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TMI Blog2025 (4) TMI 1593X X X X Extracts X X X X X X X X Extracts X X X X ..... f sales tax of one Shree Ragavendra Engineering Industries (arrayed as R2 to R4 in WP.No.31572 of 2002). 2.The prayer in W.P.No.31573 of 2002 is also in respect of proceedings dated 06.12.2001 and a notice in Form B-6, also of even date, issued in respect of sales tax arrears in terms of the Tamil Nadu General Sales Tax Act, 1959 (in short 'TNGST Act'/'Act') of one Shree Balajee Industries (arrayed as R2 in WP.No.31573 of 2002). R2 in W.P.No.31573 of 2002 and R2 to R4 in W.P.No.31572 of 2002 are collectively referred to as 'assessee's'. 3.We have heard Mr.Jayesh B.Dolia, learned Senior Counsel for M/s.Aiyar and Dolia, appearing for the writ petitioner and Mr.Haja Nazirudeen, learned Additional Advocate General assisted by Mr.G.Nanmaran, learned Special Government Pleader for the Commercial Taxes Department. The assessee's are not represented, though service is complete. 4.The petitioner is a Nationalised Bank and had sanctioned secured overdraft facilities to the assessee's in WP.No.31573 of 2022, and a loan to the assessee in WP.No.31572 of 2002. On 14.08.1990, as a collateral, the assessee's created an equitable mortgage over their half undivided share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk that as and when the demands of the bank were fully settled, any amount over and above the same would be paid over to the Department, if their demand still subsisted. This was followed by the impugned show cause notice dated 08.03.2002 reiterating the demands under B-6 notices and calling upon the bank to remit the lease rentals prior to 18.03.2002 under threat of legal action. 11.A reply was sent on 16.03.2002 reiterating the contents of letter dated 02.01.2002 that the lease rentals were being adjusted towards partial discharge of mortgage. The bank, in addition added, that it stood in the vantage position of a secured creditor, having a paramount charge over the mortgaged properties. Since the Commercial Taxes Department proceeded to insist on the demands, the present writ petitions have come to be filed. 12.The petitioner relies on the following judgments: (i) Punjab National Bank v. Union of India and Others [(2022) 7 SCC 260] (ii) Union of India and Others v. SICOM Limited and Another [(2009) 2 SCC 121] (iii) UTI Bank Ltd., 82 Dr.Radhakrishnan Salai, Chennai 600 004 v. The Deputy Commissioner of Central Excise Chennai II Division R.40 TNHB Complex Mogappair Chennai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank has been in occupation of 4,676 sq. ft. of the property in question. 17.In order to obviate any possibility of the lease being collusive to defeat the interests of the Commercial Taxes Department, we had sought documents from the petitioner to establish that their occupation of the property in question was even prior to 06.12.2001, which is the date of impugned B-6 notices under compilation dated 12.12.2024 filed by the Commercial Taxes Department. The Department has enclosed 13 documents, which includes a letter dated 31.12.1991 addressed by one of the defaulting assessee's to the petitioner and lease dated 20.05.1992 executed between the defaulting assessee and the petitioner bank. Thus, these documents are part of the records of the Commercial Taxes Department. 18.We had also called for the records of the DRT and DRAT Chennai. The original application before the Debt Recovery Appellate Tribunal, Chennai (DRAT) in O.A.No.1046 of 2000 makes reference to the lease deed between the bank and the defaulting assessee's. Hence, it is a fact that the lease rent payable by the bank was being adjusted towards the outstandings of the defaulters. These payments are not in dispute and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has referred to Section 24 of the TNGST Act and the relevant portions thereof, are extracted below: 'Section 24. Payment and recovery of tax.- (1) Save as otherwise provided for in sub-section(2) of section 13, the tax assessed or has become payable under this Act from a dealer or person and any other amount due from him under this Act shall be paid in such manner and in such installments, if any, and within such time as may be specified in the notice of assessment, not being less than twenty-one days from the date of service of the notice. The tax under sub-section (2) of section 13 shall be paid without any notice of demand. In default of such payments 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 interest under this Act. (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 Land Development Bank in regard to the property mortgaged to it under Section 28(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 34 states that the RDB Act shall have overriding effect in respect of any other law for the time being in force. Section 37 of the SARFAESI Act states that application of other laws is not barred and states that the SARFAESI Act and Rules shall be in addition to, and not in derogation of various Acts, such as the Companies Act, 1956, the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992 (SEBI Act), the RDB Act or any other law for the time being in force. Thus, we note that the application of the SARFAESI Act is concurrent with, and not overriding the provisions of other enactments. 26.Be that as it may, as far as the question of priority is concerned, Section 26E of the SARFAESI Act is a specific provision which states that notwithstanding anything contained in any other law for the time being in force and after the registration of security interest, it is the debts due to the secured creditor that shall have priority over all other debts and revenues, including those payable to the Central or State Government or local authority. Hence, as far as SARFAESI Act is concerned and with respect to the question of priority, it is Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ential right of recovery of its debts over a mortgage or pledge of goods or a secured creditor. (ii)Only when there is a specific provision in the statute claiming "first charge" over the property, the Crown's debt is entitled to have priority over the claim of secured creditors. (iii)Since there is no specific provision claiming "first charge" in the Central Excise Act and the Customs Act, the claim of the Central Excise Department cannot have precedence over the claim of secured creditor viz. the petitioner Bank. (iv)In the absence of such specific provision in the Central Excise Act as well as in the Customs Act, it is held that the claim of secured creditor will prevail over Crown's debts.' 31. The appeal of the bank thus came to be allowed. The question of priority of debt was decided in SICOM (Foot Note Supra (2)) holding that generally a debt which is secured by the provisions of a Statute fastens a first charge over the property concerned and must prevail over crown debts that are unsecured. The Bench holds as follows: '9. Generally, the rights of the Crown to recover the debt would prevail over the right of a subject. Crown debt means the "debts due to the State o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 1991. 34.The cases cited by the Revenue are now discussed. In the case of Rainbow Papers (Foot Note Supra (5)), the Supreme Court considered the interplay of demands under Section 48 of the Gujarat Value Added Tax Act and the mechanism set out under Section 53 of the Insolvency and Bankruptcy Code, 2016 (Code). The Supreme Court noted that Section 53 of the Code began with a non obstante clause which read that notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature, the procceds from the sale of liquidation assets shall be distributed in the order of priority that was set out under Section 53 itself. 35.They concluded that Section 48 of the Gujarat Value Added Tax Act was not contrary to or inconsistent with Section 53 or any other provisions of the IBC and that the demands under the Gujarat Value Added Tax Act could be enforced by the Commercial Taxes Department as a secured creditor. Hence, the appeals of the Commercial Taxes Department were allowed in the specific context of the provisions of the Gujarat Value Added Tax Act, which stipulated that the demands under that Act would be a first charge over the property. 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of SICA, particularly Section 22 shall prevail over Section 34 of the RDB Act. For that purpose, it stayed all other proceedings against the company and its properties during the process of re-construction. While this judgment does illuminate our overall understanding of the issues in question, it has no direct impact on the legal question that arises in this particular case. 41.In view of the detailed discussion above, it is very clear that it is the provisions of Section 26E of the SARFAESI Act and Section 34 of the RDB Act would prevail over the provisions of Section 24 of the TNGST Act. Additionally, this is a case where security interest has been created by the bank as early as in 1991, prior to the charge imposed by the Sales tax Department. Section 24 of the TNGST Act does not provide for priority by creation of a first charge in respect of the demands raised under that Act. Hence, Section 26E of the SARFAESI Act and Section 34 of RDB Act would prevail, in public interest. 42.Incidentally, we have had occasion to consider the interplay between, and the priority of charge between secured financial institutions and the Commercial Taxes Department in WP.No.21496 of 2008 (or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special Tribunal in T.P.No.221 of 2001 filed by R6 has been placed before us at pages 9 to 11 of compilation dated 17.11.2020. 42. From a perusal thereof, it is clear that the assessment orders have been passed in 1994. In any event, seeing as the periods of assessment commence from 1993-94 onwards, the demands, and consequently, the charges could have been created only thereafter. The discussion in the paragraphs supra make the position clear that the charge created by TIIC is prior in time. Hence, such charge of TIIC/R4/R5 would take precedence and we hence have no hesitation in holding that it is the TIIC that would hold priority of charge. 43. Learned Special Government Pleader has made reference to the agreements entered into by R6 with the appropriate authority qua the deferral of tax payable under the Sales tax Act. It is consequent upon the defaults by the assessee in adhering to the deferral scheme that orders of assessment have come to be passed raising demands under the TNGST Act. However, it is unnecessary for us to delve into this aspect of the matter to decide the question of priority of charge as between the financial institution and the Commercial taxes Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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