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2019 (7) TMI 1340 - HC - VAT and Sales TaxValidity of proclamation of sale - recovery of arrears of sales tax - auction of property - mandatory first charge on the property of the dealer - HELD THAT - What can be taken to be more than settled is that Section 16(b) of the Act creates a statutory first charge that prevails over any charge that may be in existence. Therefore, the charge thereby created in favour of the State in respect of the sales tax dues of the petitionerSociety prevailed over the charge created in favour of the KCC Bank in respect of the loan taken by the petitioner-Society. Admittedly, instructions are nonstatutory and will have to give way to the statutory provisions as contained in Section 16(b) of the Act. Since respondent No.4 by virtue of Section 16(b) of the Act has a statutory first charge in its favour, which prevails over any charge that may be in existence, therefore, at the first instance is entitled to the sale proceeds realized out of the sale amounting to ₹ 31,25,000/-lying deposited in the registry of this Court and only if further residuary amount is still left undisbursed, only then it would be respondent-KCC Bank, which shall be entitled to such residuary amount. Application disposed off.
Issues Involved:
1. Validity of the proclamation of sale of the petitionerSociety’s properties. 2. Entitlement to the sale proceeds deposited in the court registry. 3. Priority of claims between the State and the secured creditor (KCC Bank). Detailed Analysis: 1. Validity of the Proclamation of Sale: The petitionerSociety had challenged the proclamation of sale dated 16.2.2005 in CWP No. 200/2005, where its properties were put to auction to recover ?17,74,029/- towards arrears of sales tax. The writ petition was dismissed, and the properties were sold. The petitionerSociety did not press further on this writ petition. 2. Entitlement to the Sale Proceeds: The sale proceeds amounting to ?31,25,000/- are lying deposited in the registry of the court. The petitionerSociety filed an application for the release of these proceeds. Respondent No.4 (Collector-cum-Assistant Excise and Taxation Commissioner) and respondent No.5 (KCC Bank) contested this application. Respondent No.4 claimed a total recoverable amount of ?36,62,084/- (including additional demand and interest up to 30.6.2007). Respondent No.5 (KCC Bank) claimed a first charge over the sale proceeds due to the properties being mortgaged with them, with an outstanding interest amount of ?47,43,554/- as of 24.1.1996, along with future interest at 18% per annum. 3. Priority of Claims: Section 16(b) of the Himachal Pradesh General Sales Tax Act, 1968, creates a statutory first charge on the property of the dealer for any amount of tax, penalty, and interest payable. The Constitution Bench of the Supreme Court in Builders Supply Corporation v. Union of India and subsequent cases like State Bank of Bikaner and Jaipur v. National Iron and Steel Rolling Corporation and State of M.P. v. State Bank of Indore affirmed the priority of state dues over other debts, including those of secured creditors. The Supreme Court in Central Bank of India v. State of Kerala further confirmed that the first charge created by state legislations for tax recovery prevails over debts due to secured creditors under the DRT Act and the Securitisation Act. The court also referred to the instructions issued by the Registrar Cooperative Societies, Himachal Pradesh, which provide for priorities of claim in case of sale of properties of Cooperative Societies. However, these instructions are non-statutory and must give way to the statutory provisions of Section 16(b) of the Act. The petitionerSociety’s reliance on the Supreme Court decision in Bombay Stock Exchange vs. V.S. Kandalgaonkar was found to be misplaced. The court clarified that the Supreme Court in Dena Bank’s case held that the State has a preferential right to recover its dues over the rights of the Bank, and this principle was reaffirmed in subsequent cases. Conclusion: The court concluded that respondent No.4 (State) has a statutory first charge over the sale proceeds, which prevails over the charge created in favor of KCC Bank. Therefore, respondent No.4 is entitled to the sale proceeds amounting to ?31,25,000/- deposited in the court registry. Only if there is any residuary amount left after satisfying the State’s claim, KCC Bank would be entitled to such residuary amount. The application was disposed of in these terms, with the parties bearing their own costs.
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