2006 (6) TMI 485 - HC - VAT and Sales Tax

Summary

Issues:
1. Priority of section 29 of the State Financial Corporations Act, 1951 over sections 26A and 26B of the Kerala General Sales Tax Act, 1963.

Analysis:
The case involved a dispute regarding the priority of recovery of sales tax arrears by the Government from the sale consideration received by a corporation. The corporation had taken over mortgaged properties under section 29 of the State Financial Corporations Act, 1951 due to loan default by the borrower. The Government contended that it had priority under sections 26A and 26B of the Kerala General Sales Tax Act, 1963. The court examined the legal provisions and relevant precedents to determine the hierarchy of charges over the properties in question.

The court considered the constitutional validity of section 26A of the KGST Act and established that the State Legislature had the competence to enact such provisions. It was held that the statutory first charge under the KGST Act prevails over any charge or right created in favor of a mortgagee or secured creditors. The court cited various judgments to support this legal position, emphasizing the precedence of the State's claim in such matters.

Regarding the specific provisions of the Acts in question, the court noted that section 29 of the State Financial Corporations Act enables the corporation to manage, possess, and realize property but does not create a charge. On the other hand, sections 26A and 26B of the KGST Act establish tax payable as a first charge over the property. The court concluded that the State's statutory prior charge takes precedence over the corporation's rights under the SFC Act, leading to the dismissal of the appeal.

The court also highlighted the default in payment of sales tax arrears by the borrower, resulting in a charge over the immovable property. The court emphasized the State's dominant right to recover tax arrears from the property, invalidating the sale deed executed in favor of the petitioner. The court further clarified that the Government could proceed against both the corporation and the bank involved in the transaction, as the State held superior rights due to its statutory first charge over the properties.

In conclusion, the court held that section 29 of the State Financial Corporations Act did not take precedence over sections 26A and 26B of the KGST Act. The judgment affirmed the State's priority in recovering tax arrears from the sale consideration received by the corporation, dismissing the appeal on the grounds of lack of merit.