2021 (8) TMI 1077 - HC - VAT and Sales Tax

Validity of Encumbrance certificate - priority over the charge as secured creditors - arrears of tax and State revenue - appeal before the appellate authorities and before the tribunal - HELD THAT - The petitioner in fact claims that they hold priority over the charge as they are secured creditors. The 1 st respondent/revenue equally claims the priority over all other charges as it is arrears of tax and State revenue. Further, the 1 st respondent-Commercial Tax department claims that actions for recovery of arrears of tax was initiated long back and during the pendency of the proceedings under the taxation law, the bank has dealt with the property and therefore, they cannot claim any priority over the property, as far as the tax arrears are concerned. Such disputed fact cannot be adjudicated by the High Court in a writ petition under Article 226 of the Constitution of India. Which are all the proceedings initiated at the first instance and which proceedings has to be construed as an initial proceedings, are the disputed facts which are all to be adjudicated by scrutinising the original documents and evidences made available. An enquiry has to be conducted in this regard. The TNVAT Act contemplates appeals to the authority. The appellate authority under the said Act are exercising the power of the Quasi judicial authorities. Therefore, they have to adjudicate the issue, by affording opportunity to all the parties concerned and take a decision in respect of such claims. As far as the tax laws are concerned, both the assessee and the revenue are preferring appeal before the appellate authorities and before the tribunal. Similarly, the bank being aggrieved from and out of the action initiated by the 1 st respondent, Commercial Tax department, is entitled to file an appeal before the appellate authority for adjudication of complete facts and circumstances. The appellate authorities are the final fact finding authority - Petition dismissed.

Summary

Issues Involved:
1. Priority of charges between the petitioner bank and the Commercial Tax Department.
2. Validity of the encumbrance certificate issued by the Sub-Registrar.
3. Jurisdiction of the High Court under Article 226 of the Constitution of India to adjudicate the disputed facts.

Detailed Analysis:

1. Priority of Charges:
The primary issue revolves around the priority of charges between the petitioner, a scheduled bank, and the Commercial Tax Department. The petitioner bank had advanced a loan to M/s. Arrow Pack Pvt. Ltd., which defaulted, leading to the attachment and auction of the property by the Debts Recovery Tribunal (DRT). However, the Commercial Tax Department claimed a first charge over the property under the TNGST Act and TNVAT Act due to arrears of ?1,44,53,818/-. The court referred to the provisions of the TNVAT Act, which prioritize tax recovery over other claims, similar to the Income Tax Act. The SARFAESI Act and the DRT Act also promise priority to secured creditors, leading to conflicting provisions. The court cited previous judgments to emphasize the doctrine of constitutional priority, which gives precedence to state tax dues over other debts, including those of secured creditors.

2. Validity of the Encumbrance Certificate:
The petitioner sought to quash the encumbrance certificate dated 08.12.2008, which recorded the Commercial Tax Department's charge. The court noted that Section 42(2) of the TNVAT Act gives tax dues priority over other claims against the property of the dealer. Additionally, Section 43 of the TNVAT Act voids any transfer of assets intended to defraud the revenue during pending proceedings. The court highlighted that the TNVAT Act's provisions regarding priority and void transfers were similar to those in the Income Tax Act, reinforcing the priority of tax dues over other claims.

3. Jurisdiction of the High Court:
The court observed that the disputed facts, such as the initiation and priority of proceedings, could not be adjudicated under Article 226 of the Constitution of India. These issues require scrutiny of original documents and evidence, necessitating an enquiry. The court directed that such disputes should be adjudicated before the competent appellate authority under the tax laws. The appellate authorities, being quasi-judicial bodies, are empowered to resolve these disputes by affording opportunities to all parties and considering the principles laid down in relevant judgments.

Conclusion:
The court rejected the relief sought in the writ petition, directing the petitioner to approach the appellate authorities under the TNVAT Act for adjudication. The appellate authorities are instructed to entertain the appeal without reference to any delay and dispose of it on merits, ensuring an opportunity for all parties to present their case. The writ petition was disposed of with no costs, and the connected miscellaneous petitions were closed.