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TMI Blog2007 (9) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... egent Rubber. The petitioner had purchased the property to set up an industry which has been delayed for no fault on his part. W.P. allowed. Order rejecting petitioner's application for not mutating the entry in their name is quashed and set aside. - C.W.P. No. 306 of 2007 - - - Dated:- 7-9-2007 - GUPTA V.K. C.J. AND SANJAY KAROL , JJ. The judgment of the court was delivered by SANJAY KAROL J. The petitioners are auction purchasers and have assailed the order dated December 22, 2006 whereby their application for getting the auctioned property mutated in their name in the Revenue record has been rejected and an entry of demand of arrears of sales tax dues of erstwhile owners has been entered into the Revenue record. The petitioner is a private limited company. Respondent No. 1 is the State of Himachal Pradesh, respondent No. 2 is the Deputy Commissioner, Sirmaur District at Nahan, respondent No. 3 is the Tehsildar, Nahan, respondent No. 4 is the Secretary (Excise and Taxation), Government of Himachal Pradesh, respondent No. 5 is the Excise and Taxation Officer, Nahan and respondent No. 6 is State Bank of Patiala (hereinafter referred to as, the bank ). Brief fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r at Nahan, the Assistant Collector (Tehsildar)-respondent No. 3, Land Revenue Department, District Sirmaur at Nahan, about the sale of the property to the petitioner to the following effect: In accordance with the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Second) Ordinance, 2002 (No. sic) and in the exercise of powers conferred under section 13 read with rule 9 of the Security Interest (Enforcement) Rules the abovementioned property was subsequently (1)Here Italicised. sold by bank through tendering process to A.J. Infrastructure Pvt. Ltd., on receipt bank and final payment from them vide sale certificate ARB/879 dated July 21, 2005. The property mentioned above was sold free from all the encumbrances. (emphasis(1) supplied) Vide letter dated March 7, 2006, the petitioner also requested respondent No. 3, to transfer the property in its name to enable them to establish their industrial unit. That due to the statutory bar, in spite of the sale certificate the sale deed could not be executed and registered and therefore, in accordance with provisions of section 118 of the H.P. Tenancy and Land Reforms Act, 1972 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utate the property in its name was rejected. In the return filed by respondent Nos. 1 to 3 the aforesaid factual position is admitted, however, it is clarified that no action as requested by respondent No. 5 in terms of its letters dated July 8, 2004 and May 18, 2006 was taken and, therefore, disciplinary action against the erring officials has been initiated. Importantly, it is admitted that registration of the sale deed was executed and registered in due compliance of the codal formalities. The impugned action is justified as a legitimate exercise of their powers under the provisions of section 35(5) of the H.P. Land Revenue Act (hereinafter referred to, the Revenue Act ). According to respondent Nos. 4 and 5, the borrower-company is a registered assessee under the provisions of the Tax Act. Assessment proceedings, after issuance of notice dated December 24, 2004, were finalised when ex parte assessment order dated January 18, 2005 was passed in relation to the assessment years 1998-99, 1999-2000, 2000-01 and 2001-02. Reliance has been placed on the provision of section 16B of the Tax Act to contend that the liability of the State, being a crown debt, has first charge o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a subsequent special legislation, has been enacted by the Central Government in exercise of its legislative powers under the Seventh Schedule, List I, items 45 and 92 of the Constitution of India. The relevant provisions of the relevant Acts necessary for the purpose of adjudicating the controversy are reproduced as under: Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 The object of the Act is to enable banks and financial institutions to expeditiously recover the dues lying locked in unproductive assets the value of which was deteriorating with the passage of time. The Legislature, therefore, enacted the new Act providing for taking over the assets of the non-performing units. 2(1)(zd). 'Secured creditor' means 'any bank or financial institution or any other consortium or group of banks or financial institutions and includes (i) debenture trustee appointed by any bank or financial institution; or (ii) securitisation company or reconstruction company; or (iii) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests. . . . (13) No borrower shall, after receipt of notice referred to in subsection (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor. . . . 35.. The provisions of this Act to override other laws. The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any other instrument having effect by virtue of any such law. (emphasis(1) supplied) H.P. General Sales Tax Act 14. Assessment of tax. (1) If the assessing authority is satisfied without requiring the presence of dealer or the production by him of any evidence that the returns furnished in respect of any period are correct and complete, he shall assess the amount of tax due from the dealer on the basis of such returns. . . . (2) If the assessing authority is not satisfied without requiring the presence of dealer who furnished t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the officer issuing the notice, require (a) any person from whom any amount is due or may become due to a dealer who has failed to comply with a notice of demand for any amount due under this Act, (b) any person who holds or may subsequently hold any money for or on account of such dealer, to pay into the Government treasury in the manner specified in the notice issued under this sub-section, either forthwith or upon the money becoming due or being held, or at or within the time specified in the notice (not being before the money becomes due or it is held), so much of the money as is sufficient to pay the amount due from the dealer in respect of the arrears of the tax, interest and penalty under this Act, or the whole of the money when it is equal to or less than that amount. . . . (6) Any amount of money which a person is required to pay under sub-section (1), or for which he is personally liable to the State Government under sub-section (4) shall, if it remains unpaid, be recoverable as an arrear of land revenue. . . . 16B. Tax to be first charge on property. Notwithstanding anything to the contrary contained in any law for the time being in force, any amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCC 694, and the relevant observations are reproduced hereinbelow (at page 635 of STC): 8 On the very principle on which the rule is founded, the priority would be available only to such debts as are incurred by the subjects of the Crown by reference to the State's sovereign power of compulsory exaction and would not extend to charges for commercial services or obligation incurred by the subjects to the State pursuant to commercial transactions. Having reviewed the available judicial pronouncements their Lordships have summed up the law as under: 1.. There is a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts. . . . 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 the welfare State enters into commercial fields, which cannot be reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Union of India reported in [1965] 56 ITR 91 (SC); [1965] AIR 1965 SC 1061, it has been held as under: Similarly, the basic justification for the claim for priority made by respondent No. 1 in the present case rests on the well-recognised principle that the State is entitled to raise money by taxation, because unless adequate revenue is received by the State, it would not be able to function as a sovereign Government at all. It is essential that as a Sovereign, the State should be able to discharge its primary governmental functions and in order to be able to discharge such functions efficiently, it must be in possession of necessary funds, and this consideration emphasises, the necessity and the wisdom of conceding to the State the right to claim priority in respect of its tax dues. The court in Union of India v. Somasundram Mills (P) Ltd. reported in [1985] 2 SCC 40, has held: . . . It is a general principle of law that debts due to the State are entitled to priority over all other debts. If a decree holder brings a judgment-debtor's property to sale and the sale-proceeds are lying in deposit in court, the State may, even without prior attachment exercise its r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and financial institutions is thus blocked in unproductive assets, the values of which keep deteriorating with the passage of time. Banks also incur substantial amounts of expenditure by way of legal charges which add to their overheads. The question of speeding up the process of recovery was examined in great detail by a committee set up by the Government under the Chairmanship of the late Shri Tiwari. The Tiwari Committee recommended, inter alia, the setting up of Special Tribunals which could expedite the recovery of process . . .' . . . Considering the totality of circumstances the financial climate world over, if it was thought as a matter of policy, to have yet speedier legal method to recover the dues, such a policy-decision cannot be faulted with nor it is a matter to be gone into by the courts to test the legitimacy of such a measure relating to financial policy. In Unique Butyle Tube Industries Pvt. Ltd. v. U.P. Financial Corporation reported in [2003] 113 Comp Cas 374 (SC); [2003] 2 SCC 455, the court held: The court cannot read anything into a statutory provision which is plain and unambiguous. A statute is an edict of the Legislature. The language employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me into being. It was argued that the charge would be only on the mortgagor-owner's interest in the property, i.e., on the equity of redemption. The court negatived this contention. It held that 'charge on the land' imposed for an unpaid surcharge was not confined to a charge on the owner's interest in the premises when the charge arose, but extended to a charge on all the estates and interests in the premises existing when the charge arose. The rating authority's charge would have priority over the bank's interest as a mortgagee. It is pertinent to point out, however, that in the aforesaid decision, the court was not considering the conflict of rights created by two statutes, particularly, the one which is a special and a Central statute. In Rajasthan State Industrial Development and Investment Corporation Ltd. (RIICO) v. State of Rajasthan reported in AIR 1995 Raj 219, a Division Bench has held that even if mortgaged property, on which the first charge is claimed, stands sold the proceeds of the sale can be recovered by the State by virtue of its right as a first charge. In Allahabad Bank [2000] 4 SCC 456, the court has held that non obstante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construing that section, because it imposes a penalty. If there is a reasonable interpretation which will avoid the penalty in any particular case we must adopt that construction. If there are two reasonable constructions we must give the more lenient one. That is the settled rule for the construction of penal sections.' It is trite that fiscal statute must not only be construed literally, but also strictly. It is further well known that if in terms of the provisions of a penal statute a person becomes liable to follow the provisions thereof it should be clear and unambiguous so as to let him know his legal obligations and liabilities thereunder. In Narendra Kumar Maheshwari v. Union of India reported in [1990] Supp. SCC 440, it has been held as under: The legal position is that a floating charge creates a present equitable right in favour of the debenture holders/trustees. It creates a present charge in the property/undertaking of a company even before the time of payment of the debenture arrives. In Indian Oil Corpn. v. NEPC India Ltd. reported in [2006] 6 SCC 736, it has been held as under: . . . Where a specific existing property is hypothecated what is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective. Under the provisions of the Tax Act, the assessing authority is required to assess the amount of tax due from the dealer on the basis of returns filed. If the assessing authority is not satisfied that the returns furnished are correct and complete or that no returns have been filed at all he shall serve a notice, give an opportunity of hearing and as the case may arise, adopt the best judgment method and assess the amount of tax due from the dealer. This is so provided under section 14 of the Tax Act. The amount so assessed is required to be paid by the assessee within the time stipulated in the notice to be issued by the assessing authority, failing which the amount due is recoverable as arrears of land revenue as provided for under section 16, which, however, in view of non obstante clause contained in section 16A comes into operation only after the dealer fails to pay the amount due when a notice in writing is issued to him. Now, in the present case no notice of demand, as stipulated under section 14(7) or section 16A has been issued to any of the dealers. The action of respondent No. 5 in asking respondent Nos. 3 and 4 and also the action of respondent No. 4 in acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put it to auction as a secured asset which stands purchased by the petitioner as such. In the present case, the mortgage was duly created and the mortgage debt was disbursed in favour of borrower-company prior to the creation of any charge. Any subsequent claim or charge, in view of non obstante clause contained in section 35, would not impair, prejudice or curtail the priority of mortgagee unless the mortgage itself is successfully assailed on the ground of some legal infirmity which in any case is not the case of the respondent-State. The order of assessment was passed on January 18, 2005 and prior to the said date the property was not encumbered. The petitioner proceeded to participate in auction knowing fully well that the sale is pursuant to the power exercised by the bank under the Act and the auctioned property shall vest in the auction purchaser completely and absolutely free from all encumbrances. In these circumstances, the petitioner's participation and purchase of the property is bona fide and it cannot be said that the petitioner is successor of the borrower-company, who along with its directors is liable to pay the tax liability. There is no provision und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner. If the Revenue record did not reflect the factum of the State's liability then it was not expected for the petitioner to make an inquiry from all the concerned departments of which the petitioner even may not knowing in relation to its debts. The effect of accepting the State's submission to the contrary, would only promote and strengthen dishonest persons, who would be transferring their units from one hand to another from time to time without making the payment of dues. Further, there is nothing on record to show the tax liability pertaining to Regent Rubber. The petitioner had purchased the property to set up an industry which has been delayed for no fault on his part. For all the aforesaid reasons, the writ petition is allowed. Order rejecting petitioner's application for not mutating the entry in their name is quashed and set aside. Respondent Nos. 1 to 5 are directed to delete the adverse entry showing the sales tax dues of Regent Rubber and Eastman Rubber in relation to the property comprising in Khasra No. 254/2/1, Khatauni Nos. 7 min, 14 min, measuring 3 Bighas 7 Biswas, situated at Village Moginand, Kala-Amb, Tehsil Nahan, District Sirmaur, H. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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