Sec. 26 of VAT Act can't be read as part HGST Act, HC

Facts in Brief:

1. The petitioner-Bank has approached this Court with a prayer for quashing attachment order passed by the Collector-cum- Deputy Excise and Taxation Commissioner, Kaithal, seeking to recover arrears of sales tax under the Haryana General Sales Tax Act, 1973 or Central Sales Tax Act, 1956, in respect of M/s Jiwan Rice and General Mill and M/s Jiwan Rice International (P) Ltd., Kaithal.

2. A further direction has also been sought restraining respondent No. 2 to sell the property pursuant to attachment order, which is claimed to be mortgaged with the petitioner-Bank. The petitioner-Bank has claimed to be a secured creditor and a charge holder. Consequently, the relief of quashing order of sale of the mortgaged property dated 20.3.2009 has also been sought. As an interim measure, the petitioner had also prayed for staying the auction fixed on 20.3.2009.

3. When the matter came up for motion hearing on 19.3.2009, a Division Bench, while issuing notice of motion, directed that the auction may be held but the same may not be confirmed without specific order in that regard from this Court.

On appeal HC held as under,

4. In a recent judgment rendered in the case of Central Bank of India v. State of Kerala, (2009) 4 SCC 94, it has been laid down that priorities of statutory first charge under the Central legislation on the one hand and the State legislation on the other would not be subservient to the dues of the financial institution even though statutory first charge has not been created in their favour. However, no detailed discussion in respect of the aforesaid judgment would be necessary because in the facts of the present case it is evident that under the HGST Act no charge by the State has been created on the property and assets of respondent No. 3. Therefore, in the absence of any provision creating charge for recovery of the Sales Tax by the State, the mortgage charge created by the petitioner-Bank would acquire precedence.

5. Respondent Nos. 1 and 2 made assessment in respect of various assessment years like 1988-89, 1993-94, 1998-99, 1999-2000 & 2002-03 under the HGST Act and created demand, there has been no provision in the HGST Act creating charge on account of non-payment of assessed/demanded amount under the HGST Act. Therefore, no recovery could be effected although the order of assessment was passed on 10.7.1990.

6. However, when the petitioner-bank proceeded with the option available under Section 13 of the Securitization Act, the respondent Nos.1 and 2 issued a warrant of attachment on 24.6.2004 and auction of the attached property was ordered to be held by the Commissioner exercising power under Section 5 of the Punjab Land Revenue Act, 1887 for 20.3.2009. The rights of the bank to effect recovery became completed and perfected itself on 23.03.2004 and 28.10.2004 when there was no charge created on the mortgaged property by respondents No.1 & 2. Therefore, it cannot be held that the respondents No.1 & 2 are entitled to priority for recovery of its dues over the mortgage charges created by the petitioner-Bank in the absence of any statutory provision in the HGST Act. There was, thus, lacuna in HGST Act.

7. The reliance of the respondents No.1 & 2 on Section 26 read with Section 61 of the VAT Act is wholly misplaced. Section 26 of the VAT Act is extracted below for ready reference:

"Section 26. "Any amount due under this Act including the tax admitted to be due according to the returns filed, which remains unpaid after the last date specified for payment, shall be the first charge on the property of the defaulter and shall be recoverable from him as if the same were arrears of land revenue."

8. A perusal of the aforesaid section shows that any amount due under the VAT Act including the tax admitted to be due as before returns, which has remained unpaid after the last date specified for payment has to be considered first charge on the property of the defaulter which could be recovered as arrears of loan revenue. The VAT Act has repealed the HGST Act. The liability of respondent No.3 to pay tax has arisen only under the HGST Act. There were no dues of tax payable under the VAT Act.

9. The reliance of the State of Haryana on Section 61 of the VAT Act is also wholly unwarranted. The aforesaid section reads as under:

"The Haryana General Sales Tax Act, 1973(20 of 1973), is hereby repealed:-

10. Provided that such repeal shall not-

a) Affect the previous operation of the Act so repealed or anything duly done or suffered thereunder; or

b) Affect any right, title, privilege, obligation or liability acquired, accrued or incurred under the said Act; or

c) affect any act done or any action taken (including any appointment, notification, notice, order, rule, form, regulation, certificate) in the exercise of any power conferred by or under the said act; and any such act done or any action taken in the exercise of the powers conferred by or under the said act shall be deemed to have been done or taken in the exercise of the powers conferred by or under the said act as if this Act were in force on the date on which such Act was done or action taken; and all arrears of tax and other amount due at the commencement of this Act may be recovered as if the same had accrued under this Act.} Sub Section (2)......"

11. A perusal of the aforesaid provision shows that merely because HGST Act has been repealed, it was not to affect the provisions of the repealed Act or anything duly done or suffered thereunder. The repeal was also not to affect any title, liability incurred under that Act nor it was to affect any act done. All arrears of tax and other amount due at the commencement of VAT Act could be recovered as if the same had accrued under the VAT Act. It is not disputed that there is no provision in the HGST Act corresponding to Section 26 of the VAT Act. Therefore, Section 26 of VAT Act cannot be read as part of HGST Act because Section 61 is aimed at asserting onlthose rights which have accrued under the HGST Act. There is no charge created on a property as has been created by Section 26 of VAT Act. Therefore, by no stretch of imagination, it could be assumed that the arrears of tax under the HGST Act could be recovered by creating a charge over the mortgaged property belonging to respondent No.3, therefore, we are of the view that the argument advanced by the learned State counsel is wholly unwarranted and does not commend itself to us. 

Case Reference - The Punjab National Bank vs The State Of Haryana And Others.