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2015 (6) TMI 81 - HC - VAT and Sales TaxAttachment of property - Preferential creditor - Held that - In the case of Punjab National Bank Vs. The State of Haryana & others 2009 (10) TMI 886 - PUNJAB & HARYANA HIGH COURT , income dues were not given any statutory preference - The statutory preference has been given to the tax arrears under the VAT Act. In view of the Supreme Court judgment in Central Bank of India s case (2009 (2) TMI 451 - SUPREME COURT OF INDIA), we find that the claim of the petitioner that it had preference over the tax dues of the borrower of the petitioner, does not merit any acceptance in view of the provisions of Section 35 of the VAT Act. Thus, we do not find any merit in the present writ petition - Decided against assessee.
Issues:
1. Challenge to communication dated 23.05.2014 regarding possession of borrower's assets. 2. Preferential creditor status of respondent No.1 under the Punjab Value Added Tax Act, 2005. Issue 1: The petitioner, a public sector Bank, initiated proceedings under the Securitization and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 after the loan to respondent No.2 was declared a non-performing asset. The physical possession of the property was taken by the petitioner-Bank in August 2014. However, the property could not be auctioned due to a letter received by the petitioner-Bank regarding attachment of the property for recovery of dues under the Punjab Value Added Tax Act, 2005. The petitioner contended that respondent No.1 is a preferential creditor, and thus, the property could not be attached under the VAT Act. Issue 2: Respondent No.1, representing the State, argued that respondent No.2 owed a substantial amount under the VAT Act. Reference was made to the Hon'ble Supreme Court judgment in Central Bank of India Vs. State of Kerala & others, which treated State dues as preferential creditors. Section 35 of the VAT Act establishes a first charge on the property for the payment of tax, penalty, interest, and other sums payable. The petitioner relied on a Division Bench judgment to argue that sales tax arrears under the Haryana General Sales Tax Act, 1973 were not priority debts. However, respondent No.1 cited judgments to assert that State debts under a statute would have preference. The Court analyzed the contentions and judgments presented by both parties. It was noted that the judgment in Punjab National Bank's case dealt with sales tax arrears under the Haryana General Sales Tax Act, where no provision gave preference to tax arrears as priority dues. On the other hand, Central Bank of India's case highlighted the creation of a first charge over property for unpaid tax arrears. The Court emphasized that the VAT Act provided statutory preference to tax arrears, unlike the situation in other cases. Referring to legal precedents, the Court concluded that the petitioner's claim of preference over the tax dues did not hold merit in light of Section 35 of the VAT Act. Consequently, the Court dismissed the writ petition, finding no merit in the petitioner's arguments.
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