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High Court of Judicature at Madras
The Honourable Mr. Justice P. Sathasivam
Canara Bank, T. Nagar, Madras, rep by its Manager
Versus
The Assistant Commissioner of Commercial Taxes, Zone - 7, Greams Road, Madras and another
Writ Petition No. 1717 of 1991
Decided On : 25-08-1999
SALES TAX - CHARGE - PRIORITY - Whether the charge created on the properties in pursuance of section 24(1) of Tamil Nadu General Sales Tax Act, 1959. (hereinafter referred to as ‘The Tamil Nadu Act’) will prevail over a charge created under a mortgage of the very same properties in favour of the petitioner Bank which is prior in point of time.
Fact of the Case:
The petitioner Bank approached the court to issue a writ of mandamus directing the sales tax authority to forbear from selling the properties of the assessee or taking any further steps in the sale of the scheduled mentioned properties in pursuance of Form No.VI A notice, to sell the land dated 111. 1990 issued by the first respondent. The assessee had created a mortgage in favor of the petitioner Bank prior to the tax liability arising. The petitioner Bank contended that the mortgage in its favor is prior to the tax due and they get priority over the claim of the sales tax authority.
Finding of the Court:
The court held that the charge created by operation of law over the properties of the dealer, under Section 24(1) of the Tamil Nadu Act, will have precedence over the existing mortgage executed in favor of the petitioner’s Bank. The court relied on the decision of the Supreme Court in S.B.B. & J v. National Iron and Steel Rolling Corpn, 1995 (96) S.T.C. 612, which held that a statutory first charge created under a similar provision in the Rajasthan Sales Tax Act, 1954, would have priority over an earlier mortgage.
Issues: Whether the charge created under Section 24(1) of the Tamil Nadu General Sales Tax Act, 1959, will prevail over a prior mortgage.
Ratio Decidendi: The court held that the charge created by operation of law over the properties of the dealer, under Section 24(1) of the Tamil Nadu Act, will have precedence over the existing mortgage executed in favor of the petitioner’s Bank. The court relied on the decision of the Supreme Court in S.B.B. & J v. National Iron and Steel Rolling Corpn, 1995 (96) S.T.C. 612, which held that a statutory first charge created under a similar provision in the Rajasthan Sales Tax Act, 1954, would have priority over an earlier mortgage.
Final Decision: The court dismissed the writ petition filed by the petitioner Bank.
.1. An interesting question namely whether the charge created on the properties in pursuance of section 24(1) of Tamil Nadu General Sales Tax Act, 1959. (hereinafter referred to as ‘The Tamil Nadu Act’) will prevail over a charge created under a mortgage of the very same properties in favour of the petitioner Bank which is prior in point of time, is to be decided in this writ petition.
2. Petitioner Canara Bank has approached this Court to issue a writ of mandamus directing the 1st respondent to forbear from selling the properties of the 2nd respondent or taking any further steps in the sale of the scheduled mentioned properties in pursuance of Form No.VI A notice, to sell the land dated 111. 1990 issued by the first respondent.
3. The brief facts are stated hereunder: The second respondent have been enjoying certain credit facilities from the petitioner Bank. The said Company was granted on 17. 1974 and earning cash credit facility to the tune of Rs. 50, 000 on the 2nd respondent hypothicating the stock-in-trade and also creating mortgage over the landed property bearing Survey No. 161 (Part), Porur Village, Saidapet Taluk of an extent of 4680 sq. ft. The charge created by the 2nd respondent Company with the petitioner’s Bank w as registered with the Registrar of Companies. The petitioner Bank has also filed mortgage suit in C.S.No. 801 of 1984 on the file of Original Side of this Court against the 2nd respondent herein and others. It is further stated that the 2nd respondent Company seems to have left some arrears of sales tax due to the Government subsequent to the creation of mortgage in favour of the petitioner Bank. The first respondent- sales tax authority seems to have initiated proceedings claiming sales tax issued to them and since the arrears of sales tax were not paid, the sales tax authorities attached the immovable property covered in the mortgage belonging to the 2nd respondent Company. The petitioner Bank now come to know that in pursuance of the attachment effected over the said property, the first respondent has taken steps to bring the property for sale on 211. 1990 and again on 12. 1991. Since the petitioner Bank has got a first charge over the properties, properties are now brought for sale worth more, than several lakhs and is almost the only security available to the petitioner Bank for the amounts due to them. Notice in Form VII of the first respondent is illegal, violative of statutory provisions and without jurisdiction. In such circumstances, they filed the above writ petition.
.4. The first respondent has filed a counter affidavit disputing various averments made by the petitioner. The 2nd respondent Company were in arrears of sales tax of Rs. 2, 03, 331 for the years from 1975-76 to 1980-81 under the Tamil Nadu Act and Central Sales Tax Act, 1956 (hereinafter referred to as ‘The Central Act’). As they did not pay the arrears regularly, proceedings were initiated. They have immovable properties in the jurisdiction of Porur Assessment Circle. The Deputy Commercial Tax Officer, So wcarpet II, therefore requested the Commercial Tax Officer, Porur Assessment Circle to proceed against the property of the defaulter in his jurisdiction to recover the sales tax arrears due by him. Therefore, the Commercial Tax Officer, Porur Assessment Circle initiated revenue recovery proceedings. In the meantime, the petitioner Canara Bank has filed the above petition stating that the assessee in default had created an equitable mortgage by their document dated 11. 1975 in favour of Canara Bank, T. Nagar, Madras 600 007. It is stated as per Section 24(1) of the Tamil Nadu Act, if default is made in paying, according to the notice of assessment where the tax has been assessed, 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 assessed or any other amount due under the Act. Therefore t
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