Schedule to the Constitution of India are distinct and separate from those under entry 6 of List III, which pertains to the Transfer of Property Act, 1882. Therefore, there is no inconsistency requiring Presidential assent under Article 254(2) of the Constitution.

2. Priority of Secured Creditors versus Government Dues:
The appellant-bank argued that the amendments to Section 24(2) affect the priority of secured creditors under a Central Act, the Transfer of Property Act, 1882. The court, however, upheld the principle that government dues have priority over secured creditors. The court cited the Supreme Court's decision in State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling Corporation, which established that a statutory first charge on property for tax dues takes precedence over existing mortgages.

3. Applicability of the Tamil Nadu General Sales Tax Act, 1959 to Existing Mortgages:
The court clarified that the statutory first charge created under Section 24(2) of the Tamil Nadu General Sales Tax Act, 1959, applies to the entire property of the dealer, not just the equity of redemption. This means that the charge has priority over any existing mortgages, as established by the Supreme Court in the aforementioned case.

4. Validity of Amendments Introduced by Tamil Nadu Act 78 of 1986:
The appellant-bank challenged the amendments on the grounds that they did not achieve their purpose of giving priority to tax dues over secured creditors. The court dismissed this argument, stating that the amendments sufficiently safeguard the State's ability to enforce tax recovery as the first statutory charge holder. The court held that the amendments are valid and do not violate the Constitution.

Conclusion:
The court dismissed the writ appeal, upholding the constitutionality and validity of the amendments to Section 24(2) of the Tamil Nadu General Sales Tax Act, 1959. The court affirmed that government dues have priority over secured creditors and that the statutory first charge applies to the entire property of the dealer. The appellant-bank's contentions were found to be without merit.