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2014 (6) TMI 688 - HC - VAT and Sales TaxCharge on property - Crown debt - Priority of recovery of dues of Central Sales Tax (CST) - dispute towards liability towards the component of Central sales tax imposed under the CST Act on account of absence of any provision of such priority being specifically stipulated in the CST Act - Held that - not only the proceeds of the tax are meant for the benefit of the State, the actual recovery also takes place by the State. It is in view thereof that section 9(1) of the CST Act provides that even tax payable under the CST Act though levied by the Government of India would be collected by the State Government in accordance with provisions of section 9(2) of the State Act from which the movement of goods commences. - for all ends and purposes, the mode of assessment, reassessment, collection and enforcement of payment of tax mechanism provided under the State Sales Tax Act would equally apply to the Central sales tax to be collected under the CST Act. Principle of priority of crown debt is incorporated in almost all the State Sales Tax Acts. We had, in fact, put a specific query to learned counsel for the petitioner as to whether he was aware of any State Sales Tax Act where such priory provision was not incorporated, but the learned counsel was not able to give any such example of a State Act nor is such an example incorporated even in the subsequent written synopsis filed by the petitioner. Charge stands created if meaning is to be given to the words collection and enforcement found in various provisions, more specifically section 9(1) and 9(3) of the CST Act read with the relevant provisions of section 9(2) of the CST Act, coupled with the right of appropriation conferred in the States though the tax may be collected by the Central Government. Thus, the priority given under section 50 of the RST Act to the recovery of local sales tax will apply with equal force to the recovery of Central sales tax qua inter-State trade or commerce. - Decided against assessee.
Issues Involved
1. Whether the deeming provisions of Section 9(2) of the Central Sales Tax Act, 1956 (CST Act) create a first charge on the property of the dealer. 2. The priority of claim for tax dues under the CST Act versus secured creditors' claims. 3. Interpretation of Section 50 of the Rajasthan Sales Tax Act, 1994 (RST Act) in conjunction with Section 9(2) of the CST Act. Detailed Analysis Issue 1: First Charge on Property Under Section 9(2) of the CST Act The petitioner, a financial institution, argued that Section 9(2) of the CST Act does not create a first charge on the property of the dealer for tax dues under the CST Act, unlike Section 50 of the RST Act, which explicitly provides for such a charge. The court examined the provisions of Section 9(2) of the CST Act, which states that the authorities empowered to assess and collect tax under the general sales tax law of the State shall do so on behalf of the Government of India as if the tax payable under the CST Act is a tax payable under the State's general sales tax law. Issue 2: Priority of Claim for Tax Dues Under the CST Act The petitioner contended that in the absence of a specific provision in the CST Act creating a priority of claim, the secured creditors' claims should prevail. The court noted that the CST Act does not contain a provision akin to Section 50 of the RST Act, which creates a first charge on the property of the dealer for tax dues. The petitioner argued that Section 9(2) of the CST Act merely deals with the levy and collection of tax and cannot be read to create a priority of claim. Issue 3: Interpretation of Section 50 of the RST Act with Section 9(2) of the CST Act The court analyzed the harmonious construction of the RST Act and the CST Act, emphasizing that the CST Act stipulates that tax payable under it should be treated as if it were payable under the State's general sales tax law. The court concluded that no distinction could be made between the State sales tax legislation and the CST Act regarding the recovery of tax. The court observed that the object and scheme of the CST Act, coupled with the language employed, indicate that the provisions of the State sales tax law, including the priority of claim, apply to the recovery of CST dues. Court's Conclusion The court held that the constitutional scheme under Articles 269 and 286 of the Constitution of India, along with the provisions of the CST Act, indicates that the proceeds of the CST are meant for the benefit of the State. Section 9(2) of the CST Act provides that the assessment, reassessment, collection, and enforcement of tax under the CST Act shall be as if the tax were payable under the State's general sales tax law. Therefore, the priority of claim for the recovery of tax dues under Section 50 of the RST Act applies equally to the CST Act. The court dismissed the writ petition, affirming that the priority given under Section 50 of the RST Act to the recovery of local sales tax also applies to the recovery of CST dues, thereby giving precedence to the State's claim over that of secured creditors. The court emphasized that the legislative intent and the constitutional provisions support this interpretation, ensuring a uniform approach to the recovery of tax dues across different States. Judgment The writ petition was dismissed, and the court upheld the priority of the State's claim for tax dues under the CST Act, applying the provisions of Section 50 of the RST Act to the recovery of CST dues. The parties were directed to bear their own costs.
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