2009 (10) TMI 886 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of attachment order dated 4.6.2008.
2. Priority of secured creditor's charge over state dues.
3. Applicability of Section 26 and Section 61 of the Haryana Value Added Tax Act, 2003.

Summary:

1. Validity of Attachment Order:
The petitioner-Bank sought quashing of the attachment order dated 4.6.2008 issued by the Collector-cum-Deputy Excise and Taxation Commissioner, Kaithal, for recovering sales tax arrears u/s Haryana General Sales Tax Act, 1973, or Central Sales Tax Act, 1956, against M/s Jiwan Rice and General Mill and M/s Jiwan Rice International (P) Ltd., Kaithal. The petitioner-Bank, claiming to be a secured creditor, also sought to restrain the sale of the mortgaged property.

2. Priority of Secured Creditor's Charge:
The petitioner-Bank argued that there was no provision in the HGST Act granting priority to state dues over the mortgaged debt of the property. The Bank cited the Supreme Court judgment in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., asserting that the Crown's preferential right to recover debts is confined to ordinary or unsecured creditors and does not extend over a secured creditor like the petitioner-Bank. The Court upheld this view, stating that the rights of a secured creditor cannot be overridden by state dues in the absence of a specific statutory provision.

3. Applicability of Section 26 and Section 61 of the VAT Act:
The respondents argued that u/s 26 of the VAT Act, unpaid tax constitutes the first charge on the defaulter's property. However, the Court noted that the VAT Act repealed the HGST Act, and there was no corresponding provision in the HGST Act creating such a charge. Section 61 of the VAT Act, which is a saving clause, could not create new rights but only preserved existing ones. The Court concluded that the VAT Act's provisions could not be retroactively applied to create a charge on the property for dues under the HGST Act.

Conclusion:
The petition was allowed, quashing the attachment order dated 4.6.2008 and the subsequent sale notice and auction. The Court held that the petitioner-Bank, as a secured creditor, had a superior charge over the mortgaged property compared to the state's claim for sales tax arrears. Respondents were restrained from selling the mortgaged property.