2009 (12) TMI 904 - HC - VAT and Sales Tax

Summary

Issues:
1. Assessment of sales turnover of raw materials for safety matches.
2. Revenue recovery proceedings against arrears of tax and penalty.
3. Priority of debt between State Government and secured creditors.
4. Challenge to proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
5. Loan repayment and mortgage by Ramanathapuram District Cottage Match Manufacturers Association to Khadi and Village Industries Commission.

Analysis:
1. The judgment involves the assessment of the sales turnover of raw materials for safety matches under the Tamil Nadu General Sales Tax Act, 1959. The second respondent, a business dealing with raw materials, was assessed for arrears of tax and penalty by the petitioner. Subsequently, revenue recovery proceedings were initiated, leading to the attachment of immovable properties and a notice of sale issued.

2. The third respondent, holding additional charge of the Ramanathapuram District Cottage Match Manufacturers Association, faced public auction of properties due to unsettled arrears. However, complications arose when the first respondent, seeking to recover a loan amount, took possession of the properties under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The petitioner intervened, asserting Government dues' prime charge over the properties.

3. A critical issue addressed in the judgment concerns the priority of debt between the State Government and secured creditors. Citing a precedent, the court highlighted that while the State Government can claim priority over tax arrears, secured creditors with assets have secured interests, superseding the State's first charge principle.

4. The Khadi and Village Industries Commission, having granted a substantial loan to the Ramanathapuram District Cottage Match Manufacturers Association, filed a writ petition challenging the proceedings of the second respondent. The petition sought a writ of certiorari, contesting the actions taken against the third respondent for non-repayment of the loan amount and interest, leading to the mortgage of properties.

5. In light of the Division Bench's decision emphasizing the priority of secured creditors over State claims in certain scenarios, the court dismissed one writ petition while allowing another. Consequently, the writ petition challenging the proceedings against the third respondent was granted, highlighting the complexities of debt priority and recovery actions in the legal landscape.