2011 (2) TMI 1332 - HC - VAT and Sales Tax

Whether the Sales Tax Department can claim priority of debt over others in regard to the arrears of tax due to the Stave? Held that - The order of attachment made by the Commercial Tax Department invoking the provisions of the Revenue Recovery Act does not hold good, insofar as the property which was taken possession by the third respondent invoking section 29 of the State Financial Corporations Act, 1951 is concerned. Since the possession of the property has already been taken by the secured creditor, there is no question of attaching the said property by the Commercial Tax Department. The Sub-registrar was not justified in refusing to register the sale deed executed by the third respondent in favour of the petitioner. Therefore, the document produced by the petitioner dated November 11, 2010, duly executed by the third respondent, requires consideration by the second respondent, disregarding the order of attachment made by the first respondent. W.P. allowed.

Summary

Issues:
1. Registration of property restrained due to attachment for sales tax arrears.
2. Refusal of registration of document due to subsisting attachment.
3. Priority of debt claim by Sales Tax Department over other creditors.
4. Validity of attachment by Commercial Tax Department.

Analysis:
1. The petitioner contested the proceedings restraining property registration due to an attachment made for sales tax arrears. The property, initially owned by a company, was auctioned to the petitioner by a corporation. The corporation had taken possession of the property under the State Financial Corporations Act, 1951. The Commercial Tax Department had attached the property, leading to the refusal of registration by the Sub-registrar. The petitioner challenged these actions in separate writ petitions.

2. The Commercial Tax Department claimed that the company owed sales tax arrears, leading to the property attachment. However, the corporation argued that they had taken possession of the property earlier under the State Financial Corporations Act, making the attachment invalid. The court found that the property was rightfully sold to the petitioner by the corporation, and the attachment by the tax department was not applicable in this case.

3. The central issue was whether the Sales Tax Department could claim priority of debt over other creditors regarding tax arrears. The court highlighted that when a secured creditor takes possession of a property under the State Financial Corporations Act, the principle of priority of the state over the property does not apply. Therefore, the attachment by the tax department was deemed invalid due to the prior possession by the corporation.

4. The court concluded that the attachment by the Commercial Tax Department was not valid as the property had been rightfully taken possession of by the corporation earlier. The Sub-registrar was directed to consider the document submitted by the petitioner for registration, disregarding the attachment order. The writ petitions were allowed, and the impugned orders were set aside, with directions for the registration process to proceed within a specified timeframe.