9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (4) TMI 687 - HC - Service TaxAdjustment of Income tax Refund - Recovery of outstanding secured debts - recovery of service tax - priority of claims - creation of such on the assets - invocation of Section 87 of the Finance Act,1994 - HELD THAT - The 6th respondent owed amounts to the petitioner for loans borrowed by it, Service Tax dues to respondents 1-3 and Provident Fund dues to the 5th respondent. The 6th respondent supports the claim of respondents 1-3. Section 31-B and Section 26-E of the Recovery of Debts and Bankruptcy Act,1993 give priority to claims of secured creditors like the petitioner Bank over the dues of the State such as Service Tax dues/ Income Tax dues and the non-obstante clause therein overrides the provisions of the Finance Act,1994. However, Sec.31-B of the Recovery of Debts and Bankruptcy Act, 1993 and Sec.26E of the SARFAESI Act,2002 were introduced in the respective statutes only on 1.9.2016 by Act 44 of 2016 - thus, after introduction of Sec.31-B of the Recovery of Debts and Bankruptcy Act, 1993 and Sec.26-E of the SARFAESI Act,2002 w.e.f. 1.9.2016, the claim of the petitioner Bank would prevail over that of the respondents 1-3. Having regard to the clear language contained in Sec.31-B of the Recovery of Debts and Bankruptcy Act, 1993 giving priority to rights of secured creditors (to realise secured debts due and payable to them by sale of assets over which security interest is created) over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority, the law has undergone a sea change; and in view of Sec.31-B of the Recovery of Debts and Bankruptcy Act, 1993 and sec.26E of the SARFAESI Act,2002 w.e.f.1.9.2016 the claims of secured creditors such as the petitioner Bank have priority over the claims of the respondents 1-3 for service tax dues. The claim of the respondents 1-3 that they are entitled to the Income Tax refund amount credited to the 6th respondent s Bank account with the petitioner Bank and that the petitioner cannot claim it, is rejected - the impugned notice under Sec.87 of the Finance Act,1994 issued by the 3rd respondent cannot be sustained in law. Whether the 5th respondent s claim prevails over the claim of the petitioner? - HELD THAT - While subsection (2) of Sec.11 of the said enactment contains a nonobstante clause creating a first charge to claims for Provident Fund dues over all other debts, we have already seen that there is also a non obstante clause in Sec.31-B of the Recovery of Debts and Bankruptcy Act, 1993 and Sec.26-E of the SARFAESI Act, 2002 - The former statute is one of 1952 while the other two were enacted in 1993 and 2002 respectively. It is settled law that if there is conflict between two special Acts and both contain non obstante clauses, the said clause in the later Act will prevail. Even the 5th respondent s claim for the Income Tax refund amount credited to the 6th respondent s Bank account with the petitioner Bank cannot prevail over petitioner s claim for the same by way of adjustment to it s dues - the petitioner Bank is entitled to appropriate the sum of ₹ 35,75,95,400/- deposited towards Income Tax refund by the 4th respondent in the Bank account of the 6th respondent with the petitioner s branch at CCG Branch at Hyderabad towards dues owed to petitioner by the 6th respondent - Petition allowed.
Issues Involved:
1. Validity of the notice issued under Sec.87 of the Finance Act, 1994. 2. Priority of claims between the petitioner Bank and respondents 1-3 (Service Tax dues). 3. Priority of claims between the petitioner Bank and the 5th respondent (Provident Fund dues). Issue-wise Detailed Analysis: 1. Validity of the Notice Issued Under Sec.87 of the Finance Act, 1994: The petitioner, State Bank of India, challenged the notice issued by the Deputy Director, Directorate General of GST Intelligence, Hyderabad Zonal Unit under Sec.87 of the Finance Act, 1994. The notice demanded the petitioner Bank to pay the Income Tax refund amount of ?35,75,95,400/- credited to the account of the 6th respondent towards Service Tax dues of ?59,20,19,079/-. The petitioner contended that this notice was contrary to the Recovery of Debts and Bankruptcy Act, 1993 and the SARFAESI Act, 2002, which grant priority to secured creditors over government dues. 2. Priority of Claims Between the Petitioner Bank and Respondents 1-3 (Service Tax Dues): The court examined the interplay between Sec.87(b)(i) and Sec.88 of the Finance Act, 1994, and the provisions of the Recovery of Debts and Bankruptcy Act, 1993, and the SARFAESI Act, 2002. Sec.87(b)(i) allows the Central Excise Officer to demand payment from any person holding money for the debtor, while Sec.88 states that tax dues have priority over other debts except those covered by the Recovery of Debts and Bankruptcy Act, 1993, and the SARFAESI Act, 2002. Sec.31-B of the Recovery of Debts and Bankruptcy Act, 1993, and Sec.26-E of the SARFAESI Act, 2002, both inserted by Act 44 of 2016, give priority to secured creditors over government dues. The court noted that these provisions override the Finance Act, 1994, due to their non-obstante clauses. The court referred to the Supreme Court's decision in Central Bank of India v. State of Kerala, which was based on the absence of such provisions at the time. However, with the introduction of Sec.31-B and Sec.26-E, the claims of secured creditors like the petitioner Bank now prevail over government dues. 3. Priority of Claims Between the Petitioner Bank and the 5th Respondent (Provident Fund Dues): The 5th respondent's claim was based on Sec.11 of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, which gives priority to Provident Fund dues over other debts. However, the court noted that both Sec.31-B of the Recovery of Debts and Bankruptcy Act, 1993, and Sec.26-E of the SARFAESI Act, 2002, also contain non-obstante clauses. The court referred to the Supreme Court's decision in Solidaire India Ltd. v. Fairgrowth Financial Services Ltd., which held that in conflicts between two special Acts with non-obstante clauses, the later Act prevails. Since the Recovery of Debts and Bankruptcy Act, 1993, and the SARFAESI Act, 2002, are later enactments, their provisions prevail over the Provident Fund Act. Conclusion: The court concluded that the petitioner Bank's claim to the Income Tax refund amount of ?35,75,95,400/- has priority over the claims of respondents 1-3 for Service Tax dues and the 5th respondent for Provident Fund dues. The impugned notice issued under Sec.87 of the Finance Act, 1994, was set aside, and the petitioner Bank was entitled to appropriate the Income Tax refund amount towards its dues from the 6th respondent. The writ petition was allowed, and the interim orders were vacated.
|
