UCO Bank vs Commercial Tax Officer And Ors.

S.N.H. Zaidi, J

This appeal has been directed against the judgment and order dated 21.1.2011 of the Presiding Officer of Debts Recovery Tribunal (DRT), Jaipur passed in Appeal No. 35/2004, Commercial Tax Officer v. UCO Bank & Others, whereby order dated 25.3.2004 of the Recovery Officer (RO) passed on the application of respondent No. 1 was set aside and the RO was directed to make payment of the dues of the Commercial Tax Department, State of Rajasthan out of the proceeds received from the sale of the properties of the CD firm, as was claimed by the respondent No. 1 in the application moved before the RO. The facts giving rise to this appeal, in brief, are that the appellant Bank had advanced certain loan facilities to M/s. Shri Mahesh Metal Works, a partnership firm, of which respondent No. 2 was a partner, on hypothecation and mortgage of certain properties. As me borrower firm failed to repay the loan, the appellant filed a suit for the recovery of the outstanding amount against the said firm, its partners and mortgagers before the District Judge, Ajmer, which was later transferred to the DRT, Jaipur on coming into force of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, the RDDBFI Act) and was registered as O.A. No. 205/1996. During the pendency of the O.A., certain properties of the borrower firm lying at its immovable property were sold by auction for a sum of Rs. 16,42,917/-. On 31.7.1996 respondent No. 1 filed an application before the DRT claiming first charge of the Commercial Tax Department of the State of Rajasthan over the aforesaid amount under Section 11-AAAA of the Rajasthan Sales Tax Act, 1954, Section 50 of the Rajasthan Sales Tax Act, 1994 (for short, the RST Act) and Section 9(2) of the Central Sales Tax Act, 1965 (for short, the CST Act) on the ground that an amount of Rs. 50,75,450.08 was outstanding against the borrower firm as per tax assessment orders. The DRT, however, without making any order on that application disposed of the O.A. vide order dated 8.6.2000 and allowed it for the recovery of Rs. 95,52,995/- along with pendente lite and future interest and cost with the observation that the realised amount of Rs. 16,42,917/- would be adjusted against the decretal amount. A recovery certificate (RC) was accordingly issued and the RO initiated proceedings of RC No. 154/2000 for the recovery of the awarded amount. The respondent No. 1 again filed a similar application before fee RO on 25.2.2002 in the RC proceedings for the payment of the entire auction money claiming first charge over it The CH Bank disputed the claim of the respondent and the RO dismissed that application vide order dated 25.3.2004. Feeling aggrieved with that order, respondent No. 1 filed appeal (No. 35/2004) under Section 30 of the RDDBFI Act against it before the DRT along with an application for condonation of delay. The DRT allowed the condonation application as well as the appeal and set aside the RO's order with the direction, as stated above. The CH Bank, feeling aggrieved with that order, has filed this appeal.

I have heard Mr. Rakesh Tiku, learned Senior Advocate along with Mr. Hemant Gupta for the appellant and Mr. Vinay Sharma, who was representing Mr. Milind Kumar, Counsel for the respondent No. 1 and perused the record. Both the parties have also filed their written submissions.

Mr. Tiku, has contended that the DRT, while exercising appellate jurisdiction under Section 30 of the RDDBFI Act, can only see whether or not the order under appeal is suffering with any illegality or infirmity and it cannot assume the original jurisdiction under Section 19 of the said Act or can go behind the order passed in the O.A. According to him the DRT had erred in ordering the RO to pay the sale proceeds received from the sale of the properties to respondent No. 1 as per his claim made in the application as it is contrary to the order passed on the O.A. whereby the amount realised was ordered to be adjusted against the amount awarded to the appellant Bank.

It has further been contended that the Bank had taken all the pains for the recovery of its outstanding dues against the borrower firm and the RC was issued as a consequence thereof, whereas respondent No. 1 made no efforts to recover its dues from its dealer and only waited to see for the outcome of the appellant's proceedings and when certain amount was realised by sale of the properties of the borrower firm, which was appropriated by the Bank and no longer remained the property of the firm, then he claimed the priority of charge over that amount, which is not tenable as he had no right to get such amount which had already been appropriated by the Bank. It has also been contended that the DRT had specifically ordered that the realised amount of Rs. 16,42,917/- would be adjusted towards the payable amount and since it was accordingly appropriated, therefore, it could not be ordered to be refunded to respondent No. 1.

The appellant Counsel has also submitted that in none of the judicial authorities relied upon by respondent No. 1, it has been laid down that the Bank had to refund the amount which it had recovered and appropriated after the issuance of the RC and as such these authorities do not apply to the facts and circumstances of this case and are distinguishable.

Pointing out that respondent No. 1 had initially joined the proceedings of the O.A. by filing application dated 31.7.1996 for the recovery of the amount, it has been contended that since the DRT did not give any relief to him and allowed the O.A. vide order dated 8.6.2000 and the respondent No. 1 abandoned those proceedings and withdrew from the litigation by not challenging the said order, therefore, it had attained finality qua him and as such he was precluded from filing any fresh application with reference to the same cause of action in view of Order 23, Rule 1, CPC. The learned Counsel also contended that the DRT, while exercising appellate jurisdiction could not extend the relief to the respondent No. 1 which it had rejected in its original jurisdiction. He further contended that the RO was bound under the law to recover the amount of the RC without getting into the merit, justification or wisdom of the DRT in issuing the RC.

Mr. Vinay Sharma, the learned Counsel for the respondent No. 1, has contended that respondent No. 1 had filed the application for the payment of the realised amount claiming priority of charge of the Commercial Tax over it, but the DRT, while disposing of the OA by order dated 8.6.2000, did not take up or dispose of that application and it remained pending and since he was not a party to the OA, the order dated 8.6.2000 it was not binding on him and as such he was not required to challenge that order. He has further contended that when the RO proceeded in the RC to recover the amount from the borrower firm, against whom liability for payment of tax under the RST Act and CST Act was outstanding, the respondent No. 1 again moved an application before him with the same prayer, which was rejected by the RO only on the ground that as per Section 34 of the RDDBFI Act, the provisions of the Act have overriding effect over all other laws. Mr. Sharma has pointed out that the appellant has not supported the above view of the RO in its submissions before this Tribunal, which shows that the appellant also does not subscribe to the said reasoning. He has also submitted that in the cases of State Bank of Bikaner and Jaipur v. National Iron and Steel Rolling Corporation and Others, (1995) 96 STC 612 and Central Bank of India v. State of Kerala, I (2009) BC 705 (SC) : II (2009) SLT 247 : (2009) 4 SCC 94, the Hon'ble Supreme Court has given precedence to the charge created by operation of local sales tax laws over a charge by way of an existing mortgage or of a secured creditor and in IFCI Ltd. v. Commercial Tax Officer and Another (Writ Petition (C) No. 337/2011 of Delhi High Court, decided on 3.6.2011) the Hon'ble Delhi High Court has laid down that not only assessment and re-assessment but also mode of recovery and the principle of priority of claim as incorporated under Section 50 of the RST Act would be available for collection of Central Sales Tax within the State of Rajasthan in view of the provisions of Section 9(2) of the CST Act. He has pointed out that the respondent No. 1, while basing his claim of first charge over the realised amount before the RO, had also relied upon the aforesaid judgment of the Apex Court in State Bank of Bikaner and Jaipur v. National Iron and Steel Rolling Corporation and Others (supra) but the learned RO without properly appreciating the dictum of the said case has wrongly rejected the application of the respondent No. 1 only on the ground of overriding effect of the provisions of the RDDBFI Act over other laws under Section 34 of the said Act. According to the learned Counsel, since Section 34 of the RDDBFI Act does not create any charge over any property in favour of anyone but only gives overriding effect to its provisions, the DRT has rightly quashed the order of the RO.

Mr. Sharma has further contended that the lower Appellate Tribunal has rightly answered the question posed by it in the appeal by holding that in the light of Section 50 of the RST Act and Section 9(2) of the CST Act, the dues of Commercial Tax of the State against the assesses firm would have priority of charge over the dues of the secured creditor Bank in view of the judgments of the Hon'ble Apex Court in the aforesaid cases of Central Bank of India v. State of Kerala and Ors. (supra) and State Bank of Bikaner and Jaipur v. National Iron and Steel Rolling Corporation and Others (supra).

I have given my thoughtful consideration to the submissions of the parties' Counsel. The appellant's contention that respondent No. 1 cannot claim any amount as he did nothing for the recovery of his dues and only waited to see for the outcome of the efforts of the Bank in recovering its dues and when he had seen that the Bank had realised some amount then he approached the RO to claim the realised money, has no force. Respondent No. 1 had not only raised the claim before the RO but had also filed an application before the DRT in 1996 claiming the first charge upon the realised amount on the basis of the provisions of the RST Act and CST Act as well as of the judicial authority of the Hon'ble Supreme Court and if the DRT did not take up that application or dispose it of before finally disposing of the OA, he cannot be held responsible for the same. If the law entitles the respondent No. 1 to have priority of charge over the property of the dealer, the same cannot be denied only on the ground that he did not make any effort for the recovery of the dues from the dealer/assessee.

Further contention of the appellant that since respondent No. 1 did not challenge the order dated 8.6.2000 passed in the O.A. which had attained finality, therefore, he could not make any claim qua the realised amount has also no legs to stand. Respondent No. 1 was not a party to the O.A. and had moved the application in it as an intervenor but the DRT without considering and making any order qua that application finally disposed of the O.A. on 8.6.2000. In view of these circumstances, the application of respondent No. 1 cannot be said or deemed to have been rejected in effect by the said order dated 8.6.2000, which can also not be said to have attained finality qua respondent No. 1, as it can attain such status only qua the parties to the proceedings.

Another contention of the appellant that since the amount realised by the auction sale of the properties of the borrower firm had already been appropriated by the appellant Bank and no longer remained the property of the dealer, therefore, respondent No. 1 couldn't claim any charge over it, is also devoid of any force, because there is nothing on record to show that the DRT had allowed the appellant to appropriate the amount after it was realised during the pendency of the OA. The appellant could not have appropriated that amount prior to the determination of its alleged debt due against the borrower firm, which was determined only by order dated 8.6.2000. It is pertinent to note that since the application claiming first charge over the realised amount was already pending before the DRT, which remained undecided even after the order dated 8.6.2000 allowing the adjustment of the aforesaid amount towards the principal and interest. Thus, it cannot be accepted as the appropriation of the said amount by the Bank.

In my view, the lower Appellate Tribunal has rightly observed that the main controversy in this matter relates to the question whether in the light of Section 50 of the RST Act and Section 9(2) of the CST Act respondent No. 1 can claim first charge over the property of the borrower/assessee firm. So far as this controversy is concerned, reproduction of the relevant provisions of the statutes would be appropriate:

Rajasthan Sales Tax Act, 1954

11-AAAA. Liability under this Act to be the first charge--Notwithstanding anything to the contrary contained in any law for the time being in force, any amount of tax, penalty, interest and any other sum, if any, payable by a dealer and other person under this Act. shall be the first charge on the property of the dealer, or such person.

Rajasthan Sales Tax Act, 1994

Liability under this Act to be the first charge--Notwithstanding anything to the contrary contained in any law for the time being in force, any amount of tax and any other sum payable by a dealer or any other person under this Act, shall be the first charge on the property of such dealer or person.

Central Sales Tax Act, 1965

Levy and Collection of Tax and Penalties--

(1) XXXX

(2) Subject to the other provisions of this Act and the rules made thereunder, the authorities for the time being empowered to assess, re-assess, collect and enforce payment of any tax under general sales tax law of the appropriate State shall, on behalf of the Government of India, assess, re-assess, collect and enforce payment of tax, including any interest or penalty, payable by a dealer under this Act as if the tax or interest or penalty payable by such a dealer under this Act is a tax or interest or penalty payable under general sales tax law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including previsions relating to returns, provisional assessment, advance payment of tax, registration of the transferee of any business, imposition of the tax liability of a person carrying on business on the transferee or, or successor to, such business, transfer of liability of any firm or Hindu undivided family to pay tax in the event of the dissolution of such firm or partition of such family, recovery of tax from third parties, appeals, reviews, revisions, references, refunds, rebates, penalties, charging or payment of interest, compounding of offences and treatment of documents furnished by a dealer as confidential, shall apply accordingly:

Provided that if in any State or part thereof there is no general sales tax law in force, the Central Government may, by rules made in this behalf make necessary provisions for all or any of the matters specified in this sub-section.

Perusal of the above provisions would reveal that Section 50 of the RST Act, which is pari materia to Section 11-AAAA of the Rajasthan Sales Tax Act, 1954 provides that the amount of tax payable by a dealer shall be the first charge on the property of the dealer, notwithstanding anything to the contrary contained in any law for the time being in force. In IPCI Ltd. v. Commercial Tax Officer and Another (supra), wherein the facts and circumstances were almost similar with the present appeal, a Division Bench of the Hon'ble Delhi High Court had considered the aforesaid controversy at length in the light of the law laid down by the Hon'ble Supreme Court in Central Bank v. State of Kerala and Others (supra) as well as in State Bank of Bikaner and Jaipur v. National Iron and Steel Rolling Corporation and Others (supra) and other cases. Though in that case, the creditor (IFCI) had conceded the right of first appropriation of the Commercial Tax Department of the State of Rajasthan in view of Section 50 of the RST Act insofar as the its dues under the RST Act were concerned, but had disputed the view of this Tribunal qua the exercise of such right under the CST Act. The High Court, while observing that a priority of charge has been created under the CST Act and reading Section 9(2) of the CST Act coupled with the right of first appropriation conferred under Section 50 of the RST Act, has held that the priority given under Section 50 of the RST Act to the recovery of sales tax will apply with equal force to the recovery of central sales tax. In view of the specific and clear findings of the Apex Court as well as of the High Court on the point in issue, the contention of the appellant that the said cases do not apply to the present case cannot be accepted. In my view, the ratio of the aforementioned cases fully apply to the facts and circumstances of the case and in view of this, the order impugned of the lower Appellate Tribunal cannot be said to be suffering with any infirmity or illegality.

I also do not find any force in the contention of the appellant that by making impugned order the lower Appellate Tribunal had assumed the jurisdiction under Section 19 of the RDDBFI Act. The amount of debt due to the appellant as well as the liability of the borrower firm and its partners for the payment of the awarded amount has not been interfered with by the order impugned. It has only stated about the payment of the amount realized by auction sale of the property of the borrower firm, which was indisputably a dealer against whom the taxes, as per the assessment orders made under the RST Act as well as under the CST Act were due, to the Commercial Tax Department of the State of Rajasthan. The direction in the impugned order to the RO to make payment of the said amount and in case of the said amount having been paid to the CH Bank then to receive it back from it and to pay to the appellant (respondent No. 1 herein) also does not suffer with any illegality so as to warrant any interference in it.

In view of above discussion, the appeal being devoid of any force is liable to be dismissed and is accordingly dismissed without there being any order as to cost. Copy of this order be furnished to the parties as per law and one copy be sent to the concerned DRT forthwith.