The banking institution's lien on fixed deposits for prior credit facilities takes precedence over subsequent tax demands under the Tamil Nadu General Sales Tax Act.

ORDER :

ANITA SUMANTH., J.

The petitioner is a banking company and a Government of India undertaking. It had sanctioned credit facilities to one Aashapuri Industries/R3 towards packing credit and FDBP/FUDBP, vide sanction letter dated 22.03.2002.

2.Overdraft (OD) facility of Rs.57 lakhs was also extended on 01.08.2002 as against Fixed Deposit of Rs.60 lakhs. The OD limit stood enhanced from Rs.57 lakhs to Rs.69 lakhs as against enhanced fixed deposit coverage of Rs.85 lakhs (approx). At the time of extension of packing credit facility, the petitioner had marked a lien in respect of the fixed deposits offered as collateral.

3.While so, it appears that R3 defaulted in payment of sales tax demands in respect of the periods 1996-97 to 2001-02. Thus, the Commercial Taxes Department (‘R1’/‘Department’) had issued communication dated 13.09.2024 accompanied by a statutory notice in Form B-6 of the Tamil Nadu General Sales Tax Act, 1959 ('Act'/'TNGST Act') seeking recovery of the arrears.

4.The bank, in its capacity as a garnishee, had responded to the notice and furnished the details of the fixed deposits held by it with lien. The bank also complied in part, in that, while retaining a sum of Rs.67,91,953/- towards packing credit, it paid over a sum of Rs.15,76,630/- to the Department, ensuring that the lien exercised by it stood achieved to the extent of packing credit facilities granted to R3. 5.The department continued to pursue the B-6 notice in respect of the balance of the demand, paving the way for the bank to approach this Court by way of the present writ petition. The stand of the bank is that it is the bank that holds priority of charge in respect of the fixed deposit, and thus, it should not be called upon to remit anything over and above the sum of Rs.15,76,630/- already remitted by it.

6.We have heard the detailed submissions of Ms.Vishnupriya for Mr.N.Inbarajan, for the petitioner, Mr.Haja Nazirudeen, learned Additional Advocate General for Mr.G.Nanmaran, learned Special Government Pleader for R1. The Reserve Bank of India/R2 is represented by Mr.T.Poornam and Ms.S.G.Gopika, for McGan Law Firm appears for R3.

7.The submissions of learned counsel for the petitioner are to the effect that the petitioner bank holds priority of charge insofar as the lien on the Fixed Deposits has been registered as early as on 19.07.2002, enhanced on 01.08.2002.

8.With the marking of the lien as early as in July and August, 2002, the right of first charge is available to the bank. She would rely on the judgments of the Supreme Court in State Bank of Bikaner and Jaipur v. National Iron and Steel Rolling Corporation and Others [(1995) 96 STC 612 (SC)] and this Court in Tamilnad Mercantile Bank Ltd. v. Commercial Tax Officer, South Avani Moola Veethi Circle, Madurai [ (2009) 23 VST 151 (Mad) ], for the proposition that, while deciding the priority of charge between crown debts and other secured creditors, it is the debt was created anterior in point of time that must be honoured. 9.Learned Additional Advocate General was requested to confirm the dates of assessment orders passed under the Sales Tax Act in order to enable the Court to obtain clarity on the factual position as to, which lien/demand had been marked/raised at the earlier point in time.

10.The following tabulation has been circulated by learned Additional Advocate General indicating the dates of orders with the assessment periods mentioned alongside:

ASHAPURI INDUSTRIES