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TMI Blog2015 (11) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent No. 1 is the State of Maharashtra through the Commissioner of Sales Tax and his associate officers who are exercising powers under the Bombay Sales Tax Act, 1959 ("BST Act" for short). In exercise of the powers that are delegated to him, the second Respondent is seeking to enforce the attachment levied on the immovable properties, which shall be more particularly described in the following paragraphs. 6. The Respondent No. 3 is a company incorporated and registered under the Indian Companies Act, 1956, having its office at the address mentioned in the cause title. 7. The fourth Respondent carried on business as manufacturer of Aluminum castings. During the course of such business, it obtained financial assistance from financial institutions and banks. These were secured creditors. For securing the debt, the Respondent No. 4 had created an interest in favour of these financial institutions and within the meaning of this term (secured interest) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'SARFAESI Act'). The Petitioners point out that the 4th Respondent carried on business for some years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g up a unit at the immovable properties so purchased, but there was an attachment levied on the same by the 2nd Respondent on 11th March, 2013. The attachment was levied because the 4th Respondent had defaulted in payment of Sales Tax for the period 1996-97 to 2001-02. The attachment order was issued in the name of 4th Respondent, without noticing that the properties were already transferred in favour of the Petitioners in 2011 itself. 9. In such circumstances, the Petitioners addressed a communication/letter, through their Chartered Accountant, bringing to the notice of the Sales Tax authorities that the properties have been purchased and acquired by the Petitioners and in the circumstances aforestated and narrated. In the light of this communication from the Chartered Accountant dated 17th May, 2013, the 2nd Respondent directed the Tahsildar to remove the attachment. Annexures 'F', 'G' and 'H' are the relevant documents. 10. Thereafter on 16th July, 2013, 2nd Respondent intimated the Petitioners that the dues of this 4th Respondent are recoverable in view of the sale certificate and on the assumption that the properties have been acquired on "as is where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the BST Act to levy any attachment on the Petitioners' movable and immovable properties?" If that power is not to be found in the scheme of the BST Act, then, the attachment order is ex-facie bad in law and deserves to be set aside. Mr. Joshi thereafter elaborated his submissions by inviting our attention to the public notice issued by 3rd Respondent after it exercised its powers under the SARFAESI Act. The possession of the properties was taken over by the 3rd Respondent. In terms of the powers conferred in the 3rd Respondent by virtue of the SARFAESI Act, it became entitled to sell all the properties. That is how the sale had been announced and offers were invited for purchasing the immovable properties. That sale was concluded. The borrower Respondent No. 4 never questioned the sale. In such circumstances, by virtue of the sale certificate and its registration, the Petitioners have become owners of the immovable properties and equally the movables. After nearly two years and more of this ownership, the attachment has been levied. That attachment proceeds on the footings that the properties continue to be of the defaulter Respondent No. 4. However, once the above factua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner of Respondent No. 4. In these circumstances, the attachment is bad in law. 15. Reliance is placed upon the Judgments of the Hon'ble Supreme Court in the case of state of Karnataka and Anr. vs. Shreyas Papers Pvt. Ltd. and Others reported in (2006) Vol. 144 STC 331. Our attention is also invited to the Judgment of a Division Bench of this Court in the case of Krishna Lifestyle technologies Ltd. vs. Union of India reported in 2008(229) ELT 173. Our attention is then invited to the Judgment of the Hon'ble Supreme Court in the case of Rana Girders Ltd. vs. Union of India reported in 2013(295) ELT 12 (SC). For these reasons, it is submitted that the Writ Petition be allowed. 16. On the other hand, the contesting Respondents and particularly Respondent Nos. 1 and 2 would submit that the attachment was justified. Mr. Sethna, learned Special Counsel appearing for Respondent Nos. 1 and 2 submits that the definition of the term "capital asset" as appearing in section 2(14) of the Income Tax Act, 1961 is a relevant definition. The Petitioners have acquired a capital asset. The definition of the term "business" as appearing in section 2(5A) of the BST Act includes a capital asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent No. 3 is that the sale certificate refers to the liabilities of the financial institutions and those are admitted by the Petitioners and Respondent No. 4. They cannot be disputed and the sale cannot be challenged on that ground. The arguments of the Petitioners therefore are restricted to other taxes and dues, including statutory. After appreciating them, this Court may pass appropriate orders. Later on, however, this stand was changed. The Respondent No. 4 was carrying out manufacturing activities from the immovable properties. It had obtained finance from various banks and institutions and against the subject properties. After it ceased to carry out the manufacturing activities, the two secured creditors, who had to recover considerable sums from this entity, assigned their debts to Respondent No. 3. The secured creditors are State Bank of India (SBI) and Industrial Credit and Investment Corporation of India (ICICI). On 10th November, 2004 the 3rd Respondent issued a notice under section 13(2) of the SARFAESI Act. The valuation report was obtained and thereafter, a public notice was issued notifying the takeover and the intent to bring the properties to sale. There was a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings which were stated to be initiated and taken up before the Board for Industrial and Finance Reconstruction (BIFR). That is under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). 22. The SARFAESI Act is an Act which enables regulation of securitisation and reconstruction of financial assets and enforcement of security interest or matters incidental thereto. The term 'debt' is defined in section 2(ha). The term 'property' is defined under section 2(t) and the term 'security interest' is defined under section 2(zf). That means, right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes a mortgage, charge, hypothecation, assignment other than those specified in section 31. The term 'secured asset' means the property on which the security interest is created and the word 'secured debt' means a debt which is secured by any security interest. The term 'secured creditor' is defined in section 2(zd). The words and expressions used and not defined in the SARFAESI Act, but defined in the Transfer of Property Act, 1882 or the Securities and Exchange Board of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection reads as under:- 2(5A) "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not such trade, or profit and whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern; and any transaction in connection with or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern; and any transaction in connection with, or incidental or ancillary to, the commencement or closure of such trade, commerce, manufacture, adventure or concern; Explanation-For the purpose of this clause,:- (i) the activities of raising of man-made forests or rearing of seedings or plants shall be deemed to be business. (ii) any transaction of sale or purchase of capital assets pertaining to such trade, commerce, manufacture, adventure or concern shall be deemed to be business and expression "capital assets" shall have the same meaning as assigned to it in the Income Tax Act, 1961 (iii) purchases of any goods, the price of which is debited to the business shall be deemed to be the purchases effected in the course of business; (iv) sales of any goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies and departments, statutory or otherwise, any other dues, if any, in respect of the scheduled property and if payable in law/attachable to the schedule property/sale proceeds by reason of the proposed sale of the scheduled property, shall be the sole responsibility of and to the account of the purchaser. Similar terms are to be found in the sale certificate as well. 26. Then reliance is placed on section 19 of the BST, which reads as under:- S. 19. Special provision regarding liability to pay tax in certain cases.:- (1) Where a dealer, liable to pay tax under this Act, dies then,:- (a) if the business carried on by the dealer is continued after his death by his legal representative or any other person, such legal representative or other person shall be liable to pay the tax including any penalty and interest due from such dealer under this Act or under any earlier law, in the like manner and to the same extent as the deceased dealer, and (b) if the business carried on by the dealer is discontinued whether before or after his death, his legal representative shall be liable to pay out of the estate of the deceased, in the like manner and to the same extent as the deceased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carry on the business under a trust for a beneficiary, then, if the guardianship or trust is terminated, the ward or, as the case may be, the beneficiary shall be liable to pay the tax (including any penalty and interest) due, from the dealer up to the time of the termination of the guardianship or trust whether such tax (including any penalty and interest) has been assessed before the termination of the guardianship or trust, but has remained unpaid, or is assessed thereafter. (6) Where a dealer, liable to pay tax under this Act, is succeeded in the business by any person in the manner described in clause (a) of sub-section (1) or in sub-section (4), then, such person shall, notwithstanding anything contained in section 3, be liable to pay tax on the sales or purchases of goods made by him on and after the date of such succession, and shall (unless he already holds a certificate of registration) within sixty days thereof apply for registration:- Provided that, where such person resells any goods purchased by the dealer while carrying on business before such succession, he shall be entitled to such deductions in respect thereof as are permissible under sections 7, 8 or 9, as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a company and in the State of Karnataka. The Karnataka State Industrial Investment and Development Corporation had extended financial assistance to this company, which defaulted in repayment of the loan granted to it. Therefore, the Corporation, which was a State Financial Corporation within the meaning of State Financial Corporations Act, 1951, initiated somewhat identical measures as are initiated by Respondent No. 3 to this Petition but in terms of section 29(1) of the State Financial Corporations Act, 1951. They took over the assets of the defaulter, advertised sale thereof and that is how after rounds of negotiations, the Respondent before the Hon'ble Supreme Court, whose offer was on record, came to be notified as a auction purchaser. True it is that in the clause which was brought to the notice of the Hon'ble Supreme Court, the auction purchaser had not taken over any liability of the defaulting unit, but, what one finds is that the Sales Tax Department proceeded against the auction purchaser and through the Corporation. A notice under the Karnataka Sales Tax Act, 1957 came to be issued and fearing that the auction purchaser would be proceeded against on the foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read with section 15 of the KST Act, the transferee would be jointly liable with the State Finance Corporation concerned. As we have already held, section 15 operates only in a situation where the ownership of the business is transferred. The learned single Judge, however, did not notice this point. Similarly, we are unable to accept the correctness of the judgment in Alpha Silicones v. Assistant Commercial Tax Officer (Recovery), Gulbarga (1990) 77 STC 68 (Kar) as it held that even the mere transfer of assets would amount to transfer of ownership of the business. We overrule these two judgments to the extent that they conflict with the views expressed therein. 13. In the present case, since it is not a matter of dispute that there was only the transfer of individual assets of the defaulting company, rather than the defaulting company being sold as a going concern, in the light of our expressed views, section 15 of the KST Act is not attracted. The first limb of Mr. Hegde's arguments must, therefore, fail. 31. Then, there was an argument and which we will note hereinafter. The argument was as is placed before us by Mr. Sethna and Mr. Dhond that section 38C of the BST Act ena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , interest or any other sum, payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer, or, as the case may be, person. 32. A bare perusal of these provisions would indicate as to how special powers of Sales Tax Authorities for recovery of tax as arrears of land revenue are created and conferred in the officers of the Sales Tax Department. For the purposes of the Maharashtra Land Revenue Code, 1966 such of the officers who have been named in the clauses of sub-section (1) of section 38B would be the Revenue Officers. They are conferred with similar powers. 33. There is no dispute about this and therefore Mr. Joshi rightly did not challenge the competence or authority of the 2nd Respondent in resorting to this special provision. It is the legality and authority of the action thereunder which is in issue before us. Section 38C states that the liability under the Act to be first charge, notwithstanding anything contained in any contract to the contrary but subject to any provision regarding first charge in any Central Act for the time being in force, any amount of tax, penalty, interest or any other sum payable by a dealer or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e properties even if the same changes hands or there is a transfer thereof. That is how the Hon'ble Supreme Court referred to section 100 of the Transfer of Property Act, 1982 and relied upon definition of the term 'charge' appearing therein. It is in these circumstances that the Hon'ble Supreme Court concluded in paras 16, 17 and 18 as under:- 16. As the section itself unambiguously indicates, a charge may not be enforced against a transferee if s/he 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 Datari (1974) 2 SCC 799, and in Ahmedabad Municipal Corporation of the City of Ahmedabad v. Haji Abdul Gafur Haji Hussenbhai AIR 1971 SC 1201 (hereinafter "Ahmedabad Municipal Corporation"). In this connection, we may refer to the latter judgment, which is particularly relevant for the present case. 17. Ahmedabad Municipal Corporation was a case where a person was in arrears of property tax, due under the Bombay Provincial Municipal Corporation Act, 1949. Consequently, the Municipal Corporation created a charge over the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty taxes, other taxes, electricity bills, water taxes and rents from the date of the agreement (i.e. August 12, 1992). For the first time, by letter dated January 8, 1993 of the second appellant to the Mandal Panchayat, Aloor Taluk, the issue of sales tax dues of the defaulting company was brought to the surface. This is further borne out by the correspondence between the first respondent and the Corporation. Thus, it is evident that the first respondent had no actual notice of the charge prior to the transfer. As to whether the first respondent had constructive notice of the charge, no substantive argument on this issue was made, either before the High Court or at any rate before us. Hence, we cannot hold that the first appellant had constructive notice of the charge. 36. We are of the opinion that in the light of the uncontroverted factual material before us, Mr. Joshi can equally place reliance on these paragraphs in the Hon'ble Supreme Court Judgment. We do not see how the Petitioners can be attributed any knowledge of the charge actual or constructive, as is now urged before us by Mr. Dhond. 37. The other provisions and which have been relied upon cannot carry the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court not to have jurisdiction.-No Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any Court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993). 38. The Hon'ble Supreme Court considered these arguments and eventually held as under:- ...... 17. Learned counsel for the respondents, heavily relied on the judgment of this Court in M/s. Macson (supra), reference to which is also made in the notice dated 25-2-1984 that was served upon the appellant by the Excise Department. He submitted that in that case this Court had held that even the successor in interest is liable to discharge the liability of the Excise Department. We may, however, note that this case was considered and specifically distinguished in SICOM Ltd. (supra). In that case, considering the statutory right of the Financial Corporation under the State Financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mon law doctrine of priority or precedence of Crown debts/Halsbury, dealing with general rights of the Crown in relation to property, states that where the Crown's right and that of a subject meet at one and the same time, that of the Crown is in general preferred, the rule being "detur digniori (Laws of England, 4th Edn., Vol. 8, para 1076, at p. 666). Herbert Broom States:- Quando jus domini regis et subditi concurrunt jus regis praegerri debat.-Where the title of the kind and the file of a subject concur, the king's title must be preferred. In this case detur digniori is the rule..... where the titles of the kind and of a subject concur, the kind takes the whole..... where the king's title and that of a subject concur, or are in conflict, the king's title and that of a subject concur, or are in conflict, the king's title is to be preferred." (Legal Maxims; 10th Edn., pp. 35-36) This Common law doctrine of priority of State's debts has been recognised by the High Courts of India as applicable in British India before 1950 and hence the doctrine has been treated as "law in force" within the meaning of Article 372(1) of Constitution. It was, furthermore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such conflict arises between the corporation and the Excise Department. Hence it is necessary to examine this aspect of the matter. The Department having initiated the proceedings under Section 11A of this Act adjudicated liability of respondent No. 4 and held that respondent No. 4 is also liable to pay penalty in a sum of Rs. 3 lakhs while the Excise dues liable would be in the order of a lakh or so. It is difficult to conceive that the appellant had any opportunity to participate in the adjudication proceedings and contend against the levy of the penalty. Therefore, in the facts and circumstances of this case, we think it appropriate to direct that the said amount, if already paid, shall be refunded within a period of three months. In other respects, the order made by the High Court shall remain undisputed. The appeal is disposed of accordingly. The decision, therefore, was rendered in the facts of that case. The issue with which we are directly concerned did not arise for consideration therein. The Court also did not notice the binding precedent of Dena Bank as also other decisions referred to hereinbefore. 21. A harmonious reading of the judgments in Macson and SICOM would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only that statutory liability which arises out of the land and building or out of plant and machinery which is to be discharged by the purchaser. Excise dues are not the statutory liabilities which arise out of the land and building or the plant and machinery. Statutory liabilities arising out of the land and building could be in the form of the property tax or other types of cess relating to property etc. Likewise, statutory liability arising out of the plant and machinery could be the sales tax etc. payable on the said machinery. As far as dues of the Central Excise are concerned, they were not related to the said plant and machinery or the land and building and thus did not arise out of those properties. Dues of the Excise Department became payable on the manufacturing of excisable items by the erstwhile owner, therefore, these statutory dues are in respect of those items produced and not the plant and machinery which was used for the purposes of manufacture. This fine distinction is not taken note at all by the High Court........ 39. The Hon'ble Supreme Court pointed out that statutory liabilities arising out of the land and building could be in the form of property, tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st their properties is in issue before us. The legality and validity of the attachment order dated 24th December, 2013 is the question before us. That cannot be answered by relying on a general stipulation or clause in a contract or sale deed. It is a pure legal question and that is how even the Sales Tax Authorities approach it. 42. As a result of the above discussion, this Writ Petition succeeds. Rule is made absolute in terms of prarer clauses (a) and (b) of the Writ Petition. The attachment order impugned in this Writ Petition is quashed and aside. However, our order and direction does not mean that Respondent Nos. 1 and 2 cannot proceed against the borrower/defaulter Respondent No. 4. Pertinently, the Petitioners have brought on record the fact that the borrowers are still carrying on business. The Respondent No. 4 has a place of business and the details thereof are furnished by the Petitioners on oath. Once they are in business and have not closed down the same, as apprehended by Respondent Nos. 1 and 2, but only their unit at the village in District Rigad, then, our order and direction in this Writ Petition shall not prevent Respondent Nos. 1 and 2 from proceeding against t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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