Gujarat High Court
M/S Mani Laxmi Metal And Alloys Private ... vs State Of Gujarat on 8 April, 2022
Author: J.B.Pardiwala
Bench: J.B.Pardiwala
C/SCA/6283/2022 JUDGMENT DATED: 08/04/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 6283 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE J.B.PARDIWALA
and
HONOURABLE MS. JUSTICE NISHA M. THAKORE
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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M/S MANI LAXMI METAL AND ALLOYS PRIVATE LIMITED
Versus
STATE OF GUJARAT
==========================================================
Appearance:
MR ARPIT SINGHVI FOR MR SP MAJMUDAR(3456) for the Petitioner(s) No.
1
for the Respondent(s) No. 2,3,4,5,6
MR UTKARSH SHARMA AGP for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALA
and
HONOURABLE MS. JUSTICE NISHA M. THAKORE
Date : 08/04/2022
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA)
1. By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following relief:
Page 1 of 12 Downloaded on : Tue Apr 12 20:38:29 IST 2022C/SCA/6283/2022 JUDGMENT DATED: 08/04/2022 "A. YOUR LORDSHIPS may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order or directions, quashing and setting aside the impugned order dated 19.01.2022 passed by the respondent - Sales Tax authority (at ANNEXURE-H hereto) as well as Entry No.15744 mutated in the revenue record for the properties in question (at ANNEXURE-I hereto);
B. YOUR LORDSHIPS may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order or directions, directing the respondent Sub-Registrar to register the Deed of Conveyance in favour of the petitioner dated 11.03.2022 (at ANNEXURE-P hereto) and further pleased to direct the respondent - Mamlatdar to mutate entry of such registered sale deed in favour of the petitioner fro the properties in question;
C. During the pendency and final disposal of the present petition, YOUR LORDSHIPS may be pleased to stay further operation, implementation and execution of the impugned order dated 19.01.2022 passed by the respondent - Sales Tax authority (at ANNEXURE - H hereto) as well as Entry No.15744 mutated in the revenue record for the properties in question (at ANNEXURE - I hereto) and further be pleased to direct the respondent Sub-Registrar to register the Deed of Conveyance in favour of the petitioner dated 11.03.2022 (at ANNEXURE-P hereto);
D. Pass any such other and / or further orders that may be though just and proper in the facts and circumstances of the present case."
2. The subject matter of dispute in the present litigation is a parcel of land bearing Revenue Survey No.1521 (Old Revenue Survey No.785/1/p/1) situated at Mouje: Rajpur, Ta. Kadi, Dist:
Mehsana. This land was originally owned by M/s. Paras Bhavani Steel Private Limited. It appears that M/s. Paras Bhavani Steel Page 2 of 12 Downloaded on : Tue Apr 12 20:38:29 IST 2022 C/SCA/6283/2022 JUDGMENT DATED: 08/04/2022 Private Limited had availed financial facilities of a huge amount from the respondent No.2 - Bank of Baroda. The Company defaulted in repayment of the loan amount. In such circumstances, the bank proceeded to recover the loan amount from the Company by initiating the proceedings under the SARFAESI Act. Ultimately, the subject land was put to auction by the bank. In the said auction, the writ applicant participated and was declared as the highest bidder. The sale came to be finalized and a sale deed also came to be executed by the bank in favour of the writ applicant. The final sale certificate was also issued in favour of the writ applicant.
3. It is not in dispute that the charge over the subject land was created by way of a secured mortgage in favour of the bank wayback some time in 2012-13. Thus, the subject land was a secured assets in hands of the bank in accordance with the provisions of the SARFAESI Act.
4. The Company simultaneously incurred liability towards the VAT. In such circumstances, the Company was assessed for two F.Ys. 2016-17 and 2017-18. Two assessment orders came to be passed on 04.11.2021 and 13.11.2021 respectively. The subject land came to be attached by the respondent No.3, Sales Tax Officer vide order dated 19.01.2022.
5. The writ applicant is here before this Court as the Mamlatdar has declined to mutate the entry of the sale transaction in the Revenue Records. The Mamlatdar declined on the premise that the State has the first charge over the subject land as it has to recover a particular amount towards tax from the Company.
Page 3 of 12 Downloaded on : Tue Apr 12 20:38:29 IST 2022C/SCA/6283/2022 JUDGMENT DATED: 08/04/2022
6. We have heard Mr. Arpit Singhvi, the learned counsel appearing for the writ applicant and Mr. Utkarsh Sharma, the learned AGP appearing for the State respondents.
7. It also appears that although the Sub-Registrar has registered the sale deed yet the sale deed has not been released on account of the claim of the State over the subject land.
8. What came to be purchased by the writ applicant in the auction proceedings conducted by the Bank of Baroda was a secured asset under the provisions of the SARFAESI Act. In such circumstances, the State cannot claim preference over the subject property for the purpose of recovery of the dues towards VAT. It is not in dispute that the first charge was created in favour of the Bank of Baroda and the Bank in exercise of its powers under the SARFAESI Act, was entitled to auction the subject land and recover the requisite amount towards the dues incurred by the Company.
9. The pivotal issue raised in the present writ-application is no longer res-integra in view of the two pronouncements of this Court as under:-
(1) Bank of India vs. State of Gujarat and others [Special Civil Application No.13863 of 2014; decided on 21st January 2020].
(2) Kalupur Commercial Co-operative Bank Ltd. vs. State of Gujarat [Special Civil Application No.17891 of 2018; decided on 23rd September 2019].
10. We quote the relevant paragraphs of the judgment rendered Page 4 of 12 Downloaded on : Tue Apr 12 20:38:29 IST 2022 C/SCA/6283/2022 JUDGMENT DATED: 08/04/2022 in Kalupur Commercial Co-operative Bank Ltd. (supra) as under:
"54. In view of the aforesaid discussion, We have no hesitation in coming to the conclusion that the first priority over the secured assets shall be of the Bank and not of the State Government by virtue of Section 48 of the VAT Act, 2003.
55. In the result, this writ application succeeds and is hereby allowed. The impugned attachment notice dated 22.01.2018 (Annexure-A) and the impugned communication dated 19.04.2018 (Annexure-B) issued by the respondent No.2 is hereby quashed and set aside. It is hereby declared that the Bank has the first charge over the properties mortgaged from M/s. M.M. Traders by virtue of Section 26E of the SARFAESI Act.
56. It is further clarified that the excess, if any, shall be adjusted towards the dues of the State under the VAT Act. It is further declared that the respondents cannot proceed against the purchasers of the properties sold under the SARFAESI Act."
11. The view taken by this High Court in the above referred two decisions now stands fortified by a recent pronouncement of the Supreme Court in the case of Punjab National Bank Vs. Union of India and Others reported in 2022 SCC OnLine SC 227. We quote the relevant observations as under:-
40. Secondly, coming to the issue of priority of secured creditor's debt over that of the Excise Department, the High Court in the impugned judgment has held that "In view of the matter, the question of first charge or second charge over the properties would not arise." In this context, we are of the opinion that the High Court has misinterpreted the issue to state that the question of first charge or second charge over the properties, would not arise.
41. A Full Bench of the Madras High Court in the case of Page 5 of 12 Downloaded on : Tue Apr 12 20:38:29 IST 2022 C/SCA/6283/2022 JUDGMENT DATED: 08/04/2022 UTI Bank Ltd. Vs. Dy. Commissioner Central Excise [2006 SCC Online Madras 1182], while dealing with a similar issue, has held that:
"25. In the case on hand, the petitioner Bank which took possession of the property under Section 13 of the SARFAESI Act, being a special enactment, undoubtedly is a secured creditor. We have already referred to the provisions of the Central Excise Act and the Customs Act. They envisage procedures to be followed and how the amounts due to the Departments are to be recovered. There is no specific provision either in the Central Excise Act or the Customs Act, claiming "first charge" as provided in other enactments, which we have pointed out in earlier paragraphs.
26. In the light of the above discussion, we conclude, "(i) Generally, the dues to Government, i.e., tax, duties, etc. (Crown's debts) get priority over ordinary debts.
(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 others.
(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 Customs Act, we hold that the claim of secured creditor will prevail over Crown's debts."
In view of our above conclusion, the petitioner UTI Bank, being a secured creditor is entitled to have preference over the claim of the Deputy Commissioner of Central Excise, first respondent herein."
Page 6 of 12 Downloaded on : Tue Apr 12 20:38:29 IST 2022C/SCA/6283/2022 JUDGMENT DATED: 08/04/2022 (emphasis supplied)
42. This Court, while dismissing the Civil Appeal No.3627 of 2007 filed against the judgment of the Full Bench, vide order dated 12.09.2009 held as under:
"Having gone through the provisions of the Securitization Act, 2002, in light of the judgment of the Division Bench of this court in the case of Union of India vs Sicom Ltd. & Anr., reported in 2009 (1) SCALE 10, we find that under the provisions of the said 2002 Act, the appellants did not have any statutory first charge over the property secured by the respondent bank. In the circumstances, the Civil Appeal is dismissed with no order as to costs"
(emphasis supplied)
43. Hence the reasoning given by the High Court stands strong and has been affirmed by this Court.
44. This Court, in Dena Bank vs Bhikhabhai Prabhu Dass Parikh & Anr. [(2000) 5 SCC 694], wherein the question raised was whether the recovery of sales tax dues (amounting to Crown debt) shall have precedence over the right of the bank to proceed against the property of the borrowers mortgaged in favour of the bank, observed as under:
"10. However, the Crowns preferential right of recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right of recovery of its debts over a mortgagee or pledgee of goods or a Secured Creditor."
(emphasis supplied)
45. Further, in Central Bank of India Vs. Siriguppa Sugars & Chemicals Ltd. & Ors. [(2007) 8 SCC 353], while adjudicating a similar matter, this Court has held as under:
"18. Thus, going by the principles governing the matter, propounded by this Court there cannot be any Page 7 of 12 Downloaded on : Tue Apr 12 20:38:29 IST 2022 C/SCA/6283/2022 JUDGMENT DATED: 08/04/2022 doubt that the rights of the appellant-bank over the pawned sugar had precedence over the claims of the Cane Commissioner and that of the workmen. The High Court was, therefore, in error in passing an interim order to pay parts of the proceeds to the Cane Commissioner and to the Labour Commissioner for disbursal to the cane growers and to the employees. There is no dispute that the sugar was pledged with the appellant bank for securing a loan of the first respondent and the loan had not been repaid. The goods were forcibly taken possession of at the instance of the revenue recovery authority from the custody of the pawnee, the appellant-bank. In view of the fact that the goods were validly pawned to the appellant bank, the rights of the appellant-bank as pawnee cannot be affected by the orders of the Cane Commissioner or the demands made by him or the demands made on behalf of the workmen. Both the Cane Commissioner and the workmen in the absence of a liquidation, stand only as unsecured creditors and their rights cannot prevail over the rights of the pawnee of the goods."
(emphasis supplied)
46. The Bombay High Court in Krishna Lifestyle Technologies Ltd. Vs. Union of India & Ors. [2008 SCC Online Bombay 137], wherein the issue for consideration was "whether tax dues recoverable under the provisions of The Central Excise Act, 1944 have priority of claim over the claim of secured creditors under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002" held that:
"Considering the language of Section 35 and the decided case law, in our opinion it would be of no effect, as the provisions of SARFAESI Act override the provisions of the Central Sales Tax Act and as such the priority given to a secured creditor would override Crown dues or the State dues. In so far as the SARFAESI Act is concerned a Full Bench of the Madras High Court in UTI Bank Ltd. v. Deputy Commissioner of C. Excise, Chennai-II has examined the issue in depth. The Court was pleased to hold that Page 8 of 12 Downloaded on : Tue Apr 12 20:38:29 IST 2022 C/SCA/6283/2022 JUDGMENT DATED: 08/04/2022 tax dues under the Customs Act and Central Excise Act, do not have priority of claim over the dues of a secured creditor as there is no specific provision either in the Central Excise Act or the Customs Act giving those dues first charge, and that the claims of the secured creditors will prevail over the claims of the State. Considering the law declared by the Apex Court in the matter of priority of state debts as already discussed and the provision of Section-35 of SARFAESI Act we are in respectful agreement with the view taken by the Madras High Court."
(emphasis supplied)
47. An SLP (No.12462/2008) against the above judgement of the Bombay High Court stands dismissed by this Court on 17.07.2009 by relying upon the judgement in the matter of Union of India vs SICOM Ltd. & Anr. Reported in [(2009) 2 SCC 121], wherein the question involved was "Whether realization of the duty under the Central Excise Act will have priority over the secured debts in terms of the State Financial Corporation Act, 1951"
and this Court held as under:
"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 or the king; debts which a prerogative entitles the Crown to claim priority for before all other creditors. See Advanced Law Lexicon by P. Ramanatha Aiyear (3rd Edn.) p.1147]. Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one.Page 9 of 12 Downloaded on : Tue Apr 12 20:38:29 IST 2022
C/SCA/6283/2022 JUDGMENT DATED: 08/04/2022 (emphasis supplied)
48. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the Appellant, on the second issue, hold merit. Evidently, prior to insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, there was no provision in the Act of 1944 inter alia, providing for First Charge on the property of the Assessee or any person under the Act of 1944. Therefore, in the event like in the present case, where the land, building, plant machinery, etc. have been mortgaged/hypothecated to a secured creditor, having regard to the provisions contained in section 2(zc) to (zf) of SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI Act, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002.
49. Thus, as has been authoritatively established by the aforementioned cases in general, and Union of India vs SICOM Ltd.(supra) in particular, the provisions contained in the SARFAESI Act, 2002, even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f.08.04.2011, will have an overriding effect on the provisions of the Act of 1944.
50. Moreover, the submission that the validity of the confiscation order cannot be called into question merely on account of the Appellant being a secured creditor is misplaced and irrelevant to the issue at hand. The contention that a confiscation order cannot be quashed merely because a security interest is created in respect of the very same property is not worthy of acceptance. However, what is required to be appreciated is that, in the present case, the confiscation order is not being quashed merely because a security interest is created in respect of the very same property. On the contrary, the confiscation orders, in the present case, deserve to be quashed Page 10 of 12 Downloaded on : Tue Apr 12 20:38:29 IST 2022 C/SCA/6283/2022 JUDGMENT DATED: 08/04/2022 because the confiscation orders themselves lack any statutory backing, as they were rooted in a provision that stood omitted on the day of the passing of the orders. Hence, it is this inherent defect in the confiscation orders that paves way for its quashing and not merely the fact that a security interest is created in respect of the very same property that the confiscation orders dealt with.
51. Further, the contention that in the present case, the confiscation proceedings were initiated almost 8-9 years prior to the charge being created in respect of the very same properties in favour of the bank is also inconsequential. The fact that the charge has been created after some time period has lapsed post the initiation of the confiscation proceedings, will not provide legitimacy to a confiscation order that is not rooted in any valid and existing statutory provision.
51. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173Q(2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Statute books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e.the Appellant-bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944.
52. Accordingly, the Appeal is Allowed and the confiscation orders dated 26.03.2007 and 29.03.2007, passed by the Commissioner Customs and Central Excise, Ghaziabad, are quashed."
12. In view of the aforesaid, this writ application succeeds and is hereby allowed. It is hereby declared that the State cannot claim any first charge over the subject land by virtue of Section 48 of the GVAT Act, 2003. The impugned order dated 19.01.2022 passed Page 11 of 12 Downloaded on : Tue Apr 12 20:38:29 IST 2022 C/SCA/6283/2022 JUDGMENT DATED: 08/04/2022 by the Sales Tax Authority, Annexure H as well as the entry No. 15774 mutated in the revenue records with respect to the subject land is hereby quashed and set aside.
The Sub-Registrar is directed to release the deed of conveyance in favour of the writ applicant with respect to the subject land at the earliest.
With the aforesaid, this writ application stands disposed of. Direct service is permitted.
(J. B. PARDIWALA, J) (NISHA M. THAKORE,J) Y.N. VYAS Page 12 of 12 Downloaded on : Tue Apr 12 20:38:29 IST 2022