2018 (1) TMI 1532 - HC - VAT and Sales Tax

Recovery of Commercial tax dues - amendment in the Enforcement of Security Interest and Recovery of Debts and Loans and Miscellaneous Provisions Act and the Amendment Act 2016 - HELD THAT - In the considered opinion of this court the Enforcement of Security Interest and Recovery of Debts and Loans and Miscellaneous Provisions (Amendment) Act 2016 came into force with effect from September 1 2016 and by virtue of the said amendment the right of secured creditors to realise the secured dues and debts dues which are payable to the secured creditors by sale of assets over which security has been created is having priority over all other debts and Government dues including revenue taxes cesses and rates due to Central Government State Government and local authorities. Not only this it is having overriding effect over all other enactment including the provisions of Madhya Pradesh VAT Act Central Sales Tax Act Entry Tax Act and any other Tax Act - Though an attempt has been made by the State Government to demonstrate before this court that the amendment will not disentitle to recover the dues by them as the dues are outstanding since 2012. Petition allowed.

Issues:
1. Priority of secured creditors over government dues as per the Enforcement of Security Interest and Recovery of Debts and Loans and Miscellaneous Provisions Act, 2016.
2. Interpretation of section 31B of the Amendment Act, 2016 regarding recovery of dues by secured creditors.
3. Application of section 33 of the Madhya Pradesh VAT Act, 2002 in recovering tax dues.
4. Validity of the sales proclamation issued by the Commercial Tax Officer-cum-Additional Tehsildar.

Issue 1: Priority of secured creditors over government dues
The judgment addresses the priority of secured creditors over government dues as per the Enforcement of Security Interest and Recovery of Debts and Loans and Miscellaneous Provisions Act, 2016. The court highlights that the Amendment Act, 2016, specifically section 31B, establishes that the rights of secured creditors to realize secured debts due to them by the sale of assets take precedence over all other debts and government dues, including revenues, taxes, cesses, and rates due to government authorities. The court emphasizes that the dues of the bank are to be recovered in the first instance based on this provision.

Issue 2: Interpretation of section 31B of the Amendment Act, 2016
The judgment delves into the interpretation of section 31B of the Amendment Act, 2016, which provides secured creditors with priority in recovering debts. The court underscores that the Amendment Act, 2016, which came into force on September 1, 2016, grants secured creditors priority over all other debts and government dues. It notes that the amendment has an overriding effect on other enactments, including the provisions of various tax acts. The court upholds that the right of secured creditors to realize secured dues has precedence over government dues and taxes, as outlined in section 31B.

Issue 3: Application of section 33 of the Madhya Pradesh VAT Act, 2002
Regarding the application of section 33 of the Madhya Pradesh VAT Act, 2002, the court observes that the Act establishes tax as the first charge on the property of a dealer or person, subject to certain conditions. However, the court emphasizes that the Amendment Act, 2016, supersedes such provisions and grants secured creditors priority in recovering debts over government dues and taxes. The court highlights that the State Government cannot auction the property in question as the bank, being a secured creditor, holds priority in recovering dues.

Issue 4: Validity of the sales proclamation
The judgment scrutinizes the validity of the sales proclamation issued by the Commercial Tax Officer-cum-Additional Tehsildar. The court notes that the State Government's attempt to recover dues outstanding since 2012 after the Amendment Act, 2016, came into force does not disentitle the bank from its priority in recovering debts. The court concludes that the State Government cannot auction the property in question, and thus, the writ petition is allowed, quashing the impugned proclamation dated July 19, 2017.

This detailed analysis of the judgment from the Madhya Pradesh High Court elucidates the court's interpretation and application of relevant legal provisions concerning the priority of secured creditors, the impact of the Amendment Act, 2016, and the validity of the sales proclamation issued by the Commercial Tax Officer-cum-Additional Tehsildar.

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