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TMI Blog2021 (8) TMI 1125X X X X Extracts X X X X X X X X Extracts X X X X ..... ade available. An enquiry has to be conducted in this regard. The TNVAT Act contemplates appeals to the authority. The appellate authority under the said Act are exercising the power of the Quasi judicial authorities. Therefore, they have to adjudicate the issue, by affording opportunity to all the parties concerned and take a decision in respect of such claims. As far as the tax laws are concerned, both the assessee and the revenue are preferring appeal before the appellate authorities and before the tribunal - Similarly, the bank being aggrieved from and out of the action initiated by the 1st respondent, Commercial Tax department, is entitled to file an appeal before the appellate authority for adjudication of complete facts and circumstances. The appellate authorities are the final fact finding authority. Petition disposed off. - W.P.No.12173 of 2007 And M.P.No.1 of 2007 - - - Dated:- 23-8-2021 - Hon'ble Mr. Justice S.M.Subramaniam For the Petitioner : Mr.Jayesh B.Dolia For M/s.Aiyar Dolia For the Respondents : Mr.V.Veluchamy Government Advocate for R1 For the Respondents : No appearance for R2 ORDER The proceedings dated 25.01. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s collection of tax. Section 41 deals with forfeiture of tax collected. Section 42 contemplates payment of recovery of tax, penalty, etc. and sub-section 2 to Section 42 reads as under. (2) Any tax assessed on or has become payable by, or any other amount due under this Act from a dealer or person and any fee due from him under this Act, shall, subject to the claim of the Government in respect of land revenue and the claim of the Agriculture and Rural Development Bank in regard to the property mortgaged to it under subsection (2) of section 28 of the Tamil Nadu Co-operative Societies Act, 1983 (Tamil Nadu Act 30 of 1983), have priority over all other claims against the property of the said dealer or person and the same may without prejudice to any other mode of collection be recovered, -- (a) as land revenue, or (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 he has, in regard to the payment of such tax, other amount or fee, as the case may be, complied with an order by any of the authorities to whom the dealer or person has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iority. This being the conflicting provisions under various enactments in respect of one claim, this Court has elaborately considered it in the judgment dated 19.07.2021 made in WP No.15437 of 2014, and the issues as well as the facts are similar. Thus, it is useful to extract the relevant paragraphs of the said judgment. 30.Let us now consider the scope of Section 281 of the Income Tax Act. Chapter XXIII Section 281 of the Income Tax Act contemplates certain transfers to be void. Sub~clause (1) enumerates that ?where, during the pendency of any proceeding under this Act or after the completion thereof, but before the service of notice under rule 2 of the Second Schedule, any assessee creates a charge on, or parts with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever) of, any of his assets in favour of any other person, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of the said proceeding or otherwise . A close reading of the above provision would reveal that where during the pendency of any proceedings under this Act or aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h or genuinity with reference to the transactions or transfers. Therefore, the Tax Recovery Officer during the pendency found that the charge created in favour of the petitioner Bank is valid, then he can pass appropriate orders withdrawing the attachment made under the provisions of the Act. If the Tax Recovery Officer is of an opinion that the attachment made under the provisions of the Act was prior to the mortgage or otherwise, then he can pass appropriate orders confirming the attachment. However, the said Rule is not relatable to declaration or in the form of an appeal by any third person. It is only an enabling provision for effective adjudication of the actual facts and to find out the genuinity of certain transfers made during the pendency of the Income tax proceedings and with reference to the provision under Section 281 of the Income Tax Act. 34.Looking into the provisions of the SARFAESI Act, more specifically, Section 26E, which contemplates priority to secured creditors which reads that notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any Secured Creditor shall be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Banks in view of the fact that the said provisions contemplates priority over the Government dues is to be given to the Banks. The tenor of Section 281 of the Income Tax Act which contemplates that any such transaction made during the pendency of any proceedings under the Income Tax Act shall be void. Thus, the understanding would be that if the proceedings under the Income Tax Act are pending at the time of creating mortgage, sale, gift, etc., then Section 281 of the Income Tax Act would be pressed into operation. The next question is at the time of creation of mortgage, sale, gift etc., the Income Tax Proceedings are pending as contemplated under Section 281 of the Income Tax Act, such transactions became void. Thus, it is unambiguous that the transactions or transfers made during the pendency of the Income tax proceedings are void. This being the purposive interpretation to be adopted, all transfers, mortgages etc., made during the pendency of the Income tax proceedings shall became void under Section 281 of the Income Tax Act. Once Section 281 of the Income Tax Act was pressed into service and the transactions or transfers became void, any mortgage, transfer etc., thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well before the pendency of proceedings under the Income Tax Act, then Section 26E of the SARFAESI Act would be applicable and in such circumstances, the Bank will hold priority over all other claim including the Government dues. Even in such circumstances, this Court has to consider the other principles which all are to be followed in such cases. Admittedly, the SARFAESI Act and Recovery of Debts and Bunkruptcy Act, 1993 provides priority to the secured creditors and the Income Tax Act provides priority to the tax arrears to be recovered. Under these circumstances, this Court is inclined to consider the common law Doctrine of priority of crown debts. 41.The doctrine of constitutional priority will have precedence over the other priorities. If the priority clause is provided under various enactments, the question arises as to which priority is to be held precedence over the other priorities. The test of traceability and recognition under the constitutional provisions would be the proper procedure to form an opinion. 42.In the present scenario, the SARFAESI Act and the DRT Act provides priority to secured creditors, i.e. the banks hold priority. The Income Tax Act conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 46.In this context, Part XII of the Constitution of India, more specifically, Article 265 which states that tax not to be imposed save by authority of law; Article 266 speaks about Consolidated funds and public accounts of India and the States; Article 267 states Contingency fund; Article 268 states Duties levied by the Union but collected and appropriated by the States; Article 268A denotes service tax levied by Union and collected and appropriated by the Union and the States; Article 269 states taxes levied and collected by the Union but assigned to the States; Article 269A denotes levy and collection of goods and service tax in course of inter~state trade or commerce and Article 270 states that taxes levied and distributed between the Union and the States. The chapter deals with the taxes and its constitutional importance are to be considered by this Court. Undoubtedly, tax is the backbone of our Nation-s economy and it holds top priority. In this context, the tax collected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Builders Supply Corporation v. Union of India [(1965) 2 SCR 289], the Constitution Bench considered the question whether tax payable to the Union of India has priority over other debts. After making a reference to the judgments of the Bombay High Court in Bank of India v. John Bowman and Ors., [AIR 1955 Bom. 305], Madras High Court in Kaka Mohammad Ghouse Sahib Co. v. United Commercial Syndicate and others [(1963) 49 I.T.R. 25] and Manickam Chettiar v. Income~tax Officer, Madura, [(1938) 6 ITR 180], the Court held : (i) The Common Law doctrine of the priority of Crown debts had a wide sweep but the question in the present appeal was the narrow one whether the Union of India was entitled to claim that the recovery of the amount of tax due to it from a citizen must take precedence and priority over unsecured debts due from the said citizen to his other private creditors. The weight of authority in India was strongly in support of the priority of tax dues. (ii) The Common Law doctrine on which the Union of India based its claim in the present proceedings had been applied and upheld in that part of India which was known as `British India- prior to the Constitution. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the meaning of Article 372(1) of the Constitution of India and therefore continues to be in force thereafter. 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. 2. The common law doctrine about priority of Crown debts which was recognised by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he competent appellate authority under the tax laws. 15. The TNVAT Act contemplates appeals to the authority. The appellate authority under the said Act are exercising the power of the Quasi judicial authorities. Therefore, they have to adjudicate the issue, by affording opportunity to all the parties concerned and take a decision in respect of such claims. As far as the tax laws are concerned, both the assessee and the revenue are preferring appeal before the appellate authorities and before the tribunal. 16. Similarly, the bank being aggrieved from and out of the action initiated by the 1st respondent, Commercial Tax department, is entitled to file an appeal before the appellate authority for adjudication of complete facts and circumstances. The appellate authorities are the final fact finding authority. While deciding the issues, the principles laid down by this Court in the cases cited supra are to be taken into consideration and accordingly, the disputes are to be resolved. This being the principles to be followed, this Court is inclined to pass the following final orders. (i) The relief as such sought for in the present writ petition stands rejected. (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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