2014 (7) TMI 701 - HC - VAT and Sales Tax

Priority of recovery of tax over other dues - Constitutional validity of Notification S.O. No. 95 dated September 1, 2004 - According to the petitioner, if it is to be held that the statutory first charge created by section 29 of the Bihar Finance Act has to prevail, then there would be a direct conflict between the provisions of section 29(4) of the State Financial Corporation Act, which lays down the priority of appropriation and section 29 of the Bihar Finance Act and by virtue of section 46B of the State Financial Corporation Act, the provisions of the State Financial Corporation Act shall prevail - Held that - The Bihar Reorganisation Act, 2000 provides for the reorganization of the existing State of Jharkhand and the matters connected therewith. The first charge on the property of the dealer or such person for any amount of tax and penalty payable by the dealer or any other person to the State of Jharkhand is not affected by the Bihar Re-organisation Act, 2000 and the State of Jharkhand is entitled to recover its sales tax and penalty since the tax and the penalty shall be the first charge over the property of the dealer and such a person. Only in exercise of its power to recover the tax payable or the penalty, as a first charge on the property of the dealer, the State of Jharkhand issued the impugned notification directing the petitioner Corporation that no industrial unit to be sold without obtaining no objection certificate from the Department of Commercial Taxes, Jharkhand, Ranchi. The first charge created in favour of the State in respect of sales tax dues shall have precedence over an existing mortgage in favour of the Bank. The judicial pronouncement settled the law once for all stating that the State has got priority in the matter of recovery of tax, penalty and debts due and the specific statutory charges created under the said Act (notwithstanding the equitable mortgages created by the defaulters in favour of the banks). The impugned Notification S.O. No. 95 dated September 1, 2004 cannot be said to be arbitrary or illegal, and this writ petition is liable to be dismissed - Following decision of State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling Corporation 1994 (12) TMI 72 - SUPREME Court - Central Bank of India v. State of Kerala 2009 (2) TMI 451 - SUPREME COURT OF INDIA - Decided against the petitioner.

Issues Involved:
1. Validity of the impugned notification issued by the State of Jharkhand.
2. Conflict between the State Financial Corporation Act and the Bihar Finance Act.
3. Priority of appropriation of sale proceeds under section 29(4) of the State Financial Corporation Act.
4. Non obstante clauses in section 46B of the State Financial Corporation Act and section 29 of the Bihar Finance Act.
5. Authority of the State Government to issue the impugned notification under section 29 of the Bihar Finance Act.
6. Impact of the Bihar Reorganization Act on the functioning of the Bihar State Financial Corporation.

Detailed Analysis:

1. Validity of the Impugned Notification:
The Bihar State Financial Corporation challenged the notification S.O. No. 95 dated September 1, 2004, issued by the State of Jharkhand, which mandated obtaining a "no objection certificate" from the Department of Commercial Taxes before the sale of any industrial unit. The petitioner argued that this notification was void and illegal as it altered the priority of appropriation of sale proceeds under section 29(4) of the State Financial Corporation Act.

2. Conflict Between Acts:
The petitioner contended that if the statutory first charge under section 29 of the Bihar Finance Act prevailed, it would conflict with section 29(4) of the State Financial Corporation Act, which prioritizes the Corporation's dues. They argued that section 46B of the State Financial Corporation Act, with its non obstante clause, should prevail over any conflicting provisions in other laws.

3. Priority of Appropriation of Sale Proceeds:
The petitioner emphasized that section 29(4) of the State Financial Corporation Act specifies the order of appropriation of sale proceeds, giving the Corporation priority over other claims. They argued that the impugned notification deprived the Corporation of its legitimate dues and was arbitrary and discriminatory.

4. Non Obstante Clauses:
The court examined the non obstante clauses in section 46B of the State Financial Corporation Act and section 29 of the Bihar Finance Act. The non obstante clause in section 29 of the Bihar Finance Act stipulates that sales tax payable shall be the first charge on the property of the dealer, giving it statutory recognition over other debts.

5. Authority of the State Government:
The respondent argued that under section 29 of the Bihar Finance Act, the State Government had the authority to issue the notification, and section 46B of the State Financial Corporation Act did not restrict this power. The court referred to several Supreme Court judgments, including Central Bank of India v. State of Kerala, which upheld the State's first charge over other debts.

6. Impact of the Bihar Reorganization Act:
The petitioner argued that section 64 of the Bihar Reorganization Act indicated that the Bihar State Financial Corporation should continue to function over the entire area of the erstwhile State of Bihar, and only the Central Government could issue instructions regarding its functioning. However, the court found that the Bihar Reorganization Act did not affect the State's right to recover sales tax and penalty as a first charge on the property of the dealer.

Conclusion:
The court held that the impugned notification issued by the State of Jharkhand was not arbitrary or illegal. The statutory first charge in favor of the State for sales tax dues had precedence over the claims of the Bihar State Financial Corporation. The writ petition was dismissed, and the interlocutory applications were closed.

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