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TMI Blog2013 (11) TMI 511X X X X Extracts X X X X X X X X Extracts X X X X ..... r revenue recovery was preceded by issuance of assessment orders under Section 17(3) of the Kerala General Sales Tax Act, 1963 (for short, the 'KGST Act'). In W.A. No.1262/2012 the property is having an extent of 8.86 ares with a building and improvements in Sy. Nos.67/16, 67/16-1, 67/20 and 67/21 in Block No.33 of Konni Village. Revenuerecovery proceedings were initiated for recovery of arrears of sales tax due from respondents 4 and 5 for the period viz. 2003-2004 and 2004-2005. In W.A.No.1263/2012 the property is having 7.89 ares in extent with a building and improvements in Sy. No.1207/73 in Block No.33 of Konni Village. Therein also the arrears of sales tax allegedly due from respondents 4 and 5 for the period 2003-2004 and 2004-2005 were sought to be recovered. 3. In both these cases the appellants contend that the respective items of properties were sold by the sixth respondent Bank and sale certificates have been issued in favour of the appellants under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the 'SARFAESI Act') without notice of the dues if any of respondents 4 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Act, contended that no charge shall be enforced against the purchaser for value and without notice of the charge. 8. The learned Single Judge dismissed the writ petitions by holding that for the applicability of Section 26A of the KGST Act, assessment need not be completed and reliance is placed on a judgment of a Division Bench of this Court in Hamsa v. Assistant Commissioner (2008 (3) KLT 180). It was held that tax is due from the mortgagors for the years 2003-2004 and 2004-2005 and charge was created at a time when the proceedings under the KGST Act were pending against them. 9. The next contention that Section 26A of the KGST Act will not apply to cases where involuntary transfers take place, was rejected in the light of the judgment of this Court in Lucy Vincent v. District collector (2008 (4) KLT 876) and Shini Linson v. Tahsildar (2010 (4) KLT SN 90 Case No.104). 10. The further contention regarding Section 100 of the Transfer of Property Act was also rejected by the learned Single Judge, by relying upon a Division Bench decision of this Court in Sherry Jacob v. Canara Bank (2004 (3) KLT1089). 11. We heard learned Senior Counsel for the appellants, Shri P.B. Suresh K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bby John Pulikkaparambil, learned Government Pleader submitted that going by the provisions of the KGST Act and the relevant rules, the assessee's liability arises on a monthly basis, viz. after collection of tax he is under an obligation to file monthly returns. On collection of the tax the payment alone is outstanding and therefore the incidence of tax is already there. Apart from the same, going by Section 23(3) of the KGST Act, there is a liability for payment of interest also, if the tax or any other amount assessed or due under the Act is not paid by a dealer or other person within the time prescribed therefor. The last date for filing the monthly return is the date from which it becomes payable. Therefore, the first charge is created from the date of payability of tax as well as the date from which interest is payable. In fact, learned Government Pleader submitted that creation of charge or parting of possession are quite different. By referring to the provisions under Sections 26A and 26B of the Act, it is submitted that the transfers will be void going by Section 26A as against the claim in respect of the tax or any other sum payable by the assessee under the Act which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount demanded under this Act shall be paid in such manner and in such instalments, if any, and within such time, as may be specified in the notice of demand, not being less than twenty one days from the date of service of the notice. If default is in paying according to the notice of demand, the whole of the amount outstanding on the date of the default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or other amount under this Act: Provided that the time limit of twenty-one days for a notice under this sub-section shall not apply to casual traders. (2) Any tax assessed or any other amount due under this Act from a dealer or other person may, without prejudice to any other mode of recovery, be recovered, (a) As if it were an arrear of land revenue: (b) on application to any Magistrate, by such Magistrate, as if it were a fine imposed by him: Provided that no proceedings for such recovery shall be taken or continued as long as such dealer or other person has, in regard to the payment of such tax or other amount, as the case may be, complied with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondents 4 and 5 had availed credit facilities from the 6th respondent Bank on 28/09/2004 and 29/09/2004 respectively. 19. Along with I.A.No.10/2013 in W.A.No.1262/2012 the appellants have produced the copies of assessment orders. Annexures 1 and 2 are the copies of the same in respect of the years 2003-2004 and 2004-2005 dated 1.12.2008 issued to the fourth respondent. Annexure 3 is the copy of the assessment order dated 1.12.2008 issued against the fifth respondent. 20. The legal questions raised therefore will have to be considered in the light of the above factual setting. First we will consider the principles stated in various decisions relied upon by the learned Senior Counsel for the appellants. 21. In Ghanshyamdas's case (AIR 1964 SC 766) the question posed is: When do the proceedings under the Central Provinces and Berar Sales Tax Act in respect of a registered dealer commence and when do they terminate? The argument raised by the learned counsel for the appellant was that the said proceedings only starts after the appropriate authority issued notice under Section 10(1) of the Act, whereas learned counsel for the official respondents contended that in the case of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and held immediately from the Government, upon the interest in such building or land of the person liable for such taxes and upon the moveable property if any, found within or upon such building or land and belonging to such person; and, in the case of any other building or land, upon the said building or land and upon the moveable property, if any, found within or upon such building or land and belonging to the person liable for such taxes. Explanation. - The term "Property taxes" in this section shall be deemed to include charges payable under Section 134 for water supplied to any preemies and the costs of recovery of property-taxes as specified in the rules. (2) In any decree passed in a suit for the enforcement of the charge created by sub-section (1), the Court may order the payment to the Corporation of interest on the sum found to be due at such rate as the Court deems reasonable from the date of the institution of the suit until realisation, and such interest and the cost of enforcing the said charge, including the costs of the suit and the cost of bringing the premises or moveable property in question to sale under the decree, shall, subject as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The relevant provision, viz. Section 13(2)(i) of the KST Act creates a charge. The said provision reads as follows: "13(2)(i): If a default is made in making payment of sales tax, then: The whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or any other amount due under this Act." With regard to the question under Section 100 of the Transfer of Property Act, it was held as follows in paragraphs 20 and 22: "20. As the section itself unambiguously indicates, a charge may not be enforced against a transferee if she has/had no notice of the same, unless by law, the requirement of such notice has been waived. This position has long been accepted by this Court in Dattatreya Shanker Mote v. Anand Chintaman Datar, - (1974) 2 SCC 799 and in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai - (1971) 1 SCC 757 (hereinafter "Ahmedabad Municipal Corporation")." 22. In the present case, firstly, no provision of law has been cited before us that exempts the requirement of notice o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g than an ordinary unsecured creditor who is required to stand in queue with all others similarly situated for the purpose of realisation of their dues from the sale proceeds. It was further noticed that Section 141 of the Bombay Provincial Municipal Corporations Act provides the property taxes to be a first charge on the premise for which they are assessed. After considering Section 100 of the Transfer of Property Act, it was held in para 18 that "there cannot thus be any doubt or dispute that a provision of law must expressly provide for an enforcement of a charge against the property in the hands of the transferee for value without notice to the charge and not merely create a charge." Reliance was placed on the judgment in Ahmedabad Municipal Corporation's case {(1971) 1 SCC 757}. 27. Therefore, the next question is: How far Section 26B of the KGST Act could be invoked by the State Government herein? According to the learned Senior Counsel for the appellants, in the absence of a saving clause providing for enforcement of a charge, it cannot be invoked. The contention raised is that Section 26B only creates a charge and there is no other provision under the Act for enforceme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch cases as against "any claim in respect of any tax or any other sum payable by the assesee" under the K.G.S.T.Act." It was held that the transferee is not entitled to put forward any defence that the transfer was made for valid consideration or that he is a bonafide purchaser for value and that once the ingredients of Section 26A are attracted, the transfer made by the assessee would be void. Exts.R1(a) to (k) produced along with the counter affidavit filed in W.A.No.1262/2012 are the copies of monthly returns for the year 2004-05 except March 2005 filed by the fourth respondent. Annexure-I Assessment Order against the fourth respondent for the year 2003-04 will show that he filed annual returns for the year 2003-04. These will satisfy the requirements of Section 26A. 31. Therefore, the pendency of the proceedings alone will attract the provisions under Section 26A of the Act. The same position has been reiterated by a learned Single Judge of this Court in Shini Linson v. Tahsildar (2010 (4) KLTSN 90 (C. No.104), by relying upon Hamsa's case (2008 (3) KLT 180) and Lucy Vincent's case (2008 (4) KLT876). 32. The decision of a Division Bench of this Court in Jaya v. State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly giving priority to the statutory charge over all other charges on the property including a mortgage". The contention that the statutory first charge created by Section 11-AAAA of the Rajasthan Sales Tax Act can operate only over the equity of redemption was not accepted. 36. Importantly, in para 11 of the judgment the effect of the first charge was also considered and it was held that charge will have precedence over an existing mortgage. Reliance was placed on the decision of the Apex Court in Dattatreya Shanker Mote v. Anand Chintaman Datar {(1974) 2 SCC 799}. We extract paragraphs 10 and 11 of the judgment in State Bank of Bikaner & Jaipur's case {(1995) 2 SCC 19} which read as follows: "10. 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 11-AAAA 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doctrine about priority of crown debts which was recongnised by the Indian High Courts prior to 1950 constitutes "law in force" within the meaning of Article 372 (1) and continues to be in force. 3. The basic justification for the claim for priority of State debts is the rule of necessity and the wisdom of conceding to the State the right to claim priority in respect of its tax dues. 4. The doctrine may not apply in respect of debts due to the State if they are contracted by citizens in relation to commercial activities which may be undertaken by the State for achieving socio-economic good. In other words, where welfare State enters into commercial fields which cannot be regarded as an essential and integral part of the basic government functions of the State and seeks to recover debts from debtors arising out of such commercial activities the applicability of the doctrine of priority shall be open for consideration." It was held in para 10 that the Crown's preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. Thereafter, Sections 158 and 190 of the Karnataka Land Revenue Act, 1964 as well as Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The facts of the case show that the company, viz. M/s. Thomas Stephen & Company, Kollam availed various loans from Canara Bank at Thamarakkulam and as security for repayment of the debt, in addition to creating mortgage by deposit of title deeds of certain items of immovable property, the company had furnished sufficient security as a continuing collateral security. The Bank instituted a suit for recovery of money when payment was defaulted. Later, the suit was transferred to the Debt Recovery Tribunal, Ernakulam. The Tribunal allowed the application and the Recovery Officer of the Tribunal issued a sale proclamation for sale of two items of the mortgaged properties in execution of the decree. It was bid in auction by one Shri Ahammed Koya and the certificate of sale and an order of confirmation followed. But long prior to the sale, the Tahsildar (Revenue Recovery) had issued a notice on 18.7.2000 for attaching the property belonging to the company for default in payment of sales tax arrears for the assessment years 1974-75 to 1997-98. It was followed by a notice of sale of the property under Section 49(2) of the Revenue Recovery Act. The Bank approached this Court by filing an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statutory first charge will prevail over any charge or right created in favour of a mortgagee/secured creditor and the statutory first charge gets precedence over an existing mortgage right. On the facts of the case, it was held in para 26 as follows: "26. In view of the above legal position, it has to be held that the right, if any, of the Recovery Officer to conduct sale of the mortgaged property in question was only subject to the statutory first charge available in favour of the State to recover the sales tax arrears from the Company. The admitted position is that the revenue authorities had effected attachment of the property even prior to the sale conducted by the Recovery Officer. Though a sale notice was published by the Revenue Officers, the sale did not take place. This sale notice was also long prior to the sale conducted by the Recovery Officer. Thus in any view of the matter, the sale conducted by the Recovery Officer without notice to the Revenue is liable to be set aside." For the purpose of this case, the finding in para 22 of the judgment quoted above will be crucial. 43. The above judgment was considered in a similar context in South Indian Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) 2 SCC 799), Dena Bank v. Bhikhabhai Prabhudas Prakash Co. (2000) 5 SCC 694) and various other decisions. We may refer to the latest decision of the Apex Court in State of M.P. v. State Bank of Indore, (2002) 10 SCC 441) wherein the court examined the charge created under S.33C of the M.P.General Sales Tax Act, 1958 and held that S.33C creates a statutory first charge that prevails over any charge that may be in existence. The Court held that the charge thereby created in favour of the State in respect of the sales tax dues of the second respondent prevailed over the charge created in favour of the Bank. Judicial pronouncements settled the law once for all stating that State has got priority in the matter of recovery of debts due and the specific statutory charge created under the Sales Tax Act notwithstanding the equitable mortgages created by the defaulters in favour of the Banks prior to the liability in favour of the State. A Division Bench of this Court in Sherry Jacob v. Canara Bank, (2004 (3) KLT 1089) held that revenue recovery authorities shall have the liberty to proceed against the property of the company under the Revenue Recovery Act on the strength of the first char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Act. The question was whether they are inconsistent with the relevant provisions contained in Recovery of Debts due to Banks and Financial Institutions Act (DRT Act) and SARFAESI Act. The facts of the case stated in para 4 of the judgment will show that in the case which arose from this Court under KGST Act, the bank obtained a decree from the Debt Recovery Tribunal and the Tahsildar claimed the benefit under Section 26B of the KGST Act. The notice issued by the Tahsildar was challenged by the Bank. While considering the non obstante clauses in Section 34(1) of the DRT Act and Section 35 of the SARFAESI Act and its effect, the Apex Court has held in para 33 hereunder: "33. The non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act give overriding effect to the provisions of those Acts only if there is anything inconsistent contained in any other law or instrument having effect by virtue of any other law. In other words, if there is no provision in the other enactments which are inconsistent with the DRT Act or Securitisation Act, the provisions contained in those Acts cannot override other legislations. Section 38C of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that banks, etc. fall in the category of secured creditors." (emphasis supplied by us) 46. With regard to the question of primacy of Section 26B of the KGST Act over the Bank's dues, the Apex Court in para 61, while considering C.A.No.3973/2006 affirmed the judgment of the Division Bench of this Court in South Indian Bank Ltd's case (2006 (1) KLT 65) in the following words: "In our opinion, the High Court has rightly held that the first charge created by Section 26B of the Kerala Act will have primacy over the banks' dues." In para 63, while considering C.A.No.4909/2006, the dismissal of the writ petition by this Court after relying upon the decision of the Apex Court in Dena Bank's case {(2000) 5 SCC 694} and that of this Court in Sherry Jacob's case [2004 (3) KLT 1089], has been upheld by the Apex Court and it was held that "in our opinion, the High Court rightly held that the Tahsildar was entitled to give effect to the primacy of statutory first charge created on the property of the dealer under Section 26B of the Kerala Act." 47. We will sum up the legal position now. The argument that involuntary transfers are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06 (1) KLT 65) which has been affirmed by the Apex Court in Central Bank of India's case (supra). The sale conducted by the Bank was without notice to the State and the assessee did not disclose the liability towards sales tax also. 48. Therefore, we are of the view that the absence of a provision for enforcing a charge in the KGST Act will not whittle down the effect of Section 26B of the Act. This is especially since by virtue of the operation of law the State will have prior charge over the properties in question which will prevail over all rights created by the Bank. 49. Learned Senior Counsel Shri Suresh Kumar argued that as far as the sale of the property of the fourth respondent for arrears for the year 2003-2004 is concerned, the same will have to be saved, as the notice of assessment is dated 17.11.2008. In the light of the principles stated in South Indian Bank Ltd's case (supra), as we have already held, the sale conducted by the Bank will not have precedence over the first charge created in favour of the State under Section 26B of the KGST Act. In that case the decree itself was passed on 30.1.1995 whereas Section 26B was introduced on 1.4.1999. 50. We notice ..... X X X X Extracts X X X X X X X X Extracts X X X X
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