1994 (12) TMI 72 - SC - VAT and Sales Tax

Whether the statutory first charge which is created under section 11AAAA of the Rajasthan Sales Tax Act over the property of the dealer or a person liable to pay sales tax and/or other dues under the Rajasthan Sales Tax Act, is created in respect of the entire interest in the property or only the mortgagor s interest in the property when the dealer has created a mortgage on the property? Held that - In the present case, the section creates a first charge on the property, thus clearly giving priority to the statutory charge over all other charges on the property including a mortgage. The submission, therefore, that the statutory first charge created by section 11AAAA of the Rajasthan Sales Tax Act can operate only over the equity of redemption, cannot be accepted. The charge operates on the entire property of the dealer including the interest of the mortgagee therein. We, therefore, agree with the conclusion arrived at by the High Court. The appeal is, therefore, dismissed

Summary

Issues:
Priority of statutory first charge under section 11AAAA of the Rajasthan Sales Tax Act over an existing mortgage on the property of a dealer or person liable to pay sales tax.

Analysis:
The case involved the State Bank of Bikaner and Jaipur providing cash credit facilities to a corporation with partners who pledged their factory premises and machinery as security. The bank filed a suit for recovery, and the Commercial Taxes Officer claimed priority for sales tax dues under section 11AAAA of the Rajasthan Sales Tax Act, introduced in 1989. The main issue was whether the statutory first charge created by section 11AAAA would take precedence over the existing mortgage in favor of the bank.

The court examined the Transfer of Property Act, which distinguishes between a mortgage and a charge. It noted that a charge is a wider term encompassing a mortgage. The court considered whether the statutory first charge under section 11AAAA would apply to the entire property or only to the mortgagor's interest. It was argued that the charge would only operate on the equity of redemption, but the court rejected this argument. Referring to legal authorities, the court emphasized that a statutory charge would have priority over an existing mortgage, as seen in cases involving statutory charges on properties.

The court concluded that the statutory first charge under section 11AAAA of the Rajasthan Sales Tax Act would operate on the entire property of the dealer, including the interest of the mortgagee. It clarified that a first charge created by law would take precedence over an existing mortgage. The court dismissed the appeal, agreeing with the High Court's decision, with no order as to costs.

In summary, the judgment determined that the statutory first charge under section 11AAAA of the Rajasthan Sales Tax Act would have priority over an existing mortgage on the property of a dealer or person liable to pay sales tax. The court clarified that the statutory charge would apply to the entire property, including the interest of the mortgagee, and would take precedence over any prior mortgage.