2007 (4) TMI 630 - HC - VAT and Sales Tax

Summary

Issues: Constitutional validity of sections 26A and 26B of the Kerala General Sales Tax Act, 1963 challenged regarding statutory first charge claimed by State of Kerala over claims made by banks on mortgages created by donees.

Judgment Details:

The High Court of Kerala, in the case challenging the constitutional validity of sections 26A and 26B of the Kerala General Sales Tax Act, 1963, upheld the first charge claimed by the State of Kerala for sales tax over equitable mortgages created by banks and financial institutions. The court referred to various decisions, including State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling Corporation, Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., and others, recognizing the statutory first charge for sales tax arrears. The court also cited its own previous rulings, such as in State of Kerala v. Rajmohan Cashew Pvt. Ltd., upholding the State's first charge under section 26B over rights created in favor of banking institutions.

The court addressed the argument regarding the overriding effect of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act) over the Kerala General Sales Tax Act. Senior Counsel contended that the RDB Act, enacted by Parliament, prevails over inconsistent provisions of state laws. However, the court held that there is no conflict between the RDB Act and the Kerala General Sales Tax Act in terms of recovery of dues to banks and financial institutions. The RDB Act aims for speedy recovery without creating a statutory charge for banks, thus not providing them with priority.

In considering the purpose and scope of both Acts, the court emphasized that they were enacted for different purposes in different fields. Citing the Bombay High Court's view in a similar case, the court concluded that there is no conflict between the provisions of the Kerala General Sales Tax Act and the RDB Act. The court found no reason to grant the reliefs sought in the appeals and dismissed them, allowing the recovery officer to handle the matter after meeting the State's liability for sales tax.

In conclusion, the High Court of Kerala affirmed the constitutional validity of sections 26A and 26B of the Kerala General Sales Tax Act, 1963, and upheld the State's first charge for sales tax over mortgages created by banks and financial institutions, dismissing the appeals challenging the same.