2005 (1) TMI 638 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Jurisdiction of the Debt Recovery Tribunal (DRT) to determine the preferential claim of the Government of Kerala over properties mortgaged to banking institutions.
2. Priority of the State in recovering sales tax dues over equitable mortgages created in favor of banks.
3. Applicability of the Kerala General Sales Tax Act, 1963, and the Kerala Revenue Recovery Act, 1968, versus the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act).

Issue-wise Detailed Analysis:

1. Jurisdiction of the Debt Recovery Tribunal (DRT):
The primary issue addressed is whether the DRT has jurisdiction to determine the preferential claim of the Government of Kerala over properties mortgaged to banking institutions. The court concluded that the DRT does not have jurisdiction over properties on which the State has a statutory first charge under Section 26B of the Kerala General Sales Tax Act, 1963. The court emphasized that the DRT is a tribunal of limited jurisdiction created by statute and can only function within the confines of the RDB Act, which does not confer jurisdiction to entertain applications by the State or its officers for recovery of dues.

2. Priority of the State in Recovering Sales Tax Dues:
The court reaffirmed the State's priority in recovering sales tax dues over the equitable mortgages created by defaulters in favor of banks. The court referenced several Supreme Court decisions, including State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling Corporation and State of Madhya Pradesh v. State Bank of Indore, which recognized the statutory first charge in respect of sales tax arrears. The court held that the statutory first charge created under Section 26B of the Kerala General Sales Tax Act prevails over any existing charge or mortgage right held by banks or financial institutions.

3. Applicability of the Kerala General Sales Tax Act, 1963, and the Kerala Revenue Recovery Act, 1968, versus the RDB Act:
The court examined whether the procedural provisions under the RDB Act would override those of the Kerala General Sales Tax Act and the Kerala Revenue Recovery Act. The court concluded that once the State's right to recover sales tax dues is conceded, the State can invoke its machinery to enforce that charge under the Kerala Revenue Recovery Act. The court noted that the Revenue Recovery Act provides a comprehensive procedure for the recovery of public revenue dues, including attachment and sale of defaulters' properties. The court held that the DRT and its Recovery Officer have no jurisdiction to proceed with properties over which the State has a statutory charge, and any disputes regarding such properties must be resolved under the provisions of the Revenue Recovery Act.

Conclusion:
The court allowed the writ appeal, setting aside the judgment of the learned single Judge. It held that the State is entitled to follow the mode of recovery under the Kerala Revenue Recovery Act for realizing debts, and the DRT or its Recovery Officer have no jurisdiction over properties on which the State has a statutory first charge. The court also clarified that financial institutions or banks cannot raise claims over such properties before the DRT and must instead invoke the provisions of the Revenue Recovery Act. The appeal was thus allowed, and the judgment of the learned single Judge was set aside.