2010 (5) TMI 774 - HC - VAT and Sales Tax

Whether the respondentState has first charge over the property in question for taking steps under section 151 of the BLR Code? Whether the State can recover its dues of tax under section 47A of the Gujarat Sales Tax Act, 1969 and the dues of the workmen under section 33C of the Industrial Disputes Act, 1947, as arrears of land revenue under section 137 of the BLR Code. Held that - It has already been noticed that arrears of land revenue can be recovered under section 137 of the BLR Code which is restricted to the current year under section 151 of the said Code. As section 137 has been declared void, we hold that the State Government cannot recover the dues under section 137 of the BLR Code. Thus answer the issue in favour of the appellants-petitioners

Issues Involved:
1. Whether the State has first charge over the property for recovery of tax dues under section 151 of the Bombay Land Revenue Code (BLR Code).
2. The applicability of section 47A of the Gujarat Sales Tax Act, 1969 for recovery of tax as arrears of land revenue.
3. The precedence of State claims under section 137 of the BLR Code over secured and unsecured debts.
4. The validity of section 137 of the BLR Code.
5. The impact of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitization Act) on the State's claims.
6. The priority of State debts versus secured debts under the Securitization Act and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act).
7. The recovery of dues under section 33C of the Industrial Disputes Act, 1947.

Detailed Analysis:

1. First Charge Over Property for Tax Recovery:
The court examined whether the State has a first charge over the property for tax recovery under section 151 of the BLR Code. The court referred to section 47A of the Gujarat Sales Tax Act, 1969, which empowers sales tax authorities to recover tax as arrears of land revenue. Section 137 of the BLR Code stipulates the precedence of State claims over other claims, but section 151 restricts this precedence to demands for the current year only.

2. Applicability of Section 47A of the Gujarat Sales Tax Act, 1969:
Section 47A grants sales tax authorities special powers to recover tax, penalty, or interest due from any dealer as arrears of land revenue. This section aligns with the powers under the BLR Code, allowing the Commissioner and other officials to exercise similar powers as the Collector for recovery purposes.

3. Precedence of State Claims Under Section 137 of the BLR Code:
The court reviewed the precedence of State claims under section 137, which gives the State priority over all other debts, including secured and unsecured debts. This precedence was affirmed by the Bombay High Court in previous judgments, indicating that the State's claim extends to all debts, whether secured or unsecured.

4. Validity of Section 137 of the BLR Code:
The court noted that section 137 had been declared void by a Division Bench of the Gujarat High Court in Surendrabhai & Company v. State of Gujarat. The provision was found to create unreasonable restrictions on the right to hold property, violating Article 13 of the Constitution.

5. Impact of the Securitization Act on State's Claims:
The court considered the Securitization Act, which allows banks and financial institutions to recover dues without court intervention. However, the Act does not create a first charge in favor of secured creditors over the State's statutory first charge. The Supreme Court in Central Bank of India v. State of Kerala held that the Securitization Act does not override State legislations that create a first charge for tax dues.

6. Priority of State Debts Versus Secured Debts:
The court referred to several judgments, including Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., which established that the Crown's preferential right to recover debts is confined to unsecured creditors. The Supreme Court in SICOM Ltd. and Central Bank of India affirmed that secured debts under the Securitization Act do not have a first charge over State debts unless explicitly stated in the statute.

7. Recovery of Dues Under Section 33C of the Industrial Disputes Act, 1947:
Section 33C allows recovery of money due to a workman from an employer as arrears of land revenue. The court noted that such recovery must align with the provisions of the BLR Code, which restricts recovery to the current year under section 151.

Conclusion:
The court concluded that the State cannot recover dues under section 137 of the BLR Code, as it has been declared void. The State's claim for tax recovery under section 47A of the Gujarat Sales Tax Act and section 33C of the Industrial Disputes Act must adhere to the restrictions of the BLR Code. The court allowed the prayers of the appellants-petitioners, emphasizing that secured debts under the Securitization Act do not have precedence over the State's statutory first charge.

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