Himachal Pradesh High Court
Reserved On: 06.01.2025 vs State Of H.P. & Ors on 8 January, 2025
Author: Tarlok Singh Chauhan
Bench: Tarlok Singh Chauhan
2025:HHC:1648-DB IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA.
CWP No. 14348 of 2024
Reserved on: 06.01.2025
Date of decision: 08.01.2025
M/s H M Industries ...Petitioner
vs.
State of H.P. & Ors. ...Respondents
Coram
The Hon'ble Mr. Justice Tarlok Singh Chauhan, Judge. The Hon'ble Mr. Justice Rakesh Kainthla, Judge. Whether approved for reporting? No. For the Petitioner: Mr. Rajat Awasthy, Advocate.
For the Respondents: Mr. Anup Rattan, A.G. with Mr. I. N. Mehta, Sr. Addl. A.G., Mr. Sushant Keprate, Addl. A.G., Mr. J. S. Guleria and Mr. Raj Negi, Dy. A.Gs., for respondents No. 1 to 3.
Mr. Sanjay Dalmia, Advocate, for
respondent No. 4.
Tarlok Singh Chauhan, Judge
The instant petition has been filed for grant of the following substantive relief(s):-
I. A writ in the nature of certiorari be issued quashing the claim entries of respondents No. 1 to 3 recorded in the Annexure P-4 attaching the property in question, which already stands mortgaged with respondent No. 4 and purchased in auction by the petitioner and also quashing the tax and other liabilities over the said property.2
2025:HHC:1648-DB II. A writ in the nature of mandamus may be issued directing the respondent No. 1 to delete the claim entry of respondents No. 2 and 3 department from the revenue records.
2. The facts are not in dispute.
3. The petitioner purchased immovable property from UCO Bank (Respondent No. 4) in an E-auction held on 11.09.2018 whereby land measuring 2 Bighas 4 Biswas and factory building comprised in Khasra No. 736/586/2-4 Kita in Khata/Khatauni No. 81/88 Min situated in village Kunjahal, Pargana Dharampur, Tehsil Baddi, District Solan, H.P. in accordance with the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the 'SARFAESI Act'). The reserve price of the said secured assets was kept Rs. 117.00 lacs.
4. The petitioner participated in the auction and offered highest bid of Rs. 1,05,00,000/-. Respondent No. 4 being 'Secured Creditor" under the SARFAESI Act while exercising power under Section 13 read with Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 issued Sale Certificate in favour of the petitioner mentioning therein the description of the immovable property purchased by it.
5. Later on, the petitioner came to know that respondent No. 2 i.e. Department of Excise and Taxation had got 3 2025:HHC:1648-DB a mutation No. 688, dated 21.07.2018, recorded regarding the fact that the said property stood charged with respondent No. 1, whereas respondent No. 4 had already created a charge over the property vide mutation No. 298, dated 10.01.2018, where the property stood charged with respondent No. 4 prior to the charge of respondents No. 1 to 3.
6. It is in this background that the petitioner has filed the instant petition.
7. Identical issue came up before the learned Division Bench of this Court of which one of us (Justice Tarlok Singh Chauhan, J) was a Member in CWP No. 1817 of 2023, titled as Rajinder Singh vs. State of H.P. & Ors., decided on 14.09.2023.
8. It shall be apt to reproduce the relevant observations of the aforesaid judgment, which read as under:-
14. ANALYSIS OF STAND OF PETITIONER:
14(i). The first prayer of the petitioner needs to be granted for the reason ; firstly, that consequent upon E- auction and confirmation of sale on 26.10.2022 (Annex- ure P-2) and after the issuance of sale certificate on 20.01.2023, Annexure P-3, once the petitioner has ac-
quired an absolute right, title and interest in the scheduled immoveable property under the SARFAESI Act then, the rights and interests which had accrued in favor of the bonafide auction purchase-petitioner cannot be defeated or curtailed or taken away, negated or nullified, or extin- guished merely on the basis of a red ink entry contained in 4 2025:HHC:1648-DB the revenue records as per Rapat No 196, dated 01.12.2016 when, the State Tax Authorities were bound to recover the outstanding dues of State Sales Tax/Excise Taxes, under HP VAT Act, from the Original Loanee, being the past dealer, M/s Aradhana Wines, who had raised a loan for his business against such property ; secondly, the rights, title and interests which had accrued in favour of the auction purchase-petitioner can be curtailed or re- stricted or taken away or nullified or extinguished only in case of fraud or collusion as per the mandate of Law laid down by the Hon'ble Apex Court in the cases of C Natarajan ; Shakeena ; Sadashiv Prasad Singh; Rana Girders ; Shreyas Papers and Valji Khimji (supra), which factors are absent in the instant case; thirdly, the liability of the Erstwhile Loanee-dealer, M/s Aradhana Wines had accrued and was solely attributable to the business of the aforesaid dealer ; fourthly, the Respondent Bank had nowhere stipulated the details of past encumbrances of State Excise Taxes -Govt Dues, allegedly recoverable from Erstwhile Loanee-Dealer in the sale notice dated 25.9.2022, Annexure P-1, as was mandatorily required to be disclosed under Rule 8 (7) of the Enforcement Rules as in force w.e.f. 18.10.2018; fifthly, non-compliance of Rule 8 (7) and non-disclosure of encumbrances in the sale no- tice by the Respondent Bank cannot be the basis for fas- tening the liability of Erstwhile Loanee-Dealer on the peti- tioner- auction purchaser; sixthly, there was no express covenant in the terms and condition of auction that the subsequent purchaser-petitioner will be liable for the out- standing business liability- intangible assets etc. which had accrued and were connected with and were solely attribut- able to Erstwhile Loanee-Dealer- M/s Aradhana Wines ; seventhly, the petitioner had nowhere participated in the E-auction for sale of moveable -intangible- assets of Origi-
52025:HHC:1648-DB nal Loanee- Dealer ; eighthly, the business liability of Erst- while Loanee-Business Dealer-M/s Aradhana Wines cannot be fastened on the petitioner-auction purchaser when, the petitioner has only purchased the immovable secured as- sets in E-auction and the petitioner had never purchased the business liability of Erstwhile Loanee-debtor- M/s Arad- hana Wines ; ninthly, the past business liability of a dealer under the HP VAT Act, 2005 cannot be fastened on an auc- tion purchaser automatically unless such an auction pur- chaser acquires "ownership by transfer of business of the dealer under Section 39 of the HP VAT Act, 2005 , which is absent in this case, as the petitioner-auction purchaser has never acquired the ownership by transfer of business under Section 39 aforesaid of the Erstwhile dealer-M/s Aradhana Wines Pvt Ltd ; lastly, once the respondents have neither determined the business liability of its past dealer -M/s Aradhana Wines {Erstwhile Loanee}, based on the tax due, interest due and penalty thereon and such determination of liability has not attained finality under the orders of the competent statutory authorities as per the HP VAT Act, 2005 nor have the respondents taken steps to recover the liability as arrears of land revenue from the dealer M/s Aradhana Wines under the HP VAT Act, 2005 and there no material has been placed on record to substanti- ate these aspects then, the red ink entry made in revenue records as per Rapat No 196, dated 1.12.2016 cannot operate against the petitioner, as in this case, in view of the directions of the Hon'ble Apex Court in the case of State of Himachal Pradesh Versus M/s A.J. Infra- structures Pvt. Ltd., 2023 (7) Scale 208, which reads as under :
"48. From the excerpt of the impugned judgment and order of the High Court dated 2 nd January, 2008 underlined above, it is clear that proceedings were 6 2025:HHC:1648-DB not initiated upon notice to the defaulters and the sum they owed to the department had not been finally determined in accordance with law. In view thereof, question of the State resorting to the provisions contained in Chapter VI of the HPLR Act for recovering the dues, if at all, as arrears of land revenue did not arise. The Excise Department, in its reply to CWP 306 of 2007, submitted that the non-obstante provision contained in Section 16-B would prevail over any inconsistent provisions in other laws; it was further submitted that in the event of any conflict between any other statute and the HPGST, the latter would prevail. The de- partment further urged that sales taxes dues would be higher in priority over any mortgage since the State would have a first charge. It was also submit- ted that the Tehsildar was requested, on multiple occasions, to make the required red entries in rela- tion to the revenue records of the subject property, and not mutate /register the same at the behest of the first respondent.
49. While adopting such a stand the state and its department either overlooked or were ignored of the requirement of law that section 16-B would be attracted only after de- termination of the liability and upon any sum be- coming due and payable; and that, it is only there- after that the charge, if any, would operate. We are of the opinion that no relevant documentary evi- dence having been placed before the High Court, when CWP 306 of 2007 was being heard, to indicate that necessary steps under the HPGST Act hand been initiated by the State and its officers, the third issue has to be answered by holding that the 7 2025:HHC:1648-DB State not having taken steps as required by law for realization of its dues, there was no determination of liability, a fortiori, question of taking recourse to the HPLR Act for recovery of dues as arrears of land revenue did not arise. Without such determina- tion of liability, no red entry marks could have been inserted in the revenue records and the High Court was right in holding that the State ought not to have refused mutation."
14(ii). The next contention of the petitioner that the red ink entry made in the revenue records vide Rapat No 196, dated 01.12.2016 and the charge created on immovable property, which is the subject matter herein, at the instance of State Tax Authorities for recovery of past business liability of sales-excise taxes from its dealer-erstwhile loanee, namely M/s Aradhana Wines under Section 26 of the HPVAT Act 2005, can neither be fastened and enforced nor can it operate against the bonafide auction purchaser-petitioner has substance, for the reason ; firstly, when, Section 26-B (2) of the SARFAESI Act mandates that transactions pertaining to the creation, modification and satisfaction of any security interest over properties are to be mandatorily registered with the Central Registry i.e. CERSAI and of Section 26-B (4) of the SARFAESI Act {applicable w.e.f. 24.1.2020} mandates that every authority or officer of the Central Government or any State Government or local authority who is entrusted with the function of the recovery of taxes or other Government dues and for issuing any order of attachment of any property of any person liable to pay the tax or Government dues, shall have to file such attachment order with the Central Registry {CERSAI} giving particulars of assesse, details 8 2025:HHC:1648-DB of tax or government dues ; secondly, the State Tax Authorities-Respondents 1 & 2, have neither got its claim for recovery of State VAT Taxes registered with CERSAI etc. after the date of enforcement of the provision of Section 26-B (4) of the SARFAESI Act w.e.f. 24.01.2020 till the date of issuance of the sale notice on 25.9.2022 (Annexure P-1) as well as till the date of E-auction on 25.10.2022 and even thereafter till 22.1.2023 i.e. date prior to the issuance of the sale certificate on 23.1.2023 (Annexure P-3) nor had the respondents 1 and 2 sought/obtained any attachment order from the court or competent authority and got it registered with Central Registry i.e. CERSAI; thirdly, even on facts, the documents produced by Mr. Arvind Sharma, learned counsel for the Respondent No 4-Bank goes on to suggest that the Respondents 1 and 2-State Tax Authorities got its claim of recoverable state excise taxes registered with CERSAI as required under Section 26-B (4) of the SARFAESI Act only on 2.9.2023 i.e. much after the date the process of e-auction was over and sale was confirmed and sale certificate was also issued by the Respondent No 4 Bank in favor of the petitioner-auction purchaser; fourthly, when, the State Tax Authorities had been negligent and had slept over their claims, interests or rights by not resorting to recover such claims-dues as arrears of land revenue from the past owner-loanee- dealer under Sections 25 & 27 of the HP VAT Act, 2005 ; fifthly, when, the respondents have failed to take action for criminal prosecution under Section 50 of the Act against the past dealer-loanee and sixthly, the negligence or inaction of the statutory designated authorities under the HP VAT Act, 2005 in not resorting to an expeditious recovery of State Taxes, which were attributable to and were solely connected with the 9 2025:HHC:1648-DB business liability of erstwhile dealer-M/s Aradhana Wines {Erstwhile Loanee} then, such past business liability could not be fastened on the petitioner -auction purchaser ; for inaction or negligence on the part of the state authorities by not resorting to action against its dealer-loanee-M/s Aradhana Wines inconsonance with the statutory provisions of the HP VAT Act (as applicable at relevant time) referred to below; provisions of Section 2 (c), 2(g), 2(k), 2(z) and Sections 6, 7, 16, 19, 25, 27, 50 and 53 of the Act, are reproduced here-in-below:-
"Section 2(c), business includes
(i) any trade, commerce, manufacture, any adventure or concern, in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make profit and whether or not any profit accrues therefrom ; and
(ii) any transaction in connection with or ancillary to such trade, commerce, manufacture, adventure or concern;
2(g) "dealer" means any person who carries on (whether regularly or otherwise) the business of buying, selling, supplying or distributing goods, directly or indirectly, for cash, or for deferred payment, or for commission, remuneration or other valuable consideration, and includes,-
(i) a local authority, a body corporate, a company, a co-operative society or other society, club, firm, Hindu Undivided Family or other association of persons which carries on such business;
102025:HHC:1648-DB
(ii) a factor, broker, commission agent, a dealer's agent or any other mercantile agent, by whatever name called;
(iii) an auctioneer who carries on the business of selling or auctioning goods belonging to any principal, whether disclosed or not, and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of the principal;
(iv) every person engaged in the business of:-
(a) transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
(b) transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(c) delivery of goods on hire-purchase or any system of payment by instalments;
(d) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(e) supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; and
(f) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether 11 2025:HHC:1648-DB or not intoxicating) where such supply or service, is for cash, deferred payment or other valuable consideration ;
2(k) "goods" means every kind of movable property (other than news-papers, actionable claims, stocks and shares and securities) and includes live stock, all materials, commodities and articles and every kind of property (whether as goods or in some other form) involved in the execution of a works contract, and all growing crops, grass, trees or things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;
2(z) "tax" or "value added tax" means the tax on the sale or purchase of goods, levied under section 6 or 7;
6. Levy of tax (1) Subject to the provisions of this Act, there shall be levied a tax:-
(a) at every point of sale in respect of the goods specified in the second column of Schedule 'A',
(b) at the prescribed points of purchase in respect of goods specified in the second column of Schedule 'C', and
(c) at the first point of sale in respect of the goods specified in the second column of Schedule 'D',
(d) at every point of sale in respect of the goods specified in the second column of Schedule 'E', on the taxable turnover of a dealer, at the rates as specified in the respective Schedules or at such rates not exceeding 100 paise in a rupee as the State Government may, by notification, direct:12
2025:HHC:1648-DB Provided that the State Government may notify different rates in respect of different goods or classes of goods:
Provided further that the rate of tax in respect of declared goods shall not exceed the maximum rate of tax specified in clause (a) of section 15 of the Central Sales Tax Act, 1956:
Provided further that subject to furnishing of a declaration as may be prescribed, the Government may, by notification, reduce the rate of tax levied under sub-section (1) upto 4% in respect of goods sold to the Government, not being a registered dealer, for captive use in telecommunication network, or in the generation or distribution of electricity or any other form of power.
(2) Notwithstanding anything contained in this section, where any goods are sold in container or are packed in any packing material, the rate of tax applicable to such container or packing material, shall, whether the price of the container or packing material is charged separately or not, be the same as is applicable to the goods, contained or packed therein and the turnover in respect of the container and packing material, shall be included in the turnover of such goods. Where the goods, sold in container or packed in packing material are tax free, the sale of such container or packing material shall also be tax free.
(3) In this Act, the expression-taxable turnover means that part of the dealer's gross turnover 13 2025:HHC:1648-DB during any period which remains after deducting there from-
(a) his turnover during that period on:-
(i) the sale of goods declared tax free under section 9;
(ii) sale or purchase of goods falling under section 58; and
(iii) such other sales or purchases as may be prescribed; and
(b) the amount of tax included in the gross turnover,
7. Levy of presumptive tax Notwithstanding anything contained in this Act, every registered dealer, whose turnover in any year does not exceed such amount as may be prescribed, shall, in lieu of the tax payable under this Act, pay presumptive tax on the entire taxable turnover of sales or purchases, as the case may be, at such rates, or exceeding the rates specified in section 6, as the State Government may, by notification, direct, and subject to such conditions and restrictions and in such manner as may be prescribed:
Provided that no input tax credit shall be available to such dealer:
Provided further that a registered dealer who imports goods for sale shall pay tax on the sale of such goods imported from outside the State on actual basis i.e. as per tax applicable on the sale of such goods within the State.
16. Payment of tax and returns:14
2025:HHC:1648-DB (1) Tax payable under the Act shall be paid in the manner hereinafter provided at such intervals as may be prescribed.
(2) The State Government may, in public interest and subject to such conditions as it may deem fit, accept from any class of dealers in lieu of the amount of tax payable under this Act for any period, by way of composition, a lump sum to be determined and to be paid at such intervals and in such manner as may be prescribed, or the lump sum amount may be calculated at a fixed rate on the taxable turnover, as may be prescribed in respect of such class of dealers and for this purpose a simplified system of registration, maintenance of accounts, filing of returns may also be prescribed which shall remain in force during the period of such composition.
(3) Such dealers as may be required so to do by the Assessing Authority by notice served in the prescribed manner and every registered dealer shall furnish such returns manually of electronically by such dates and to such Authority as may be prescribed.
(3a) The State Government may, by notification, exempt any class of dealer from filling of return, subject to such restrictions and conditions, such limit of turnover and for such period, as may be prescribed, and tax, if any, deducted at source, shall be deemed to be final payment of tax and such dealer shall be liable to assessment for that period.15
2025:HHC:1648-DB (4) Before a registered dealer furnishes the return required by sub-section (3), he shall, in the prescribed manner, pay manually or electronically into a Government Treasury or the Scheduled Bank which is a treasury bank, or at the office of the Assistant Excise and Taxation Commissioner or Excise and Taxation Officer -in- charge of the District, the full amount of tax due from him under the Act according to such returns and shall furnish alongwith the returns a receipt from such treasury, bank or office of the Assistant Excise and Taxation Commissioner or Excise and Taxation Officer-in-charge of the District showing the payment of such amount:
xxx... xxx... xxx... (5) If any dealer discovers any omission or other error in any return furnished by him, he may,- (i) in the case of monthly and quarterly return,
furnish a revised return before the date prescribed for filing of next return, and
(ii) in the case of annual return furnish a revised return within a period of sixty days from the last date prescribed for filing of annual return, and if the revised return shows a greater amount of tax to be due against the tax shown in the original return, it shall be accompanied with a receipt showing payment of extra amount in accordance with sub-section (4).
(6) If a dealer fails without sufficient cause to furnish the returns by the prescribed date as 16 2025:HHC:1648-DB required under sub-section (3), dealer shall be liable to pay, by way of penalty, a sum equal to Rs. 200/-per day till the default continues but such penalty shall not exceed Rs. 25000/.
Provided that where the dealer is filing monthly returns, a sum equal to Rs. 1000/- per day shall be charged as penalty till the default continues, but such penalty shall not exceed Rs 50,000/-:
Provided further that where a dealer has closed down his business or has left the business without getting his Registration Certificate cancelled, the Assessing Authority shall suspend his Registration Certificate immediately, and thereafter no further incremental penalty as applicable shall be imposed.
(6-A). If a dealer fails without sufficient cause to furnish annual return by the prescribed date, he shall be liable to pay by way of penalty, a sum of Rs 5000/-.
(7) If a dealer fails without sufficient cause to comply with the requirements of the provisions of sub-section (4), the Commissioner or any person appointed to assist him under subsection (1) of section 3 may, after giving such dealer a reasonable opportunity of being heard, direct him to pay by way of penalty, a sum:
(i) equal to ten percentum, for the delay upto fifteen days,
(ii) equal to twenty five percentum, for the delay exceeding fifteen days but not exceeding thirty days, and 17 2025:HHC:1648-DB
(iii) equal to fifty percentum, for the delay exceeding thirty days, of the amount of tax to which he is assessed or is liable to be assessed under section 21, in addition to the amount of tax to which he is assessed or is liable to be assessed.
(8). If a dealer has maintained false or incorrect accounts with a view to suppressing his sales, purchases or stocks of goods, or has concealed any particulars of his sales or purchases or has furnished to, or produced before, any Authority under this Act or the rules made there under any account, return or information which is false or incorrect in any material particular, the Commissioner or any person appointed to assist him under sub section (1) of section 3 may, after affording such dealer a reasonable opportunity of being heard, direct him to pay by way of penalty in addition to the tax to which he is assessed or is liable to be assessed, an amount upto twice the amount of tax but which shall not be less than one hundred percentum of such tax amount to which he is assessed or is liable to be assessed.
19. Payment of Interest:
(1) If any dealer fails to pay the amount of tax due from him under this Act except to the extent mentioned in sub-section (2), he shall, in addition to the amount of tax, be liable to pay simple interest on the amount of tax due and payable by him at the rate of one percentum per month, from the date immediately following the last date on which the dealer should have either filed the return or paid the tax 18 2025:HHC:1648-DB under this Act, for a period of one month and thereafter at the rate of one and a half per centum per month till the default continues.
(2) If the amount of tax or penalty due from a dealer is not paid by him within
the period specified in the notice of demand or, if no period is specified within thirty days from the service of such notice, the dealer shall, in addition to the amount of tax or penalty, be liable to pay simple interest on such amount at the rate of one per centum per month from the date immediately following the date on which the period specified in the notice or the period of thirty days, as the case may be, expires, for a period of one month and thereafter at the rate of one and a half percentum per month till the default continues:
25. Tax and penalty recoverable as arrears of land revenue:
The amount of any tax and penalty imposed or interest payable under this Act, which remains unpaid after the due date, shall be recoverable as arrears of land revenue.
27. Special mode of recovery :
(1) Notwithstanding anything contained in section 25 or any law or contract to the contrary, Commissioner, or any officer other than an Excise and Taxation Inspector, appointed under section 3 to assist the Commissioner, may, at any time or from time to time, by notice in writing (a copy of which shall be sent to the dealer at his last 19 2025:HHC:1648-DB address known to the officer issuing the notice), require -
(a) any person from whom any amount is due or may become due to a dealer
who has failed to comply with a notice of demand for any amount due under this Act;
(b) any person who holds or may subsequently hold any money for or on account of such dealer, to pay into the
Government treasury in the manner specified in the notice issued under this sub-section, so much of the money as is sufficient to pay the amount due from the dealer in respect of the arrears of the tax, interest and penalty under this Act.
Explanation.-- For the purposes of this sub-section, the amount due to a dealer or money held for or on account of a dealer by any person shall be computed after taking into account such claim, if any, as may have fallen due for payment by such dealer to such person and as may be lawfully subsisting.
(2) The officer issuing a notice under sub-section (1) may at any time or from time to time, amend or revoke any such notice or extend the time for making any payment in pursuance of the notice.
(3) Any person making any payment in compliance with a notice issued under sub-section (1) shall be deemed to have
made the payment under the Authority of the dealer and the treasury receipt for such payment 20 2025:HHC:1648-DB shall constitute a good and sufficient discharge of the liability of such person to the extent of the amount specified in the receipt.
(4) Any person discharging any liability to the dealer after service on him of the notice issued under sub-section (1) shall be personally liable to the State Government to the extent of the liability discharged or to the extent of the liability of the dealer for tax, interest and penalty, whichever is less.
(6) Any amount of money which a person is required to pay under sub-section (1), for which he is personally liable to the State Government under sub-section (4) shall, if it remains unpaid, be recoverable as an arrear of land revenue.
(7) The provisions of this section shall be without prejudice to any action that may be taken for the recovery of the arrears of tax, interest and penalty, if any, due from the dealer.
50. Offences and Penalties (1) Any person who-
(a) wilfully acts in contravention of the provisions of this Act or the rules made there under; or
(b) to (h) .....xxx.....
(i) makes any statement or declaration in any of the documents specified in section 34 or section 35, as the case may be, which statement or declaration he knows or, has reasons to believe to be false; or 21 2025:HHC:1648-DB
(j) in any way is knowingly concerned in any fraudulent evasion or attempt at evasion or abetment of evasion of any tax payable in respect of the sale or purchase of any goods under this Act; or (2) Whosoever contravenes or fails to comply with, any of the provisions of this Act or the rules made there under, or any order or direction made or given there under, shall, if no other penalty is provided either under sub-section (1) of this section or under any other provisions of this Act for such contravention or failure, be liable to imposition of a penalty, not exceeding five thousand rupees, and where such contravention or failure is continuing one, to a daily penalty not exceeding two hundred rupees during the period of the continuance of the contravention or failure.
(3) xxx... xxx... xxx...
53. Directors of defaulting companies to be liable to pay tax:
Notwithstanding anything contained in any other law, where any tax assessed or penalty imposed under this Act on a company cannot be recovered by reason of the company having gone into liquidation or for any other reason, then every person, who was Director of such company at any time during the relevant period for which the tax is due or in respect of which the default for which the penalty is imposed was committed, shall be jointly and severally liable 22 2025:HHC:1648-DB for the payment of such tax and penalty unless he proves that the non-payment or non- recovery cannot be attributed to any neglect, misfeasance or breach of duty on his part in relation to the affairs of the company."
In the above background, notably, the taxes or outstanding dues of taxes were not forthcoming from the erstwhile dealer (loanee) M/s Aradhana Wines Pvt. Ltd then, the State authorities were under an obligation to recover such taxes as arrears of land revenue under Section 25 and Section 53 of the VAT Act. In addition to this, the State Tax Authorities had another remedy of resorting to the special mode of recovery under Section 27 of the HP VAT Act. Even, under Section 50 of HP VAT Act, a dealer was criminally liable in case he defaults in payments of taxes, interest and penalty imposed-levied on him under the Act. The inaction or negligence or non-performance of functions and legal obligations by the Respondents under the Statute cannot be the ground to fasten the liability of the outstanding state taxes which had accrued and were connected with and were solely attributable to the business of Erstwhile Loanee (Dealer) under the HP VAT Act on the petitioner-auction purchaser.
14(iii). The further contention of the petitioner that the past business liability of the Erstwhile Dealer (under HPVAT Act), who had raised a loan from the Respondent No 4 Bank, cannot be fastened on bonafide auction purchaser, i.e. the petitioner firstly, when, the recovery of liability of State Taxes, were attributable to and were solely connected with the business liability of the 23 2025:HHC:1648-DB erstwhile dealer-M/S Aradhana Wines {Erstwhile Loanee}; secondly, the fastening of business liability of erstwhile dealer-erstwhile loanee on the petitioner, a bonafide auction purchaser amounts to nullifying the sanctity of public auction under SARFAESI and also amounts to rendering the rights, title and interest acquired by the petitioner-auction purchaser redundant by putting the petitioner to a disadvantageous and prejudicial position without any fault attributable to him in view of the mandate of referred to above.
16. ANALYSIS OF STAND OF RESPONDENTS:
16(i). The first plea of the State Tax Authorities-Re- spondents 1 & 2, that the State Tax Authorities have e a priority over the right of the Bank to recover its secured assets-dues against the Loanee-M/s Aradhana Wines, from whom an amount of Rs 2,26,47,862/- on ac- count of state excise taxes, arising as a business liability of such dealer was outstanding.
The plea of the State Authorities that the State Tax Authorities-Respondents have priority over the right of the Bank is contrary to the mandate of law laid down by the Hon'ble Apex Court in (2003) 3 SCC 210, titled as Kotak Mahindra Bank Ltd. Versus Girnar Corrugators Private Limited and Others, and the judgement in the case of Punjab National Bank vs. Union of India & Ors (2022) 7 SCC 260, this Court has decided a similar issue in CWP No. 4751 of 2023, titled as Central Bank of India versus the State of Himachal Pradesh & Ors., decided on 16.08.2023 and the opera- tive paragraphs reads as under:-24
2025:HHC:1648-DB "4(vi). It is worth mentioning that respondent No.2, Excise & Taxation Department cannot raise a prior- ity claim over and above the Petitioner-Bank, when, as per Section 26E of SARFASEI Act intro- duced by amendment carried in 2016, the Peti- tioner-Bank has first charge over the properties be- ing secured creditor in priority over all Other Debts, Revenues, Taxes, Cesses and Other Rates payable to the Central or State Government or Legal Author- ity and that too when, there is nothing on record to show (even by way of reply or by instructions) that the Respondent No.2 i.e. H.P. Excise and Taxation Department has resorted to assessment of liability; determination of liability and has issued notice of such determination /liability under the statute (i.e. under H.P. Vat Act or other corresponding statutes, if any). In absence of any assessment and the resul- tant determination of liability, the action of the Re- spondents in inserting red entry marks in Annexure P-4 and Annexure P-5, in revenue records and the resultant action of Respondent No. 3, in re- fusing to register the Sale Certificate dated 15.01.2021, Annexure P-3, and to carry out the Mutation thereof, in favour of Respondent No. 6-Auction Purchaser, amounts to not only frustrating the statutory provisions of Section 26E of SARFAESI Act, enacted in the year 2016 but also amounts to curtailing or defeating the rights accruing to the Auction Purchaser-Respondent No.6 herein, under the SARFASEI Act and the dictum of law laid down by the Hon'ble Apex Court, in case of Punjab National Bank and Kotak Mahindra Bank (supra) and the judg-25
2025:HHC:1648-DB ment of the Coordinate Bench of this Court in LPA No. 156 of 2021 (supra), and, therefore, the impugned order(s) passed by the State Authorities in disallowing registration of Sale Certificate and the consequential mutation etc. being dehors the provisions of SARFAESI Act and the mandate of law, referred to above, are illegal and unsustainable."
While dealing with the scope of Section 26 of the HP VAT Act 2005 and Section 26 E of the SARFAESI Act (applicable w.e.f. 1.9.2016), the Divi- sion Bench of this Court, in the case of Mankind Life Sciences Private Limited versus The State of Himachal Pradesh & Anr, CWP No. 4701 of 2023, decided on 1.9.2023 has held as under:
"10(viii). LEGAL POSITION: SECTION 26-E OF SARFAESI ACT AND SECTION 26 OF HP VAT ACT:
Even as per Section 26E of the SARFAESI Act, which came into force w.e.f. 01.09.2016, the debts due to the Bank shall have priority over other debts, dues, taxes payable to the government.
At the sake of repetition, the provision of Section 26-E of the SARFAESI Act reads as under:-
26E. Priority to secured creditors: Notwithstanding anything contained in any other law for the time being in force, after the registration of security, in- terest, the debts due to any secured creditor shall be paid in priority over all other debts and all rev- enues, taxes cesses and other rates payable to the 26 2025:HHC:1648-DB Central Government or State Government or local authority.
Explanation: For the purposes of this section, it is hereby clarified that on or after the commence- ment of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bank- ruptcy proceedings are pending in respect of se- cured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code."
In contrast to Section 26E of the SARFAESI Act, the provisions of Section 26 of the H.P. Value Added Tax Act, 2005 read as under:
"26. Notwithstanding anything to the contrary con- tained in any law, any amount of tax and penalty including interest, if any, payable by a dealer or any other person under this Act shall be a first charge on the property of the dealer or such other person."
10(ix). Reference to Section 26E of SARFAESI Act and Section 26 of HPVAT Act, reveals that the words 'priority' in Section 26E of the SARFAESI Act and "first charge" in Section 26 of the VAT Act are of utmost significance. As per the Black's Dictionary, the word 'priority' in Section 26-E of SARFAESI Act means 'precedence' or 'going before' meaning thereby, that the word 'priority' would mean right to enforce the claim in preference to others. That being so, the word 'first charge' in Sec- tion 26 of the HPVAT Act cannot take precedence over the word 'priority' in Section 26E of SARFAESI 27 2025:HHC:1648-DB Act. Reading these provisions in the context of present case reveals that once the State Authori- ties have neither created a charge and have not made such charge known to the petitioner
-auction purchaser nor have the respondents ob- tained the attachment orders under Section 26 (B) (4) of the Act then, the outstanding tax liability of original lessee cannot be fastened on the peti- tioner...".
In view of the above backdrop, the right of "priority" conferred on the Bank-secured creditor under Section 26E of the SARFAESI Act shall have precedence over the right of "first charge" vested under Section 26 of the HPVAT Act on the State Tax Authorities and therefore, the action of the Re- spondent No 4 Bank in putting the secured interest to recover its assets is valid and the rights, title and interests acquired by the petitioner, a bonafide auction purchaser cannot be defeated, nullified, restricted, taken away or curtailed in any manner.
16(ii). The second plea of the State Tax Authorities-Respondents 1 & 2, that the first charge created by the State Tax Authorities was enforceable against the petitioner is without any merit when, as per Section 26-B (2) of the SARFAESI Act transactions pertaining to the creation, modification and satisfaction of any security interest over properties are to be mandatorily registered with the Central Registry i.e. CERSAI and after the enforcement of Section 26-B (4) of the SARFAESI Act {applicable w.e.f. 24.1.2020} that every authority or officer of 28 2025:HHC:1648-DB the Central Government or any State Government or local authority who is entrusted with the function of the recovery of taxes or other Government dues and for issuing any order of attachment of any property of any person liable to pay the tax or Government dues, shall have to file such attachment order with the Central Registry {CERSAI} giving particulars of assesse, details of tax or government dues. In the instant case, State Tax Authorities-Respondents 1 & 2, have neither got its claim for recovery of State VAT Taxes registered with CERSAI etc. after the date of enforcement of the provision of Section 26-B (4) of the SARFAESI Act w.e.f. 24.01.2020 till the date of issuance of the sale notice on 25.9.2022 (Annexure P-1) till the date of E-auction on 25.10.2022 and even thereafter till 22.1.2023 i.e. a date prior to the date of issuance of sale certificate on 23.1.2023 (Annexure P-3) nor had the respondents 1 and 2 sought/obtained any attachment order from the court or competent authority and got it registered with Central Registry i.e. CERSAI. Even on facts, the documents produced leaned counsel for the Respondent No 4- Bank goes on to suggest that the Respondents 1 and 2-State Tax Authorities got its claim of recoverable state excise taxes registered with CERSAI as required under Section 26-B (4) of the SARFAESI Act only on 2.9.2023 i.e. much after the date the entire process of e-auction was over and moreover, when, the State Tax Authorities had been negligent and had slept over their claims, interests or rights by neither resorting to recover such claims-dues as arrears of land 29 2025:HHC:1648-DB revenue from the past owner-loanee- dealer under Sections 25 & 27 of the HP VAT Act nor undertaken criminal prosecution under Section 50 of the Act against the past dealer-loanee. Notably, once both the enactments i.e. Section 26 E of the SARFAESI Act which came into force w.e.f. 01.09.2016 read with Section 35 of the Act viz-a- viz the provisions of Section 26 of the HP VAT Act 2005 both have non-obstante clause(s) then, as per the settled law reaffirmed in case of Kotak Mahindra Bank (supra), the non-obstante clause in the latter enactment, which in this case, is Section 26-E w.e.f. 1.9.2016 of the amended SARFAESI Act shall prevail.
16(iii). The third plea of the State Tax Authorities-Re- spondents 1 & 2, that non-impleading of Erstwhile Loanee-Dealer, M/s Aradhana Wines Pvt Ltd renders the petition bad in law is also without any force, for the reason that the petitioner being dominus litus and once no relief has been claimed therefore, M/s Aradhana Wines is neither a necessary nor a proper party and the present writ petition is maintainable in the instant form.
16(iv). The fourth plea of the State Tax Authori- ties-Respondents 1 & 2, that the writ petition is bad when, the petitioner has not pleaded in the writ petition that the State Tax Authorities had or had not got its en- forceable claims-dues registered with CERSAI and ob- tained an order of attachment from the court or the com- petent authority and got it registered with CERSAI is without force, for the reason that legal issues can be raised and considered by a Court. Moreover, contents of Para 3 of the Reply, placing reliance on the judgement of 30 2025:HHC:1648-DB Bombay High Court admits that a secured creditor-Bank can enforce the security interest-financial assistance or dues were registered with CERSAI. Moreover, once this Court in case of M/s Mankind Sciences Pvt Ltd has also de- cided this issue that the non-compliance of Section 26-B (2) & (4) applicable w.e.f. 24.1.2020 will render the deci- sion making process and action bad in law.
16(v). The fifth plea of the State Tax Authorities-Re- spondents 1 & 2, as per Section 9 of SARFAESI Act the measures for the asset reconstruction contained in any other law shall prevail over the rights of the secured creditor is without any merit for the reason that the provision of Section 9 has to apply in the context of Section 9 of the SARFAESI Act, where an asset recon- struction company enrolled under the Act has been en- trusted with the work of asset reconstruction and en- forcement on the directions of the Reserve Bank of India, which is not the position in the instant case.
16(vi). The last plea of the State Tax Authorities-Re- spondents 1 & 2, that as per the law laid down by the Hon'ble Apex Court in case of Central Bank of India vs State of Kerela, reported in (2009) 4 SCC 94 the priority of crown debt has to prevail over the secured interest of the secured creditor-Bank under the SARFAESI is not applicable on facts of the instant case, in view of the Amendment to Section 26-E of the SARFAESI Act w.e.f. 1.9.2016 whereby, the secured creditor-Bank shall have priority over the dues over all other debts and all revenues, taxes cesses and other rates payable to the Central Government or State Government or local author- ity. In view of the amendment to Section 26-E of SARFAESI Act (applicable w.e.f. 1.9.2016), and in view of the man-
312025:HHC:1648-DB date of law laid down by the Hon'ble Supreme Court in (2003) 3 SCC 210, titled as Kotak Mahindra Bank Ltd. Versus Girnar Corrugators Private Limited and Others, and the judgement in the case of Punjab National Bank versus Union of India & Ors (2022) 7 SCC 260, this Court has decided a similar issue in CWP No. 4751 of 2023, titled as Central Bank of India versus the State of Himachal Pradesh & Ors., decided on 16.08.2023 that the secured creditor-Bank shall have priority over the dues -taxes of the state-crown.
17. In view of the above discussion, the Questions 1 is answered to the effect, that the petitioner-auction purchaser cannot be fastened with the outstanding liability of dues and taxes, which had accrued and were connected with and were solely attributable to the business of Erstwhile Dealer {Loanee}. Moreover, the outstanding lia- bility of an Erstwhile Dealer {Loanee} cannot be fastened on the auction purchaser when, the Bank has nowhere stipulated in sale notice that the business liability of Erst- while Dealer {Loanee} was put to sale under Rule 6 of the Enforcement Rules. Such liability cannot be fastened when, the auction purchaser has never purchased the business liability of Erstwhile Dealer {Loanee}. Moreover, an auction purchaser cannot be made to bear the blunt of outstanding dues or tax liability of Erstwhile Dealer {Loa- nee} when, there was no express covenant either in sale notice or the terms of auction that the subsequent pur- chaser-petitioner will be liable for the outstanding liability of business which had accrued and connected with and were solely attributable to the business of the Erstwhile Dealer {Loanee}. Unless an auction purchaser acquires the business of the Erstwhile Dealer {Loanee} in its name as per Section 39 of the HP VAT Act, 2005 then, the tax lia-
322025:HHC:1648-DB bility of erstwhile original Erstwhile Dealer {Loanee} or erstwhile owner of business {M/s Aradhana Wines Pvt Ltd} cannot be fastened on an auction purchaser. Further, once the Bank has not created any charge, right, title or interest on moveable property, including the business of the erstwhile Dealer {Loanee} then, his business liability cannot be fastened on an auction purchaser. Moreover, once the Bank has failed to disclose the known encum- brances state taxes/dues of the Erstwhile Dealer {Loanee} in the sale notice and the Bank had disclosed that the property was free from all encumbrances then, any such li- ability cannot be fastened on the auction purchaser. More- over, incase any such encumbrances, {registered with CERSAI were available, qua which any attachment order by a court of competent jurisdiction was passed and there- after registered with CERSAI under Section 26 B (2) and (4) of the Act applicable w.e.f. 20.1.2020 existed} existed but the Bank had acted contrary to Rule 8(7)(a) of the Se- curity Interest Enforcement Rules which came into force w.e.f. 18.10.2018 and had also not complied with Rule 8(7)
(f) of the Security Interest (Enforcement) Rules then, any such undisclosed liability cannot be fastened on an auc- tion purchaser. Moreover, once Respondents-State Tax Au- thorities have neither registered its recoverable claims/ dues/taxes of outstanding dues, etc. nor obtained such at- tachment orders from the Court or other Competent Au- thority and got it registered with CERSAI against the Erst- while Dealer {Loanee} (or erstwhile owner as the case may be) in-accordance with the mandate of Section 26-B (4) of the SARFAESI Act, which came into force w.e.f. 24.01.2020 then, the Respondents, including the State Tax Authorities have neither any locus nor any right to fasten upon the business liability of the Erstwhile Dealer {Loa- nee}, on the auction purchaser, alike the petitioner. Once 33 2025:HHC:1648-DB the security interest was got registered by the state Tax Authorities with CERSAI only on 2.9.2023. under Section 26-B (4) of the SARFAESI Act much later than the process of auction was over the, such liability cannot be fastened on the auction purchaser. Moreover, the fastening of such liability amounts to frustrating or extinguishing the sanc- tity of public auction which can only be extinguished in case of twin eventualities i.e. fraud or collusion and once these twin eventualities are absent in this case then, the fastening of business liability of Original Dealer (Loanee) on the auction purchaser was contrary to Law laid down by the Hon'ble Apex Court in the cases of C Natarajan ; Sha- keena ; Sadashiv Prasad Singh; Rana Girders ; Shreyas Pa- pers and Valji Khimji (supra). Such business liability of Original Dealer(Loanee)-M/s Aradhana Wines Pvt Ltd could not be fastened on the petitioner-auction purchaser when, the petitioner had never purchased the business concern of the Erstwhile Dealer (Loanee) but had participated and had only purchased the immoveable property of the Erst- while Dealer (loanee) as aforesaid. Importantly, the busi- ness liability of the Erstwhile Dealer (Loanee) could not be fastened unless "an auction purchaser or purchaser be- came owner by transfer of such business liability" under section 39 of the HP VAT Act, which on facts was not the position in this case. Further, fastening of business liability amounts to prejudicing and putting the auction purchaser (petitioner in instant case) to a disadvantageous position by acting in total defiance of the object and spirit of the SARFAESI Act. Fastening of liability (past or present).
Thus, we hold that the Respondents-State Authori- ties cannot nullify, defeat, obstruct, restrict, frustrate, cur- tail, take away or extinguish the rights, title and interest 34 2025:HHC:1648-DB acquired by the auction purchaser after confirmation of sale in his favour.
21. CONCLUSION AND DIRECTION(S):
In view of the discussion, made hereinabove, the writ petition is allowed, with the following directions:-
(i). Respondents including the revenue authorities are directed to register the Sale Certificate dated 20.01.2023, Annexure P-3, in the revenue records in name of petitioner for all intents and purposes forthwith.
(ii). Adversial red ink entry existing in the revenue records which restrict, defeat and curtail the rights, title and interest acquired by petitioner, a bonafide auction purchase under SARFAESI Act is declared inoperative, illegal and is accordingly quashed and set-aside.
(iii). Respondent No.3 is directed to release the amount of Rs.4,60,610/- as in the communication letter dated 19.12.2022, Annexure P-5, with all statutory benefits ad- missible thereon in accordance with the Land Acquisition Act/Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, as the case may be, within four months from today.
9. Now that the issue in question is no longer res integra so far as this Court is concerned, we have no hesitation in allowing the petition.
10. Consequently, the instant petition is allowed and the adverse entry existing in the revenue record, which restricts, defeats and curtails `the right, title and interest acquired by the petitioner-a bonafide auction purchaser under the SARFAESI Act 35 2025:HHC:1648-DB is declared inoperative, illegal and is accordingly quashed and set aside and respondents No. 1 to 3 are accordingly directed to delete the said entry.
The parties are left to bear their own costs.
(Tarlok Singh Chauhan)
Judge
(Rakesh Kainthla)
8th January, 2025 Judge
(sanjeev)