2021 (8) TMI 1125 - HC - VAT and Sales Tax

Initiation of action for recovery of the dues - SARFAESI Act - issue of priority over the charge - HELD THAT - The petitioner in fact claims that they hold priority over the charge as they are secured creditors. The 1st respondent/revenue equally claims the priority over all other charges as it is arrears of tax and State revenue. Further, the 1st 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 1st 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 disposed off.

Summary

Issues Involved:

1. Priority of charge between the petitioner Bank and the Commercial Tax Department.
2. Applicability and interpretation of the SARFAESI Act, TNVAT Act, and Income Tax Act.
3. Jurisdiction and appropriate forum for adjudicating the dispute.

Issue-wise Detailed Analysis:

1. Priority of Charge between the Petitioner Bank and the Commercial Tax Department:

The petitioner Bank, a secured creditor, claimed priority over the property of the second respondent, which was mortgaged to it. The Bank initiated auction proceedings under the SARFAESI Act. However, the Commercial Tax Department contended that it held the first charge over the property under the TNGST Act and demanded that the auction proceeds be deposited with them to settle tax arrears. The Court examined the provisions of the TNVAT Act, specifically Section 42(2), which states that any tax assessed or payable by a dealer has priority over all other claims against the property of the dealer. Section 43 of the TNVAT Act further stipulates that any transfer of assets intended to defraud the revenue is void against tax claims.

2. Applicability and Interpretation of the SARFAESI Act, TNVAT Act, and Income Tax Act:

The Court discussed the conflicting provisions of the SARFAESI Act, TNVAT Act, and Income Tax Act. Section 26E of the SARFAESI Act and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993, both provide priority to secured creditors over all other debts, including government dues. However, Section 281 of the Income Tax Act declares transfers made during the pendency of tax proceedings void. The Court referred to a previous judgment (WP No.15437 of 2014) which elaborated on these conflicting provisions, emphasizing that the priority of government dues, especially tax arrears, is rooted in the necessity for the State to raise revenue to function as a sovereign entity.

3. Jurisdiction and Appropriate Forum for Adjudicating the Dispute:

The Court concluded that the High Court, under Article 226 of the Constitution, is not the appropriate forum to adjudicate the factual disputes regarding the priority of charges. Such disputes require scrutiny of original documents and evidence, which is beyond the purview of the High Court in a writ petition. The Court directed that these issues should be adjudicated by the competent appellate authority under the tax laws. The TNVAT Act provides for appeals to quasi-judicial authorities, who can examine the claims of both the petitioner Bank and the Commercial Tax Department.

Final Orders:

The Court rejected the relief sought in the writ petition and directed the petitioner to approach the appellate authorities under the TNVAT Act. The appellate authorities are instructed to entertain the appeal without considering the delay and to dispose of the appeal on merits, providing an opportunity to all parties involved. The writ petition was disposed of with no costs, and the connected Miscellaneous Petition was closed.